TLDR
- Costco’s Q2 earnings of $4.02 per share missed analyst expectations of $4.09-$4.11
- Revenue of $63.7 billion topped forecasts, with same-store sales growth of 6.8%
- Stock fell after the report, trading down 1.4% in after-hours trading
- Membership fees increased by 7.4% year-over-year to $1.19 billion
- CEO Ron Vachris stated it’s “difficult to predict” the full impact of new tariffs, though Costco has relatively low exposure with only 1/3 of US sales from imports
Costco Wholesale reported its fiscal second-quarter earnings on Thursday, falling short of Wall Street’s profit expectations while delivering better-than-anticipated revenue. The warehouse retailer saw its stock decline following the report.
The company posted earnings of $4.02 per share for the quarter ending in February. This missed analyst estimates of $4.09 to $4.11 per share.
Foreign currency exchange impacts hurt earnings by about 13 cents per share, according to the company.
Revenue came in at $63.7 billion, exceeding projections of $63.1 billion. This represents solid top-line growth for the membership-based retailer.
Same-store sales growth reached 6.8%, outpacing expectations of a 6.4% increase. This metric shows Costco continues to drive strong customer traffic to its warehouses.
Membership fees, a key profit driver for Costco’s business model, increased by 7.4% compared to the same period last year. Fees totaled $1.19 billion, slightly below analyst estimates of $1.22 billion.
Costco shares dipped 1.4% to $1,013 in after-hours trading following the report. The modest decline comes after the stock has gained 12% this year, significantly outperforming the S&P 500’s 2.4% decline during the same period.
The company’s stock trades at a premium valuation of nearly 55 times expected earnings for next year. This high multiple reflects strong investor confidence but also sets a high bar for quarterly results.
Costco executives addressed concerns about the potential impact of new tariffs during their investor call. CEO Ron Vachris described it as “difficult to predict” the full effect of tariffs on the business.
A third of sales in the U.S. come from imported goods
About one-third of Costco’s sales in the U.S. come from imported goods. Less than half of those imports are from China, Mexico, and Canada – countries specifically targeted by recent tariff actions.
President Donald Trump’s 25% tariffs on Mexican and Canadian imports went into effect on Tuesday, along with an additional 10% levy on Chinese goods. However, the White House later announced a pause on some tariffs for Mexico and Canada until April 2.
Costco management highlighted inflationary pressures in certain categories. CFO Gary Millerchip noted that “fresh was the most inflationary of our categories, driven by meat and bakery.”
Price increases in eggs, cocoa, coffee, cheese, and corn were partially offset by deflation in commodities such as sugar, butter, and flour. These trends impacted the company’s merchandise gross margins, which came in at 10.85%.
Despite these challenges, Costco may have advantages over competitors in navigating an inflationary environment. The company’s membership fee model allows it to generate profits while maintaining lower prices than other retailers.
Vachris assured investors that Costco’s team “remains agile” with a goal to “minimize the impact of related cost increases to our members.” He noted that due to the store layout, “there’s not many items that we can’t find something to replace or something else to bring in.”
While Costco has not yet seen a pullback in consumer spending due to economic uncertainty, executives cautioned that consumers could become more selective in their purchases as tariffs begin to affect prices.
Analysts at Bernstein believe Costco has “a relatively low exposure” to tariffs on imported goods compared to some retailers, which may help the company weather potential trade disruptions.
Despite falling short of profit expectations, Costco’s core business metrics remain strong with continued sales growth and steady membership fee income.
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