Q1 2025 Summary
Published Jan 4, 2025, 1:15 AM UTC- Strong traffic growth and member engagement: Costco continues to experience robust traffic growth, with increased shopping frequency and improved items per basket, indicating high customer loyalty and engagement. Executives noted that traffic growth is being driven by multiple areas including pharmacy, food court, fresh foods, non-food business, and e-commerce, reflecting strong execution across all parts of the business.
- Successful expansion strategy generating incremental business: New warehouse openings, such as the one in Pleasanton, California, are generating significant incremental business even in areas near existing high-volume locations. The company sees ample runway for continued U.S. growth, expecting to open around 30 new clubs per year over the next several years, demonstrating confidence in their ability to grow in both new and existing markets.
- Strong performance and market share gains in non-food categories: Costco is seeing strong sales growth in non-food categories, with double-digit increases in areas like jewelry, gift cards, home furnishings, sporting goods, health and beauty aids, and hardware. The company believes it is gaining market share across most of these categories.
- Costco's retail media initiative is still in the very early stages and remains uncertain. When asked about expanding retail media services to more third-party marketplace vendors, management responded: "we're in the very early stages, and we're going to look at where we feel the benefits will be to our members. So that is to be determined yet." This uncertainty could limit potential future revenue growth from retail media.
- International comparable sales have decelerated without specific explanations from management. An analyst observed: "Comps decelerated on a multiyear stack versus Q4." Management did not provide detailed reasons, stating: "I don't think there's anything we'd be particularly calling out..." This may indicate challenges in sustaining international growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7.5% ( ) | Driven by higher net sales from continued warehouse expansions and strong membership fee revenue, partly due to increased renewal rates and new sign-ups. Easing inflationary pressures have supported discretionary spending, and e-commerce growth further boosted sales ( ). |
Foods and Sundries | +9% ( ) | Benefited from mid- to high single-digit comp sales led by strong performance in cooler, frozen, and everyday essentials. Continued gains in private-label (Kirkland Signature) offerings and periodic price reductions attracted value-conscious consumers, while new product introductions supported category interest ( ). |
Non-Foods | +10% ( ) | Growth accelerated as inflation eased, helping members shift back to discretionary purchases such as electronics, jewelry, and gift cards. Promotional activities, particularly in appliances and home goods, along with added value services (e.g., installation) helped stimulate higher demand ( ). |
Fresh Foods | +12% ( ) | Achieved double-digit gains due to high single-digit comps in meat and produce, supported by price adjustments that improved value perception (e.g., lower-cost chicken). New product offerings (e.g., paneer cheese, fried tofu) and consistent quality reinforced member loyalty and increased volume sales ( ). |
United States | +8% ( ) | The U.S. segment benefited from 23 net new warehouse openings and growing membership renewals, alongside robust traffic and higher average ticket. Moderating inflation encouraged spending on both core essentials and discretionary items, driving balanced growth across product categories ( ). |
Canada | +6% ( ) | Experienced an uptick from gains in comparable traffic (+5.9%) and a robust membership base, partially offset by foreign exchange headwinds. E-commerce expansion and modest membership fee increases also contributed to higher sales and membership revenue ( ). |
Other International | +7% ( ) | Comparable sales grew in key markets, bolstered by new warehouse launches and increased traffic (+5.3%). However, foreign currency fluctuations impacted reported results, while e-commerce gains continued to lift overall sales mix in these regions ( ). |
Operating Income (EBIT) | +11% ( ) | Supported by improved gross margins (up ~35 bps) driven by strength in gasoline, ancillary businesses, and e-commerce, alongside stable SG&A leverage. Ongoing wage investments were largely offset by productivity gains and sales growth, reflecting the company’s ability to scale efficiently ( ). |
Net Income | +13% ( ) | Benefited from strong top-line growth, better margins, and a lower effective tax rate in certain periods. Higher interest income and one-time tax benefits (e.g., from stock-based compensation) also bolstered net profitability, continuing Costco’s trend of steady earnings expansion ( ). |
EPS - Diluted | +13% ( ) | Mirrored the net income rise, moving to $4.04 per diluted share as revenue, margin expansion, and favorable tax effects flowed through to the bottom line. Continued share buybacks were limited, but stabilized the share count enough to support healthy EPS growth ( ). |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Growth in nonfood/discretionary categories | Was consistently strong in Q4 2024 (nonfood led overall comps) , Q3 2024 (highest comps among core categories) , and Q2 2024 (20%-30% increases in big-ticket items). | Continues to show strong gains, with categories like gold & jewelry, gift cards, sporting goods, and home furnishings up double digits. | Recurring topic with positive momentum, reflecting continued member spending on discretionary categories. |
Continued membership and traffic expansion | Q4 2024: 76.2M paid members. Q3 2024: 74.5M paid members. Q2 2024: 73.4M paid members. All periods noted strong traffic and high renewal rates. | 77.4M paid household members (+7.6% YoY), traffic up 5.1% worldwide, renewal rates near historical highs. | Consistent growth each quarter, remains a core driver of Costco’s success. |
Margin pressures from wages, promotions, and competition | Q4 2024: Wage increases discussed, offset by operational efficiencies. Q3 2024: Wage hikes but improved SG&A rate. Q2 2024: Cited wage increases impacting margins. | Higher wages noted as a headwind, adding pressure to SG&A, but partially offset by productivity gains. | Ongoing cost pressure. Sentiment stable as Costco continues to manage efficiencies and maintain competitive pricing. |
Kirkland Signature private-label growth | Q4 2024: Penetration in high 20s, key driver of margins. Q3 2024: New items (men's shoes, facial wipes) performing well. Q2 2024: Historical Kirkland Signature increases. | Grows faster than overall business, now about 33% of U.S. sales, with new products introduced and multiple price reductions. | Consistently growing, viewed as a strong value proposition and margin driver. |
Warehouse expansion plans | Q4 2024: 30 new warehouses in FY24, plan for 29 in FY25. Q3 2024: 30 openings projected for FY24. Q2 2024: 4 net new in Q2, targeting ~30 for the year. | Opened 7 new warehouses in Q1 2025 (6 net new), targeting 29 total for fiscal year, including 10 outside the U.S.. | Steady expansion strategy, indicating long-term global growth opportunities. |
Retail media initiative | Q4 2024: Mentioned as a future opportunity but no formal initiative. Q3 2024 & Q2 2024: Not formally discussed in detail. | New in Q1 2025. First targeted campaign produced 2-3x return on ad spend; over 25 suppliers eager to participate. | Emerging topic with significant potential for incremental revenue and stronger supplier partnerships. |
International comparable sales deceleration | No mention across Q4 2024, Q3 2024, or Q2 2024 for this specific deceleration. | Slight deceleration observed, but no major concerns; timing of holidays noted as a factor. | New mention this quarter; sentiment remains generally positive about international performance. |
Gas profitability concerns | Q3 2024: Down in gas profitability. Q4 2024: Fairly stable, no major shift. | Acknowledged short-term volatility but not a major concern in the long term. | Declining focus, no longer a significant recurring headwind. |
Membership fee increase timing | Q4 2024: Fee raised Sept 1, 2024, main impact in FY25/26. Q3 2024: “When, not if” approach. Q2 2024: Under evaluation, no urgency. | Recent fee increase noted with minimal immediate impact due to deferred accounting. | Previously discussed in detail, now less emphasized. |
SG&A leverage challenges | Q4 2024: Managed wage increases via productivity. Q3 2024: SG&A rate improved YoY. Q2 2024: Historical SG&A % fluctuation discussed. | No direct mention of SG&A leverage issues in Q1 2025. | Not highlighted this period; challenges appear less prominent. |
E-commerce strategy with Costco Next | Q4 2024: Costco Next at 86 vendors, ~40% YoY growth. Q3 2024: 75 vendors, emphasis on curated marketplace. Q2 2024: Discussed expansion targets. | Record holiday sales for Costco Next, continuing to support overall e-commerce growth. | Ongoing expansion reinforces Costco’s omnichannel approach. |
Shift to positive sentiment on discretionary spending | Q4 2024: Inflation easing led to more nonfood spend. Q3 2024: Discretionary comps were highest. Q2 2024: Big-ticket categories up notably. | Not directly stated, but strong nonfood demand implies continued positive sentiment. | Sustained positivity on discretionary items, driven by value proposition and member demand. |