""Our focus is on really achieving a balance across the business. And as you know, over the years, what we've done successfully at Costco is, continue to invest in members, continue to invest in lowering prices and value for our members and continuing to invest in our employees."" - Gary Millerchip, CFO
Costco Wholesale Corporation (COST) Q4 FY2024 Earnings Analysis: Resilient Demand, Margin Expansion Amid Strategic Investments and Global Expansion
Executive Summary
Costco reported its Q4 FY2024 results (16 weeks ended Sep 1, 2024) with net sales of $78.2 billion and net income of $2.354 billion ($5.29 per diluted share), up 9% year over year on an as-reported basis. The quarter benefited from a one-week headwind versus the prior year’s 17-week period, with a non-recurring net tax benefit of $63 million. When normalized for the extra week and the tax benefit, year-over-year growth in net income and earnings per diluted share was approximately 12–13%. Total company comparable sales rose 5.4% (6.9% adjusted for gas deflation and FX), while US comp sales rose 5.3% (6.3% ex gas deflation) and e-commerce comp sales surged 18.9% (19.5% adjusted for FX). Traffic increased 6.4% globally, with an average ticket that was modestly negative but would be positive 0.5% worldwide and 0.6% in the US when adjusted for gas deflation and FX. The quarter also highlighted ongoing investments in employees and price leadership: membership fee income rose modestly, and the company reaffirmed a longer-term plan to invest in wages and value delivery, while driving top-line growth. Costco also continued to expand its footprint and digital capabilities, opening 14 new warehouses in Q4 (14 in total: 10 in the US, 2 in Japan, 1 in Korea, 1 in China) and ending the year with 76.2 million paid households and 136.8 million cardholders; executive memberships reached 35.4 million, representing 46.5% of paid memberships and 73.5% of worldwide sales. The FY2025 plan contemplates 26 net new buildings (12 outside the US) and continued emphasis on e-commerce and Kirkland Signature growth. In sum, COST delivered a durable profitability trajectory amid strategic investments and an improving, albeit mixed, inflationary environment. The execution is underpinned by strong cash flow generation and a robust balance sheet, with net debt negative and free cash flow contributing meaningfully to deleveraging and shareholder value.
Key Performance Indicators
Revenue
79.70B
QoQ: 36.20% | YoY:0.96%
Gross Profit
10.11B
12.68% margin
QoQ: 37.69% | YoY:4.00%
Operating Income
3.04B
QoQ: 38.46% | YoY:9.39%
Net Income
2.35B
QoQ: 40.04% | YoY:8.98%
EPS
5.30
QoQ: 39.84% | YoY:8.83%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $79.,697,000,000 (Q4 FY2024) up 0.96% YoY and up 36.20% QoQ on the reported 16-week basis, reflecting the extra week in the prior year. When normalized for the extra week, net sales would have been ~7.3% higher YoY.
Gross Profit: $10,109,000,000; Gross Margin 11.0% (vs 10.6% prior year; up 33 bps excluding gas deflation). Core gross margin rose modestly; ancillary businesses benefited from gas and e-commerce tailwinds.
Net Income: $2,354,000,000; net margin ~2.95% (0.0295). Adjusted for the $63 million tax benefit and the extra week, YoY growth in net income and EPS was ~12.7% and ~12.6%, respectively.
EPS: $5.29 (diluted) for the 16-week quarter; $5.30 reported per the release.
Financial Highlights
- Revenue: $79.,697,000,000 (Q4 FY2024) up 0.96% YoY and up 36.20% QoQ on the reported 16-week basis, reflecting the extra week in the prior year. When normalized for the extra week, net sales would have been ~7.3% higher YoY.
- Gross Profit: $10,109,000,000; Gross Margin 11.0% (vs 10.6% prior year; up 33 bps excluding gas deflation). Core gross margin rose modestly; ancillary businesses benefited from gas and e-commerce tailwinds.
- Operating Income: $3,042,000,000; operating margin ~3.82% (0.0382).
- Net Income: $2,354,000,000; net margin ~2.95% (0.0295). Adjusted for the $63 million tax benefit and the extra week, YoY growth in net income and EPS was ~12.7% and ~12.6%, respectively.
- EPS: $5.29 (diluted) for the 16-week quarter; $5.30 reported per the release.
- Membership: Membership fee income $1.512 billion, up 0.2% on a one-week headwind; excluding the extra week and FX, membership fee income grew about 7.4%. Global paid memberships ended Q4 at 76.2 million households and 136.8 million cardholders; executive memberships reached 35.4 million (up 9.6% YoY; 46.5% of paid memberships; 73.5% of worldwide sales). US+Canada renewal rate stood at 92.9%; worldwide renewal rate at 90.5%.
- Cash flow and capital expenditure: Net cash provided by operating activities $2.958 billion; Capex $1.577 billion in the quarter; full-year capex $4.710 billion; free cash flow $1.381 billion. Cash and cash equivalents totaled $9.906 billion; cash plus short-term investments $11.144 billion; total assets $69.831 billion; total liabilities $46.209 billion; stockholders’ equity $23.622 billion; net debt of $(1.634) billion (i.e., net cash).
- E-commerce: E-commerce comp sales +18.9% (19.5% FX-adjusted); app downloads ~3.5 million in the quarter (total ~39 million); Costco Next added 11 vendors (total 86); Buy Online, Pickup in Warehouse (BOPIW) for TVs rolled out; gross e-commerce momentum visible in traffic, conversion rates and AOV improvements.
- Store growth and capex: 14 new warehouses in Q4; international expansion remains a priority with 12 planned openings outside the US in FY2025 and a total of 26 net new buildings projected for FY2025.
- EBITDA/LIFO/FX dynamics: LIFO credit of $8 million in Q4 this year versus a $30 million charge in Q4 last year; interest income declined due to lower cash balances and a $6.7 billion special dividend paid in January 2024; FX losses of $18 million vs a $37 million gain last year.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
79.70B
0.96%
36.20%
Gross Profit
10.11B
4.00%
37.69%
Operating Income
3.04B
9.39%
38.46%
Net Income
2.35B
8.98%
40.04%
EPS
5.30
8.83%
39.84%
Key Financial Ratios
currentRatio
0.97
grossProfitMargin
12.7%
operatingProfitMargin
3.82%
netProfitMargin
2.95%
returnOnAssets
3.37%
returnOnEquity
9.97%
debtEquityRatio
0.35
operatingCashFlowPerShare
$6.66
freeCashFlowPerShare
$3.11
dividendPayoutRatio
21.8%
priceToBookRatio
16.77
priceEarningsRatio
42.08
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Theme: Balance between investment in members/employees and long-term leverage. Quote: 'Our focus is on really achieving a balance across the business... continue to invest in members, continue to invest in lowering prices and value for our members and continuing to invest in our employees.' (CFO Gary Millerchip)
- Theme: Card readers and front-end efficiency. Quote: 'The purpose of the card readers at the front door... real-time traffic counts... improved front-end productivity and renewals.' (Ron Vachris)
- Theme: Port strikes and supply chain risk. Quote: 'The port strike is something we've been watching very closely... we've done several preemptive measures to prepare for this.' (Ron Vachris)
- Theme: International expansion and FY2025 plans. Quote: 'FY2025 plan has 12 of our planned 29 openings outside of the US... 26 net new buildings in fiscal 2025.' (Ron Vachris)
- Theme: E-commerce momentum and Costco Next. Quote: 'E-commerce traffic, conversion rates and average order value were all up year-over-year... Costco Next... gross sales grew nearly 40% year-over-year.' (Gary Millerchip)
- Theme: Inflation backdrop and pricing strategy. Quote: 'Inflation was essentially flat in the quarter across all core merchandise; we continue to lower prices where opportunities exist.' (Gary Millerchip)
"Our focus is on really achieving a balance across the business. And as you know, over the years, what we've done successfully at Costco is, continue to invest in members, continue to invest in lowering prices and value for our members and continuing to invest in our employees."
— Gary Millerchip, CFO
"The purpose of the card readers at the front door... real-time traffic counts... improved front-end productivity and renewals."
— Ron Vachris, President and COO
Forward Guidance
- Revenue trajectory and earnings cadence: Management noted that the cadence of earnings growth in fiscal 2025 is likely to be less linear than typical, reflecting unusual items such as the deferred accounting of the membership fee increase and year-over-year timing effects. They indicated the majority of the membership fee increase benefit would be realized in H2 FY2025 and into FY2026.
- Growth initiatives: COST plans 26 net new buildings in FY2025 (12 outside the US), with a balanced approach to infill openings and new markets; expect continued international expansion and growth in e-commerce and Costco Next.
- Margin and cost discipline: Gross margin benefited from gas margins and e-commerce mix; SG&A leverage is expected to improve through productivity gains and ongoing wage investments, with ongoing emphasis on workforce investment to sustain top-line growth.
- Cash generation and capital allocation: The company maintains a strong balance sheet with net debt negative; it will continue to deploy capital toward capex (new warehouses) and potential strategic initiatives, while funding member value through pricing and cost efficiencies.
- Key monitorables for investors: pace of international openings and infill openings, cost inflation versus deflation in core categories, evolution of gas margins, churn/renewal dynamics in the US/Canada and internationally, and the trajectory of e-commerce profitability and mix (including any impact from Retail Media initiatives).
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
COST Focus
12.68%
3.82%
9.97%
42.08%
TGT
26.00%
0.68%
7.52%
14.39%
WMT
24.60%
4.35%
5.77%
37.50%
BJ
18.00%
3.38%
6.64%
26.59%
DLTR
12.50%
-10.10%
-92.90%
-1.07%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Costco remains a high-quality compounder with a durable membership base, strong cash flow, and a clear strategy to invest in member value while expanding the footprint and digital capabilities. The Q4 FY2024 results demonstrate resilient top-line growth (Q4 comp sales +5.4%, e-commerce +18.9%) and margin resilience aided by gas deflation tailwinds and e-commerce mix. The company’s emphasis on wage investments to support topline growth is consistent with a long-run approach to sustaining member value, even as SG&A leverage may be lumpy near term. The FY2025 plan calls for 26 net new buildings, including 12 outside the US, signaling a balanced global expansion that could unlock incremental member growth and higher share of wallet in international markets. However, COST faces several near-term headwinds, including potential port disruptions, FX volatility, and the need to manage a higher wage base while maintaining price leadership. On a relative-value basis, COST trades at a premium to broad retailers (e.g., P/E in the low-40s vs peers with lower margins), reflecting its unique membership model, pricing power, and strong free cash flow profile. Investors should monitor: (1) the cadence of international openings and infill development, (2) the evolution of gas margins and deflation effects on comp sales, (3) the managed impact of the membership fee increase (deferred accounting with the majority of benefits realized in H2 FY2025/FY2026), (4) the profitability trajectory of e-commerce and new revenue initiatives (Retail Media, Costco Next), and (5) renewal dynamics as online promotions mature. In sum, COST offers attractive growth leverage from a scalable membership platform, provided the company maintains its pricing discipline, labor investments, and efficient capital allocation amid a shifting macro backdrop.
Key Investment Factors
Growth Potential
Growth is anchored in (1) international expansion with 12 planned overseas openings in FY2025 and 26 net new warehouses, (2) accelerating e-commerce and Costco Next, (3) expanding Kirkland Signature through global sourcing and local production to improve margins and sell-through, and (4) continued member value delivery via price leadership and wage investments that support top-line growth.
Profitability Risk
Key risks include port strikes/shipping disruptions and Red Sea bottlenecks, FX volatility, commodity price shifts (deflation in some categories vs inflation in others), higher wage costs, and the potential for promotional intensity to compress near-term margins. Additionally, the cadence of earnings growth in FY2025 may be less linear due to large one-time or timing effects (membership fee accounting and extra week last year).
Financial Position
Strong liquidity and cash generation with net debt at negative $1.63 billion; cash and equivalents of $9.91 billion; total liquidity via cash and short-term investments of $11.14 billion. Free cash flow of $1.38 billion in Q4 and ongoing capacity to fund capex (FY2024 capex of $4.71 billion) and wage investments while sustaining shareholder value. Equity base remains robust with $23.62 billion in stockholders' equity; 76.2 million paid households and 136.8 million cardholders underpin a durable membership model.
SWOT Analysis
Strengths
Very large, loyal membership base with high renewal rates (US+Canada 92.9%; worldwide 90.5%), 76.2 million paid households and 136.8 million cardholders.
Strong cash flow generation and negative net debt, with $2.96 billion operating cash flow in Q4 and $4.71 billion annual capex planned for FY2024.
Significant scale and market power in the Discount Store space; Costco Private Label (Kirkland Signature) growth driving margins and member value.
Robust e-commerce trajectory (up 18.9% comp; app downloads ~39 million, 3.5 million in quarter) and logistics capability (Costco Logistics, 4.5 million items shipped, +29% YoY).
High contribution from Executive members (35.4 million; 46.5% of paid members; 73.5% of worldwide sales).
Weaknesses
Lower gross margins relative to general retailers (COST gross margin ~11.0% in Q4 vs peers like WMT ~24.6%), making the business more exposed to margin compression from wage growth or promotional activity.
Revenue seasonality and the potential sensitivity to gas prices (gas deflation can suppress comp sales).
Significant capex needs for international expansion and store openings.
Reliance on a membership model which can be susceptible to renewal dynamics and digital promotions affecting churn in the short term.
Opportunities
International expansion with 12 non-US openings in FY2025 and 26 net new openings in total; potential benefit from localized production to reduce shipping costs and emissions.
Expansion of Costco Next marketplace and Retail Media opportunities to monetize digital traffic without eroding core margins.
Continued growth in Kirkland Signature with pricing and packaging improvements, cross-border sourcing, and in-country production to improve margins.
Strengthening digital/logistics infrastructure to improve efficiency and member value (front-end throughput, inventory availability, and home delivery).
Threats
Port strikes and Red Sea shipping disruptions impacting nonfoods and imported goods (25% of nonfoods exposure to imported content).
FX volatility and inflation/deflation dynamics across multiple regions.
Intense promotional competition and price wars in grocery and nonfoods.
Wage pressures from ongoing wage increases across US/Canada and global operations.
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