I listened to the Costco Wholesale Corporation (NASDAQ: COST) 4th quarter and full year 2025 earnings call on September 25th. The call was hosted by Ron Vachris (President & CEO) and Gary Millerchip (EVP & CFO).
GAAP Financials (all in $ USD)
4th Quarter Fiscal 2025
For Q4, net sales were $ 84.4 billion, up + 8% vs. last year.
Comp warehouse sales grew + 5.7% during the same time. By market, the US business was up +5.1%, Canada was up + 6.3%, and other international was up + 8.6%. E-commerce was up +13.6%.
Membership fees came in at $ 1.72 billion for Q4, up + 14% vs. last year. About half of the increase came from membership fee increases in September 2024 in both the US & Canadian markets. The other half of this growth number was a result of a combination of increase in number of members & upgrades from existing members from Goldstar to Executive plans. About half of new COSTCO members are less than 40 years of age.
Foreign exchange positively impacted sales by + .2% while gas price deflation negatively impacted sales by – .9%.
For Q4, traffic or shopping frequency was up + 3.7% world wide, while average transaction value or average ticket was up + 1.9% world wide.
Gasoline volume grew by low single digits in the quarter but comp sales were negative by mid-high single digits as the average price per gallon dropped vs. last year. Gas volume grew due to a combination of the addition of new gas stations, expansion of existing gas stations and longer hours of operation.
The retailer indicated inflation was up low to mid single digits in the quarter. Fresh & food and sundries categories had similar inflation to last year while non-food categories had higher inflation due to tariffs.
Both fresh and non-food categories were up high single digits in comp warehouse sales for the quarter. Food & sundries categories were up mid-to-high single digits. Ancillary businesses such as pharmacy, optical & hearing aids all had a strong quarter.
Specifically, COSTCO saw double digit growth in the following categories in Q4: gold & jewelry, toys, men’s apparel, consumer electronics, gift cards & more.
Digital traffic was up +27% in Q4. Within digital sales, the following categories grew sales double digit vs. last year: gold & jewelry, housewares, apparel, tires, sporting goods, majors, small electrics and lawn & garden.
Gross margin rate was 11.13% for Q4, up + 13 bps. If we take out gas price deflation, “core” GM rate was up + 3 bps. Fresh, food & sundries and non-food all enjoyed margin rate gains as supply chain cost efficiencies, lower shrink & higher Kirkland Signature (KS) mix helped. These gains were partially offset by a LIFO charge on more expensive inventory of $ 43 million in the quarter, which was a headwind of -.6 bps.
SG&A came in at $ 7.8 billion or up + 10%. This represents 9.21% of net sales, up +17 bps. 15bps of this increase was due to operations challenges including higher employee wages and increases in general liability costs for the quarter.
Operating income for the quarter was $ 3.34 billion, up + 9.8%. This represents 4% of sales, flat to Q4/24.
Q4 net income was $ 2.61 billion, up + 11% year/year. This represents 3.1% of net sales, +10 bps to Q4/24.
Income tax rate for Q4 was 25.6% vs. 24.4% last year where there was a one-time tax gain.
Diluted net income per common share was $ 5.87, up + 11% to last year.
CAPEX for Q4 was $1.97 billion.
Fiscal Year 2025
For fiscal year 2025 net sales was approximately $ 270 billion, up +8% year/year.
Comp warehouse sales were up + 5.9 %. By Market, the US was up + 6.2%, Canada was up + 5%, and other international was up + 4.8%. E-commerce sales were up + 15.6 %.
Membership fees for fiscal 2025 were $ 5.32 billion, up + 10.4% to fiscal 2024.
Gross margin rate for the year came in at 11.1 % which was up +10 bps to 2024.
SG&A for fiscal 2025 was $ 25 billion up + 9.5%. This represents 9.2% of net sales, up from 9.14% of net sales in 2024.
Operating income for the year was $ 10.38 billion, up + 11.8% to 2024. This represents 3.85% of net sales, up from 3.7% of net sales in 2024.
Net income was $ 8.099 billion, up + 10% over last year. This represents 3% of net sales, about flat to 2024.
Diluted net income per common share for the year was $ 18.21, up + 10% to 2024.
Cash & cash equivalents at the end of the quarter/year were $ 14.16 billion, up + 43%. Inventory is $ 18.12 billion, down – 3% to last year. Net cash generated from operating activities for the year was $ 13.3 billion, up + 17.6% over 2024. Cash dividend payments dropped significantly in 2025 from $ 2.18 billion this year vs. $ 9.04 billion in 2024.
Full year 2025 CAPEX came in at $ 5.5 billion. This represented an increase in CAPEX spend, which traditionally rises at the same rate as sales. 2025 CAPEX increased due to expanded new warehouses, remodels as well as land purchases for fiscal 2026 new warehouses. Capital was also spent on investments in COSTCO’s hot dog factory and coffee roasting facilities.
Management Commentary
Members
COSTCO has 81 million members as of the end of fiscal 2025 which has grown by + 6.3% vs. last year. The retailer has 145.2 million card holders which grew + 6.1 % year over year as well. COSTCO had a 93.2% member renewal rate in the the US & Canadian markets and a 89.8 % member renewal rate world wide. There has been a slight decrease in renewal rate as more members are signing up online and these members have a lower renewal rate than other members. To counter this decline, COSTCO is focusing on auto-renewal and member renewal communications.
Since June 30th, COSTCO Executive members have had additional hours to shop at warehouses in the US. COSTCO estimates this has added about + 1% to US warehouse sales since this change was made. The retailer has also added a $ 10 per month credit for Executive members if they spend over $ 150 from COSTCO using Instacart. Since these two Executive member benefits have been rolled out, the retailer has seen “meaningful” membership upgrades from Goldstar membership to Executive membership. COSTCO has 38.7 million Executive members, an increase of +9.3% year/year. Executive members represent 47.7% of all paid members and 74.2% of world wide sales.
E-commerce
COSTCO has grown market-share on “big and bulky” items bought online. The retailer offers a delivery service that not only installs the new item but takes away the old item for disposal. Costco.com personalizes it’s offers based on customer segment, including using messaging to upgrade members to more premium status (ie. Executive).
Warehouse Expansion
COSTCO opened 10 new warehouses in the 4th quarter. These included 1 relocation in Canada, the 20th warehouse in Korea, the 2nd warehouse in Sweden and 5 net new warehouses in the US. The retailer opened 24 net new warehouses in fiscal 2025 and now has 914 stores world wide. Costco plans on opening 35 warehouses in fiscal 2026 of which 5 are relocations. The retailer sees strong expansion opportunities in both domestic and international in the future.
Kirkland Signature
It is the 35th anniversary of the retailer’s Kirkland Signature (KS) private label. KS continues to increase it’s penetration of sales mix and helps drive value for members while mitigating the risk of increased tariffs through sourcing flexibility. KS typically offers members a 15-20% value benefit vs. national brands with equal or better quality. COSTCO introduced more than 30 KS items in the 4th quarter.
COSTCO has made an effort to source more KS products from the same country the item will be sold in. This helps eliminate tariffs and also lower carbon emissions.
Tariff Mitigation
COSTCO has used several techniques to mitigate tariff increases in costs. These include: moving the country of production for items, changing assortments, increasing mix of KS, consolidating buys globally & increasing domestic sourcing in country of sale. The retailer’s overall goal is to “increase member value compared to the market”. As a last resort, the retailer indicated they would raise prices but would be the last retailer in the market to do so on a given item.
Other Commentary
It is the 40th anniversary of the COSTCO $ 1.50 hot dog and soda special. In fiscal 2025, the retailer sold 245 million hotdog & soda combos. They also sold 157 million rotisserie chickens.
COSTCO has enhanced it’s US checkout process. Now, for small & medium sized transactions, staff will scan items while customers wait in line so that when they get to the cashier, they only have to pay and avoid taking every item out of the shopping cart.
The retailer has also invested in their technology roadmap. Data augmentation helps members with digital search effectiveness on costco.com and on the retailers app. The tech also keeps bots out to enhance speed.
COSTCO thanks its operators for managing through higher employee wages & longer hours through increases in efficiency & productivity. Their efforts have minimized the negative impact these initiatives have had to SG & A costs. COSTCO’s average US warehouse associate’s wage is now $ 31/hour.
COSTCO claims that this is the 15th consecutive quarter of increased member experience satisfaction scores.
Holiday 2025
The merchant team evaluated fall buys and lowered exposure to discretionary items such as Christmas trees and decor to make more room for newer items such as back yard sheds, saunas, furniture and other high-ticket goods. These are items not sold during holiday in the past.
Management Forecast
The management team indicates that despite a challenging macro-economic environment, they plan on growing market-share by offering members exciting, high quality items at great value. They did not outline a fiscal 2026 financial forecast at this time.
Share Price Dynamics
COSTCO stock closed September 25th at $ 942.20 per share. Earnings were released after the NASDAQ was closed for the day. The stock opened on September 26th at $ 917.94, down – 2.3%. Over the last month, the stock has been down – 3.6%. Over the last year the stock is up + 3.4% and up + 167.4% over the last 5 years. One of the potential concerns for COSTCO investors is that the companies price/earning (P/E) ratio is very high at over 50x. This is significantly higher than Walmart at 39x or Target at 10.2x.
My Commentary
Costco runs a very successful business with a very unique business model. It takes low margin and “make money on volume” to the extreme. One fun fact that us retail analysts like to discuss is how COSTCO’s membership fees represent about 2/3 of the retailers net income. Costco has posted impressive numbers based on their combination of value, quality and trust. Their e-commerce business is doing well and enhancements to the Executive membership program are encouraging. When I ask AI to summarize social media comments about the retailer, the results are overwhelmingly positive. Some flack about crowds and overspending appear but these comments are in the minority. Although the stock is expensive, relative to earnings, COSTCO keeps delivering.
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