"âTomorrow, we will open up in Brentwood, California, followed by an opening in Highlands, California the following day, and four additional US openings next week, including our Sharon, Massachusetts opening on March 12th, which will be our 620th US warehouse and the 900th Costco location worldwide. Weâre projecting 28 new openings during fiscal year 2025, of which three will be relocations, for 25 net new buildings.â" - Ron Vachris
Costco Wholesale Corporation (COST) Q2 FY2025 Earnings Review: Revenue Expansion, Modest Margin Yield, and Strategic Position in the Consumer Defensive Space
Executive Summary
Costco delivered a solid QQ2 2025 with robust top-line growth and continued member strength, supported by a growing e-commerce and ancillary revenue base. Net sales reached $63.7 billion, up 9.1% year over year, driven by US comp sales up 8.3% (9.1% adjusted for gas deflation and FX) and strong international performance, notably Canada and select markets. E-commerce comp sales rose 20.9% (22.2% adjusted for FX), underscoring Costcoâs growing online penetration and multi-channel capabilities. Total company gross margin expanded modestly to 10.85% (up 5 bps YoY, 4 bps ex gas deflation), while SG&A benefited from productivity gains and cost discipline, yielding SG&A as a share of revenue of 9.06% (down 8 bps YoY). Operating income rose 12.3% to $2.316 billion, with net income at $1.789 billion and diluted EPS of $4.02, representing a low-to-mid single-digit YoY growth excluding a prior-year discrete tax benefit. The company reaffirmed its long-run growth thesis: ongoing US and international footprint expansion (targeting ~25 net new warehouses in FY2025), stronger private-label penetration, digital enhancements (personalization and MVM optimization), and an expanding retail-media/alternative revenue framework to support member value. Management signaled FX headwinds and tariff uncertainty as key external risks, while maintaining a focus on value leadershipâpricing actions to lower prices where opportunities exist and absorbing cost increases when feasible. The balance sheet remains strong with substantial liquidity, modest leverage, and ample free cash flow generation, supporting ongoing capex and shareholder returns aligned with Costcoâs disciplined capital allocation framework.
Key Performance Indicators
Revenue
63.72B
QoQ: 2.53% | YoY:9.04%
Gross Profit
9.61B
15.09% margin
QoQ: 19.55% | YoY:31.66%
Operating Income
2.32B
QoQ: 5.46% | YoY:12.32%
Net Income
1.79B
QoQ: -0.56% | YoY:2.58%
EPS
4.03
QoQ: -0.49% | YoY:2.54%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $63.723B, up 9.1% YoY; 2Q22 QoQ growth not provided.
Gross Profit: $9.614B; gross margin 10.87% (0.05% YoY improvement; 4 bps ex gas deflation).
Net Income: $1.789B; net margin 2.80% (YoY +2.58%; QoQ -0.56% influenced by FX and discrete items).
EPS (Diluted): $4.02; EPS YoY growth ~2.5% (adjusted for a $0.21 per-diluted-share tax benefit in the prior year).
Financial Highlights
Performance highlights and metric deltas (YoY and QoQ where available):
- Revenue: $63.723B, up 9.1% YoY; 2Q22 QoQ growth not provided.
- Gross Profit: $9.614B; gross margin 10.87% (0.05% YoY improvement; 4 bps ex gas deflation).
- Operating Income: $2.316B; operating margin 3.63% (YoY +12.3% in absolute terms; margin modestly higher).
- Net Income: $1.789B; net margin 2.80% (YoY +2.58%; QoQ -0.56% influenced by FX and discrete items).
- EPS (Diluted): $4.02; EPS YoY growth ~2.5% (adjusted for a $0.21 per-diluted-share tax benefit in the prior year).
- Membership Fee Income: $1.193B, up 7.4% YoY; renewal rate US/Canada 93%, worldwide 90.5%. Membership base: 78.4M paid households (+6.8% YoY); cardholders 140.6M (+6.6% YoY); Executive Members 36.9M (+9.1% YoY; 47.1% of paid members and 73.8% of worldwide sales).
- Cash Flow: Operating cash flow $2.748B; capex $1.137B; free cash flow $1.611B; net debt position remained negative (net cash) at approximately -$4.317B; cash at period-end $12.356B.
- Balance Sheet: total assets $73.224B; total liabilities $47.647B; total stockholdersâ equity $25.578B; liquidity metrics strong with cash and equivalents and short-term investments supportive of CapEx plans.
- Key ratios: current ratio ~0.997; quick ratio ~0.490; cash ratio ~0.334; debt-to-assets ~11.0%; debt-to-equity ~0.314; long-term debt to capitalization ~18.4%; cash flow coverage and capital expenditure coverage metrics indicate solid liquidity and capacity for ongoing investments.
- Incremental context: E-commerce penetration up 20.9% during Q2 (22.2% adjusted for FX); freight and logistics initiatives (Costco Logistics, Costco Next) delivered record activity; gas deflation and FX contributed to some negative comp effects but were offset by robust member value actions and private-label initiatives.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
63.72B
9.04%
2.53%
Gross Profit
9.61B
31.66%
19.55%
Operating Income
2.32B
12.32%
5.46%
Net Income
1.79B
2.58%
-0.56%
EPS
4.03
2.54%
-0.49%
Key Financial Ratios
currentRatio
1
grossProfitMargin
15.1%
operatingProfitMargin
3.63%
netProfitMargin
2.81%
returnOnAssets
2.44%
returnOnEquity
6.99%
debtEquityRatio
0.31
operatingCashFlowPerShare
$6.19
freeCashFlowPerShare
$3.63
dividendPayoutRatio
28.8%
priceToBookRatio
18.61
priceEarningsRatio
66.54
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the Q2 earnings call (themes with context):
- Strategy and growth trajectory: Ron Vachris highlighted the pipeline of new warehouses (24â28 openings anticipated in FY2025, with 25 net new builds) and gas-station hours extension to improve member convenience, signaling ongoing store growth and enhanced in-store experience. He noted the milestone 900th Costco location globally and 620th US warehouse, underscoring the companyâs scale and footprint expansion. Quote: âTomorrow, we will open up in Brentwood, California⌠projecting 28 new openings during fiscal year 2025, of which three will be relocations, for 25 net new buildings.â
- Labor and compensation strategy: The new employee agreement expanded front-line wage scales and benefits, with an immediate $1/hour top-of-scale increase followed by $1 increments in 2026 and 2027, plus a minimum wage of $20/hour. Management framed this as an investment in productivity and long-term member value, forecasting a mid-single-digit basis-point headwind to SG&A in the near term but offset by efficiency gains. Quote: âthe new employee agreement went into effect earlier this week⌠headwind to SG&A of 13 basis points from March 3rd⌠net year-over-year basis point headwind⌠mid-single digits.â
- FX and tariffs as external headwinds: Executives acknowledged ongoing FX volatility and tariff risk, stressing agility to minimize member-cost pass-throughs. Quote: âheadwinds from foreign exchange look likely to continue⌠tariffs⌠hard to predict but weâll minimize the impact to our members.â
- Consumer dynamics and category mix: Management described a resilient member base prioritizing value, quality, and newness, with continued strength in non-foods and fresh categories, offset by softness in some discretionary categories like consumer electronics. Quote: âthe member is probably as much focused now on quality, value, and newness⌠they are still showing that willingness to spend; theyâre being very choiceful where theyâre spending their dollars.â
- Digital and omnichannel momentum: The firm emphasized improvements in digital tools (MVM personalization) and multi-vendor mailer campaigns, noting incremental traffic and engagement gains as drivers of future top-line growth. Quote: âdigital MVM⌠differentiating the message for members based on their previous shopping behavior⌠the potential to improve the member experience through more relevant targeted messages.â
âTomorrow, we will open up in Brentwood, California, followed by an opening in Highlands, California the following day, and four additional US openings next week, including our Sharon, Massachusetts opening on March 12th, which will be our 620th US warehouse and the 900th Costco location worldwide. Weâre projecting 28 new openings during fiscal year 2025, of which three will be relocations, for 25 net new buildings.â
â Ron Vachris
âThe goal is to be the first to lower prices where we see opportunities to do so, and the last to increase prices in the face of rising costs.â
â Gary Millerchip
Forward Guidance
Outlook and risk assessment: Costcoâs QQ2 results reinforce a long-run growth pathway anchored in member loyalty, international expansion, and continued investment in value-driven merchandising. Near-term risks include macro FX headwinds, tariff volatility, and wage-related cost pressure from the new labor agreement. Costco plans to open approximately 25 net new warehouses in FY2025 (roughly half international), sustaining a balanced growth trajectory in both the US and international markets. Capex guidance of roughly $5B for the year supports new warehouse openings, technology upgrades, and logistics capabilities (Costco Logistics, Next marketplace). The companyâs strategy to maintain price leadership while investing in supply chain efficiency provides a defensive margin backbone as input costs evolve. Management also highlighted the potential upside from the expansion of executive memberships and increased penetration in international markets (Canada, Mexico, Europe, Asia). The emerging retail media and targeted offers platform represents a potential incremental revenue stream that could enhance member value without compressing margins, given the early-stage nature of the program.
Key factors for investors to monitor:
- FX and tariff evolution and potential pass-through to prices; cost-structure discipline and supply-chain productivity gains to offset wage investments; progress of international expansion and sustained member growth (renewal rates and cohort effects).
- E-commerce trajectory and the effectiveness of personalized digital marketing and retail media partnerships.
- Capex execution and warehouse openings cadence; impact on operating leverage and free cash flow generation.
- Membership dynamics (renewal rates, new member inflows, executive membership penetration) and the contribution of higher-margin executive and private-label sales to overall profitability.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
COST Focus
15.09%
3.63%
6.99%
66.54%
TGT
30.10%
6.42%
8.26%
13.50%
WMT
25.10%
4.69%
5.33%
30.67%
BJ
18.40%
3.91%
8.76%
19.83%
DLTR
30.10%
2.75%
1.79%
40.41%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Costcoâs QQ2 2025 results validate a resilient franchise with strong member loyalty, disciplined capital allocation, and a multi-dimensional growth trajectory. The combination of US and international store expansion, ongoing private-label upgrades, and a broader digital and retail-media push provides a diversified path to higher long-run profitability. However, near-term risksâFX headwinds, tariff policy uncertainty, and wage-driven SG&A headwindsârequire ongoing operational excellence and productivity gains to protect margins. Investors should monitor FX trends, tariff policy developments, execution in international markets, progression of executive membership penetration, and the emerging contribution from retail media and targeted digital promotions. If Costco can maintain its value leadership while expanding high-margin channels (private label and media), the stock could sustain a premium multiple in line with large-cap consumer staples peers, supported by healthy free cash flow generation and a conservative balance sheet.
Key Investment Factors
Growth Potential
- Global footprint expansion: US and international openings (expected ~25 net new warehouses in FY2025; international ~half ofć°ç openings) support long-run revenue base growth.
- Kirkland Signature and private-label expansion: ongoing item rationalization and improved value proposition (e.g., upgraded diapers, private-label groceries, and non-foods) drive mix and margin discipline.
- E-commerce and omni-channel acceleration: double-digit e-commerce growth (YoY ~21%) supports member engagement and higher ticket sizes through cross-channel promotions and logistics enhancements.
- Digital personalization and retail media: early-stage but scalable revenue opportunity with ~10 retail media campaigns live; potential uplift in traffic, margin, and loyalty via targeted offers.
Profitability Risk
- FX volatility and tariff risk: persistent currency movements and tariff dynamics could impact international profitability and cost recovery.
- Wage inflation and labor costs: new employee agreement implies near-term SG&A headwinds; long-run productivity gains required to sustain margins.
- Competitive intensity and mix risk: consumer electronics and apparel have been flatter; maintaining momentum in high-growth non-foods and fresh categories remains critical.
- Supply chain and inflationary pressures: inflation movements in fresh/frozen categories (meat, eggs) could trigger price volatility and mix effects; sensitive to input costs and transportation.
Financial Position
- Strong liquidity and balance sheet: cash and cash equivalents around $12.36B; net debt of approximately -$4.32B (net cash position) with total equity ~$25.58B.
- Solid working capital and cash flow generation: operating cash flow $2.75B; free cash flow $1.61B; capacity to fund $5B annual Capex while maintaining dividend and potential share repurchases (historical program).
- Conservative leverage profile: debt-to-assets ~11%, debt-to-equity ~0.314, long-term debt capitalization ~18.4%, supporting ongoing capital allocation flexibility.
SWOT Analysis
Strengths
Scale and membership power: 78.4 million paid households; 140.6 million cardholders; 36.9 million paid executive memberships representing 47.1% of paid members and 73.8% of worldwide sales.
Private-label strength: Kirkland Signature continues to outperform in key categories with higher value and quality gains; ongoing successful SKU rationalization (e.g., diapers, sandwich bags, storage bags).
Strong free cash flow generation and liquidity: net cash position with $12.36B cash, operating cash flow $2.75B, and FCF $1.61B in QQ2.
Global footprint and international profitability: international markets deliver meaningful contribution with attractive margins and growth potential, supported by scale and supplier relationships.
Digital and omni-channel momentum: growing e-commerce penetration, personalized digital marketing, and multi-vendor promotions driving traffic and ticket growth.
Weaknesses
FX sensitivity and tariff exposure: significant headwinds from foreign currency translation and potential tariff impacts on international results.
Labor cost headwinds: new wage agreement introduces near-term SG&A pressure; achieving productivity gains is essential to offset higher wages.
Discretionary category softness in some areas: consumer electronics and apparel have shown flatter trends relative to non-foods and fresh.
High reliance on membership income and renewal dynamics: while renewal rates are strong, cohorts and digital promotions can affect membership metrics quarterly.
Opportunities
Warehouse expansion cadence: ~25 net new buildings in FY2025, with balanced US/international growth to broaden addressable market.
Retail media and partner ecosystem: early-stage initiatives with multiple campaigns; potential to monetize advertising spend and drive member engagement.
Enhanced private-label penetration and regional sourcing: in-country production (e.g., KS water in China) enabling deeper localization and cost savings.
Digital personalization and MVM optimization: further refinement of member-specific messaging to improve response rates and basket growth; higher share of digital promotions.
Threats
Macroeconomic volatility: continued FX pressure, inflationary swings, and tariff developments could affect margins and pricing strategy.
Competitive dynamics: evolving landscape with traditional retailers and online players competing on price, convenience, and product assortment.
Supply chain disruptions: ongoing volatility in shipping and delivery timing, though improvements in inventory management are in focus.