Costco Wholesale Corporation (COST) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A section reveal a generally positive sentiment. The company is expanding with new warehouses, showing strong membership growth, and enhancing digital initiatives. While management avoided some specifics, they conveyed confidence in mitigating tariffs and sustaining growth. The focus on value delivery and investment in technology and real estate supports a favorable outlook. Despite some uncertainties, the overall sentiment suggests a positive stock price movement, likely in the 2% to 8% range.
Key Financial Performance
Net Sales Net sales came in just under $270 billion, an increase of over 8% versus last year. The increase was driven by strong e-commerce sales, record gas volumes, and expansion of warehouses.
E-commerce Sales E-commerce sales exceeded $19.6 billion, increasing over 15% year-over-year. This growth was attributed to enhancements in digital and e-commerce technology, including improved search effectiveness and targeted campaigns.
Net Income Net income for the fourth quarter was $2.61 billion, or $5.87 per diluted share, up 11% from $2.35 billion or $5.29 per diluted share in the fourth quarter last year. Excluding a nonrecurring tax benefit from last year, net income and earnings per diluted share both grew 14%.
Comparable Sales Comparable sales were 5.7% or 6.4% adjusted for gas deflation and FX. E-commerce comparable sales were 13.6% or 13.5% adjusted for FX. Gas price deflation negatively impacted sales by approximately 0.9%, while FX positively impacted sales by approximately 0.2%.
Membership Fee Income Membership fee income was $1.72 billion, an increase of $212 million or 14% year-over-year. Adjusting for FX, the increase was 13.6%. Growth was driven by a membership fee increase in the U.S. and Canada, as well as upgrades from Gold Star to executive membership.
Gross Margin Gross margin was 11.13%, up 13 basis points year-over-year. Core margins were higher by 30 basis points, driven by supply chain improvements, increased Kirkland Signature penetration, and lower spoilage in fresh foods.
SG&A Rate SG&A rate was 9.21%, higher by 17 basis points year-over-year. The increase was due to investments in employee wages and general liability charges, partially offset by strong top-line sales and improved labor productivity.
Capital Expenditure Capital expenditure in Q4 was approximately $1.97 billion, and for the full year, it was a little under $5.5 billion. Investments were made in warehouse growth, remodels, depot expansions, and manufacturing facilities.
Fresh Sales Fresh sales were up high single digits, led by double-digit growth in meat. Growth was driven by strong unit sales in both premium and lower-cost proteins.
E-commerce Site Traffic E-commerce site traffic was up 27%, with double-digit sales growth in categories like gold and jewelry, housewares, apparel, and sporting goods. Growth was supported by investments in Costco Logistics and targeted digital campaigns.
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Operating Highlights
New Kirkland Signature products: Launched over 30 new items, including grass-fed beef sticks, organic extra firm tofu, and various apparel items.
Enhanced checkout technology: Rolled out in all U.S. warehouses to speed up checkout by allowing employees to scan items while members are in line.
Digital and e-commerce enhancements: Introduced data augmentation for search, passwordless sign-in for the mobile app, and a waiting room for high-demand items like Pokémon cards.
Warehouse expansion: Opened 27 new warehouses in fiscal year 2025, including 24 net new buildings, bringing the total to 914 worldwide. Plans to open 35 more warehouses in fiscal year 2026.
E-commerce growth: E-commerce sales exceeded $19.6 billion, growing over 15% year-over-year.
International expansion: Opened new warehouses in Korea and Sweden, marking continued international growth.
Membership growth: Ended fiscal year with 81 million paid members, up 6.3% year-over-year. Executive memberships grew 9.3% and now represent 47.7% of paid members and 74.2% of worldwide sales.
Operational efficiencies: Improved labor productivity and minimized SG&A impact despite wage increases and extended operating hours.
Supply chain improvements: Focused on reducing costs and emissions by sourcing more Kirkland Signature products locally.
Digital strategy: Enhanced personalized member communications and targeted advertising, resulting in increased traffic and sales.
Retail media campaigns: Executed targeted campaigns with suppliers like Kimberly Clark, achieving a 14:1 return on ad spend and boosting digital sales by 45%.
Focus on value: Continued emphasis on delivering high-quality, low-cost items to grow market share amid economic uncertainty.
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Risk or Challenges
Macroeconomic Uncertainty: The company acknowledges the current macroeconomic uncertainty, which could impact consumer spending and overall business performance.
Employee Wage Increases: Significant investments in employee wages, including multiple pay raises, have increased operational costs, potentially impacting profit margins.
Membership Renewal Rates: A decline in membership renewal rates, particularly among online sign-ups, could affect recurring revenue streams.
Inflation and Tariffs: Inflation in key commodities and the impact of tariffs on imported goods are increasing costs, requiring mitigation strategies such as sourcing changes and product adjustments.
Supply Chain Stability: While supply chain conditions are currently stable, any future disruptions could adversely affect operations and inventory management.
Digital and E-commerce Competition: The company faces competitive pressures in the digital and e-commerce space, requiring continuous investment in technology and member experience enhancements.
Gas Price Deflation: Deflation in gas prices has negatively impacted sales in the ancillary business segment.
General Liability Charges: An increase in general liability charges and reserves has added to operational costs.
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Guidance & Outlook
Warehouse Expansion: The company plans to open 35 new warehouses in fiscal year 2026, including 5 relocations, with significant opportunities for expansion both domestically and internationally.
Capital Expenditures: Capital expenditure for fiscal year 2026 is expected to support accelerated warehouse growth, remodels, depot expansions, and investments in manufacturing facilities, including hot dog production and a new coffee roasting facility.
Membership Growth: The company aims to improve renewal rates for online sign-ups through auto-renewal and targeted digital communications, while continuing to grow its membership base and revenue.
Digital and E-commerce Enhancements: Plans include further development of digital capabilities to enhance member experience, personalized communications, and retail media opportunities, with a focus on driving top-line sales.
Holiday Season Inventory: Merchants are optimistic about inventory positions for the holiday season, with a strong assortment of high-quality items and seasonal themes planned.
Market Share Growth: Despite macroeconomic uncertainty, the company remains confident in its ability to grow market share by delivering high-quality items at the best value for members.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:To what extent do you think that your members are actually aware of these extended hours? Was the June 30 the soft launch and you've made a harder launch as you came into the fall? And how do you think about that 1% comp lift in terms of it becoming much larger?
A:Ron Vachris stated that communication about extended hours was effective through warehouse signage and emails to executive members. The 1% comp lift was analyzed based on traffic and additional hours, and they believe the word is out. Gary Millerchip added that the national launch gained visibility and social media exposure, and while the full impact on member shopping behavior may take time, the response has been positive.
Q:How far do you expect to see the membership rate decline? Is it realistic for it to go back to the pre-COVID worldwide renewal rate in the mid- to high 80% range? What actions would Costco take to stabilize or improve that, and how will this impact financial performance?
A:Gary Millerchip explained that the renewal rate decline is due to a higher number of online sign-ups, which renew at a slightly lower rate. They expect a few more quarters of similar impact but are investing in auto-renewal and digital communication to engage these members. Despite the decline, overall membership metrics, including fee income and household growth, are strong, and they are ahead of budgeted expectations.
Q:Can we dive into your core-on-core margins, how that spans across categories, and any notable observations on price increases? What unit velocity are you observing in those product categories? What might be different in terms of the holiday product mix?
A:Gary Millerchip noted a 3 basis point improvement in gross margin rate, with core-on-core margin strength across fresh food, sundry, and nonfood categories. Improvements came from supply chain efficiency, Kirkland Signature penetration, and reduced spoilage. Ron Vachris added that holiday product mix includes new categories like backyard sheds and saunas due to space constraints, offering high-ticket goods relevant to the season.
Q:How sustainable do you think the 7% growth in membership fee income is, especially in the U.S. and Canada, where you're opening fill-in stores in high-penetration markets? Is there a risk of slowing growth?
A:Gary Millerchip expressed optimism about continued membership growth due to new warehouse openings, younger member engagement, and added benefits like extended hours and Instacart rewards. He emphasized the importance of delivering value to sustain growth and noted that international markets and maturing warehouses also contribute to membership expansion.
Q:Is it possible that we're seeing delayed benefits of membership sharing crackdowns? Can we see an acceleration from here? Are new executive membership benefits driving a more favorable mix for new members?
A:Gary Millerchip stated there is no evidence of delayed benefits from membership sharing crackdowns. He highlighted the positive reaction to new executive membership benefits like extended hours and Instacart rewards, which encourage upgrades and more frequent shopping.
Q:Can you talk about e-commerce and grocery, specifically if you've seen a spike in Instacart-driven traffic since Amazon's announcement? Does Costco have optimal capability to meet increasing online grocery demand?
A:Ron Vachris mentioned strong growth in Instacart and Uber business, aided by executive membership benefits. While it's hard to attribute growth to specific factors, Costco is aware of competition and focuses on delivering fresh foods and other desired items. Gary Millerchip added that Instacart sales will now be included in e-commerce metrics.
Q:What is the sustainability of the 30 warehouse openings per year, and what is the CapEx plan for next year?
A:Ron Vachris stated that the 30 warehouse openings per year are sustainable due to investments in real estate and opportunities in both existing and new markets. Gary Millerchip noted that CapEx in fiscal 2026 will grow over 2025 levels, focusing on warehouses, remodels, depots, manufacturing, and technology, with details to be provided in the Q1 release.
Q:Can you describe the inflation trends, particularly in nonfood categories, and how they impact the business?
A:Gary Millerchip explained that inflation remains in the low to mid-single digits, with fresh food and sundry categories consistent quarter-over-quarter. Nonfood inflation, previously deflationary, is now low single digits, contributing to overall inflation trends. He noted various inflationary and deflationary trends in specific commodities.
Q:What trends are you seeing in credit card penetration, and are there plans to enhance member value in this area?
A:Gary Millerchip highlighted the success of Costco's credit card program, which recently added 5% rewards on gas and updated the card design. These changes aim to accelerate value and program growth.
Q:How are you managing the impact of tariffs, and what is the outlook for gross margins?
A:Gary Millerchip stated that Costco has managed tariffs through efficiency improvements, supplier negotiations, and sourcing changes. While the environment remains fluid, the company has largely mitigated current impacts and continues to focus on delivering value. Ron Vachris emphasized an offensive approach to minimize price increases and maintain competitiveness.
Q:What is the long-term potential for U.S. household membership, and how high can it go?
A:Gary Millerchip emphasized Costco's focus on delivering value to grow membership organically. He noted opportunities in international markets and the benefits of filling in U.S. markets to relieve warehouse pressure and drive sales growth.
Q:What is the outlook for business centers and real estate acquisition to accelerate growth?
A:Ron Vachris sees significant potential for business centers in the U.S., Canada, and internationally. He mentioned the possibility of acquiring real estate to enter key markets and create value through development.
Q:Do you expect cannibalization to be a headwind throughout 2026, and what is the outlook for nonfood inflation?
A:Gary Millerchip stated that cannibalization is part of Costco's strategy to grow overall sales and relieve warehouse pressure. He expects nonfood inflation to remain low single digits, with no significant changes anticipated.
Q:What are the priorities for digital innovation, and how will Kirkland Signature evolve?
A:Gary Millerchip highlighted opportunities to improve the digital experience through personalized messaging and app enhancements. He stated that Kirkland Signature will continue to focus on quality, value, and innovation, with new products introduced where gaps exist.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the long-term potential for U.S. household membership penetration, providing no specific estimates or targets. Additionally, they did not provide a clear outlook on the sustainability of nonfood inflation trends or the exact impact of tariffs on future gross margins.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Coca Cola
Cola soda
Enhancements augmentation
Gold Star
Instacart purchase
KS product
Mr Millerchip
Pokemon card
Saturday evening
Signature anniversary
Signature sale
Star member
Sweden location
Wholesale Instructions
ability market
addition opening
anniversary Kirkland
anniversary hotdog
app waiting
augmentation search
benefit increase
bot opportunity
card room
cart payment
cashier cart
checkout process
checkout technology
combo food
commerce
convenience member
rollout
traffic
value convenience
warehouse relocation
COST Transcript
Costco Wholesale Corporation (COST) Q1 2026 Earnings Call Transcript
Positive12-11
The earnings call highlights strong market share growth, successful digital engagement, and promising international expansion, despite some challenges with renewal rates among younger members. The company's strategic focus on warehouse expansion and digital enhancements, along with optimistic guidance for membership growth, supports a positive outlook. However, management's avoidance of specific forward-looking guidance introduces some uncertainty, tempering the overall sentiment. Given these factors, the stock price is likely to experience a positive movement in the short term.
Costco Wholesale Corporation (COST) Q4 2025 Earnings Call Transcript
Positive9-25
The earnings call summary and Q&A section reveal a generally positive sentiment. The company is expanding with new warehouses, showing strong membership growth, and enhancing digital initiatives. While management avoided some specifics, they conveyed confidence in mitigating tariffs and sustaining growth. The focus on value delivery and investment in technology and real estate supports a favorable outlook. Despite some uncertainties, the overall sentiment suggests a positive stock price movement, likely in the 2% to 8% range.
Earnings call transcript: Costco Q3 2025 sees profit rise, stock dips
Positive5-29
The earnings call summary highlights strong financial performance with increased sales, membership fee income, and gross margin. Despite higher SG&A rates due to wage investments, productivity improvements offset these costs. The Q&A section revealed management's focus on price competitiveness and strategic growth, although some responses lacked clarity. The partnership with Affirm and strong international sales add positive sentiment. Overall, the company's solid financial metrics, strategic initiatives, and optimistic outlook suggest a positive stock price movement in the near term.
Costco Wholesale Corporation (COST) Q3 2025 Earnings Call Transcript
Unknown5-29
The earnings call presents a mixed picture: strong financial performance with increased net income and EPS, alongside challenges like inflation and competitive pressures. The Q&A reveals management's focus on long-term growth and cost optimization, but lacks clarity on tariff impacts and price adjustments. No share repurchase program was announced, and economic uncertainty persists. Despite strong sales, the absence of clear guidance and lack of new partnership announcements suggest a neutral stock price movement over the next two weeks.
COST Slides
COST Report
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