• Net Income: $1.788 billion or $4.02 per diluted share, up from $1.743 billion or $3.92 per diluted share last year.
• Net Sales: $62.53 billion, an increase of 9.1% from $57.33 billion last year.
• US Comparable Sales: Up 8.3% or 8.6% excluding gas deflation.
• Canada Comparable Sales: Up 4.6% or 10.5% adjusted for gas deflation and FX.
• Other International Comparable Sales: Up 1.7% or 10.3% adjusted.
• E-commerce Comparable Sales: Up 20.9% or 22.2% adjusted for FX.
• Membership Fee Income: $1.193 billion, an increase of 7.4% year-over-year.
• Gross Margin: 10.85%, up 5 basis points year-over-year.
• SG&A Rate: 9.06%, lower by 8 basis points year-over-year.
• Capital Expenditure: Approximately $1.14 billion in Q2.
• Paid Household Members: 78.4 million, up 6.8% versus last year.
• Executive Memberships: 36.9 million, up 9.1% versus last year.
• Store Openings: Projecting 28 new openings during fiscal year '25, with 25 net new buildings.

• Warning! GuruFocus has detected 7 Warning Sign with COST.

Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Costco Wholesale Corp (NASDAQ:COST) reported a net income increase to $1.788 billion, or $4.02 per diluted share, up from $1.743 billion, or $3.92 per diluted share, in the same quarter last year.
• The company plans to open 28 new warehouses during fiscal year 2025, including significant expansions in the U.S. and internationally.
• Membership fee income grew by 7.4% year-over-year, with a U.S. and Canada renewal rate of 93% and a worldwide rate of 90.5%.
• E-commerce comparable sales increased by 20.9%, demonstrating strong growth in digital channels.
• Costco Wholesale Corp (NASDAQ:COST) continues to invest in employee wages and benefits, with a new agreement that includes multiple wage increases over the next few years.

Negative Points

• Foreign exchange rate movements negatively impacted international net income translation to U.S. dollars by $57 million.
• The company faces headwinds from tariffs and foreign exchange fluctuations, which could impact costs and pricing strategies.
• Core on core margins were lower by 8 basis points due to higher supply chain costs and mix changes in nonfood categories.
• Gasoline sales were down low single digits due to lower volumes, impacting ancillary business performance.
• Inflationary pressures, particularly in fresh foods like meat and bakery, are affecting overall cost structures.

Q & A Highlights

Q: How is the consumer's willingness to purchase, especially with rising egg prices? Are there any signs of slowing due to tariffs? A: Gary Millerchip, CFO, noted that there hasn't been a significant change in consumer behavior. Members continue to focus on quality, value, and newness. While there is some indication of increased spending on food at home, overall trends remain strong, particularly in nonfoods and fresh products. Canada showed strong results, aligning with year-to-date trends.

Q: With core margins down slightly, is Costco's margin expansion coming to an end, especially with inflation and tariffs? A: Gary Millerchip, CFO, explained that the slight decline in core margins was due to higher supply chain costs and mix changes. However, overall gross margin improved slightly, and the company continues to invest in member value. The margin expansion is not necessarily ending, as Costco remains focused on balancing investments and results.

Q: How is Costco handling potential tariff impacts on grocery items, especially fresh foods from Mexico? A: Ron Vachris, CEO, stated that Costco's buyers manage tariffs like any cost increase, working closely with suppliers to mitigate impacts. While tariffs are fluid, Costco is prepared to lower prices and defer cost increases where possible.

Q: What is Costco's strategy for dealing with tariffs from countries like China, Mexico, and Canada? A: Ron Vachris, CEO, mentioned that Costco's treasure hunt structure allows flexibility in sourcing. The strategy involves both maintaining value for members and exploring alternative sourcing options. Costco's reduced SKU model and strong supplier partnerships equip them to handle tariff challenges effectively.

Q: Can you provide an update on international growth and the impact of the Chinese New Year on sales? A: Gary Millerchip, CFO, noted that the Chinese New Year impacted sales in Asian markets, but overall international growth remains strong. Costco plans to continue expanding internationally, with about half of new warehouses expected outside the US. International markets are seen as key growth areas with strong profitability.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.