Q2 2025 Earnings Summary
- Strong International Growth and Expansion Plans: Costco's International markets are showing robust growth, with Q2 delivering outstanding results on a constant currency basis. The company plans to open 15 locations in the U.S., 3 in Canada, and 7 in Other International countries this fiscal year. With markets like Asia and Europe being underpenetrated, Costco sees significant long-term international growth opportunities, with International warehouses often achieving similar or better profitability as a rate of sales than in the U.S..
- Resilient Consumer Demand and Increased Basket Size: Despite economic pressures and potential tariffs, Costco is not seeing significant changes in member behavior. Members continue to be focused on quality, value, and newness, and are still willing to spend, being choiceful where they allocate their dollars. The company has seen an increase in average basket size and items in the basket, driven by both non-foods growth and upselling.
- Effective Supply Chain Management and Merchandising Flexibility: Costco is well-equipped to handle potential challenges such as tariffs. The company has a flexible merchandise structure and strong supplier partnerships, allowing them to find replacement items or mitigate cost increases. Additionally, initiatives like extending gas station hours have led to improved overall usage and member satisfaction.
- Uncertainty Regarding Tariffs May Impact Costs and Margins: Costco faces potential challenges due to possible tariffs on imports from countries like China, Mexico, and Canada. As Ron Vachris stated, "Given events over the last week, it is difficult to predict the impact of tariffs" , and "not knowing what that's going to be, I can't really tell you what the outcome will be". This uncertainty could lead to increased costs and pricing pressures, potentially affecting profitability.
- Sluggish Growth in Consumer Electronics Segment: The consumer electronics category is experiencing flat growth, indicating weakness in this important nonfood area. Gary Millerchip mentioned that consumer electronics are "relatively flat as a category, especially compared to many of the other nonfood categories where we see double-digit growth currently". This stagnation may hinder overall sales growth.
- Decline in Gasoline Volumes Could Signal Lower Consumer Demand: Costco reported a decrease in gas volumes for February. Gary Millerchip noted, "the gallons being down was very specific to February" and acknowledged that "there isn't a huge amount of growth" in gas volumes. While partly attributed to weather, a continued decline could indicate reduced consumer spending.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | 9% increase (from $58,442M in Q2 2024 to $63,723M in Q2 2025) | Strong net sales growth and added membership fee revenue combined with new warehouse openings have driven overall revenue expansion; building on momentum from prior periods (e.g., Q1 improvements from increased comparable sales) that established a growth trajectory now resulting in a 9% jump. |
Foods and Sundries | 6% increase (from $23,675M to $25,112M) | Stable consumer demand and core category strength continue to support sales, although the pace has moderated from earlier quarters (8–8.8% increases in Q1) likely due to seasonal factors and a normalization after previous strong growth. |
Non-Foods | ~17% increase (from $15,017M to $17,526M) | Dramatic improvement in Non-Foods reflects the recovery from earlier challenges like extra markdowns and supply chain issues, as well as robust consumer demand and e-commerce gains observed in previous periods, driving an accelerated 17% YoY rise. |
Fresh Foods | 10.5% increase (from $7,996M to $8,836M) | Robust performance in Fresh Foods is driven by a consumer shift toward at-home dining and an effective mix of premium and value offerings, continuing the positive trends seen in Q1 and further strengthening the category with a 10.5% growth. |
Membership Fees | 7% increase (from $1,111M to $1,193M) | New member sign-ups and upgrades to Executive Membership underpin a steady 7% rise in fee revenue, a trend consistent with earlier periods where improved renewal rates and an expanded membership base set the stage for ongoing fee growth. |
United States Revenue | 10.6% increase (from $41,952M to $46,413M) | U.S. revenue growth is fueled by a combination of higher net sales from increased comparable sales and contributions from 26 net new warehouses, which builds on previous Q1 successes and offsets challenges like gasoline price deflation. |
Canadian Revenue | 5.4% increase | Higher comparable sales and incremental impacts from membership fee growth (as seen in prior quarters) continue to support Canadian revenue expansion, albeit with some currency headwinds, resulting in a more moderate 5.4% increase. |
Other International Revenue | 4.6% increase (to $9,014M) | Moderate growth in Other International revenue is driven by increased comparable sales and adjusted foreign currency effects; while previous period gains from new warehouse openings contributed significantly, current increases are more subdued with only a 4.6% rise. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Capital Expenditures (CapEx) | FY 2025 | no prior guidance | $5 billion | no prior guidance |
Membership Fee Income | FY 2025 | no prior guidance | Benefit realized over next four fiscal quarters, with the largest impact expected in Q4 FY 2025 and Q1 FY 2026 | no prior guidance |
New Warehouse Openings | FY 2025 | no prior guidance | 28 new warehouses during fiscal year 2025, including 3 relocations for a total of 25 net new buildings | no prior guidance |
SG&A Impact from Wage Increases | FY 2025 | no prior guidance | 13 basis point headwind to SG&A starting in March, with a net year-over-year headwind in the mid-single digits | no prior guidance |
Foreign Exchange Headwinds | FY 2025 | no prior guidance | Continued headwinds from foreign exchange fluctuations for the remainder of the fiscal year | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International Growth & Expansion | Q1 2025: Expansion highlighted with 7 new warehouses, strong momentum in markets like Canada, Mexico, Asia and Europe. Q4 2024: Balanced domestic & international expansion with 12 new international warehouses and exploration of 5–6 new markets. Q3 2024: Emphasis on steady international expansion via partnerships (e.g., Uber) and growth opportunities in Asia. | Q2 2025: Plans to open 25–30 annual warehouses with just over half internationally; strong focus on profitability comparisons between U.S. and international markets, local sourcing (e.g., in China) and membership fee adjustments in key markets. | Continuing robust expansion with an increased emphasis on international markets and localized strategies—consistent momentum with enhanced detail around profitability and local sourcing. |
Membership Growth & Consumer Engagement | Q1 2025: Strong membership metrics, high renewal rates, and a shift toward digital sign-ups with enhanced consumer engagement. Q4 2024: Membership fee increases, impressive membership base growth with younger demographics, and technology investments (e.g., card scanners, app-based inventory) that drove consumer engagement. Q3 2024: Emphasis on innovative merchandise, international food crossovers, and partnerships to boost engagement. | Q2 2025: Continued strong membership growth with improved fee income, rising paid households and executive memberships; enhanced digital and e-commerce capabilities through personalized marketing and digital tools to improve member experience. | Consistent strength in membership growth with an evolving focus on digital engagement and personalization, reinforcing member loyalty while building on a strong base. |
Supply Chain Management & Tariff/Port Strike Risks | Q1 2025: Discussions on supply chain unpredictability, issues like egg shortages, port strike monitoring, and tariff uncertainty with strategies to pull forward buying. Q4 2024: Detailed mitigation measures for port strike risks, freight rate management, and multi-port strategies. Q3 2024: No specific mention. | Q2 2025: Continued investments in supply chain improvements, increased inventory buys to manage unpredictability, flexible sourcing and strategies to mitigate tariff risks; port strike risks are managed indirectly through these supply chain strategies. | Steady focus on resilience: Ongoing investments with a slightly more defined emphasis on managing tariff risks and leveraging local sourcing, rather than top‐line port strike discussions. |
E-commerce & Digital Transformation | Q1 2025: Digital enhancements (improved search, warehouse inventory via app), e-commerce sales growth, and partnerships with Instacart/Uber Eats spurring incremental sales. Q4 2024: Noted strong long-term compounded growth, user experience improvements and new fulfillment programs like BOPIS for TVs. Q3 2024: Acceleration in app downloads, site traffic growth, and digital roadmap improvements including personalization. | Q2 2025: E-commerce comparable sales up around 20.9% YoY; strong performance in key categories driving double-digit growth; retail media and digital promotions are further emphasized with targeted, personalized offers and new technology activations. | Accelerating digital transformation: Consistent growth with a clear shift toward leveraging retail media and personalization, deepening the digital integration into the member experience. |
Retail Media Initiatives | Q1 2025: Early-stage campaigns with encouraging return on ad spend and growing supplier engagement. Q4 2024: Focus on building infrastructure for targeted offers while planning to reinvest revenue to boost top-line growth. Q3 2024: Identification of significant growth potential through data utilization, personalization and technology investments. | Q2 2025: Expanded retail media efforts with 10 live campaigns and an “offers media channel” aimed at reinvesting value into member benefits rather than a new revenue stream. | Emerging maturity: While still in the early stages, retail media initiatives are becoming more robust and integrated, suggesting growing importance as a strategic tool to enhance member engagement and drive incremental growth. |
Warehouse Expansion (Domestic & International) | Q1 2025: Announced 29 planned warehouse openings (26 net new) including 10 outside the U.S., with strong domestic performance relieving congestion in high-volume areas. Q4 2024: Detailed expansion with 29 new warehouses planned (12 international), and strategic infills in North America highlighted. Q3 2024: Continued balanced approach with emphasis on managed cannibalization domestically and new market entries internationally. | Q2 2025: Plans for 28 new warehouses (15 in the U.S., 3 in Canada, 7 in other international markets), reaffirming the long-term strategy of 25–30 new warehouses per year with a stable balance between domestic and international growth. | Steady and balanced expansion: Consistent growth globally with maintained domestic emphasis and strategic international growth, indicating a reliable long-term expansion model. |
Non-Food Category Performance (Consumer Electronics) | Q3 2024: Strong performance in non-food segments with consumer electronics seen as part of the innovation drive and value proposition. Q4 2024: Emphasized non-food as the strongest overall performer; however, noted that appliances and electronics had become more promotional. Q1 2025: Non-food categories performed robustly across several areas without specific concern noted on consumer electronics. | Q2 2025: Non-food category continues to lead with mid-teen comparable sales; however, there is an emerging concern regarding relatively flat performance in consumer electronics and apparel. | Mixed sentiment emerging: While non-food overall remains strong, there is a new cautionary note on consumer electronics performance—a shift from previous periods where this concern was either absent or less pronounced. |
Operational Efficiency & Technology Enhancements | Q1 2025: Significant investments in technology enhancements (app improvements, digital tools, logistics speed) combined with rising operational efficiency. Q4 2024: Deployment of membership card scanners and app-based inventory checks drove efficiency improvements, plus optimized logistics. Q3 2024: Continued focus on technology (front-door scanners, better fulfillment systems) with further enhancements in app and website performance. | Q2 2025: Focus on further improving checkout efficiency with front-door scanning, extending gas station hours to suit member convenience, and rolling out personalized digital marketing messages through enhanced app tools; continued commitment to improving operational productivity. | Maturing efficiency drive: Ongoing investments in technology continue to boost operational efficiency and productivity, with incremental improvements that build on already strong digital and logistical infrastructures. |
Gasoline Volume Trends | Q1 2025: Gasoline sales were down in volume, impacted by low average prices and deflation effects. Q4 2024: Reported gasoline gallon growth up 3% YoY, highlighting peak price periods driving increased attractiveness. Q3 2024: Noted a 5% increase in gasoline gallons contributing to higher overall traffic. | Q2 2025: Gasoline volumes were specifically down in February, though year‐to‐date performance showed low single-digit growth as market share continues to expand despite weather impacts. | Mixed results: While gasoline volumes have generally contributed to traffic, recent monthly trends show some softness, although overall market share is growing modestly. |
BOPIS & Omnichannel Capabilities | Q3 2024: Expanded BOPIS offerings in select categories like televisions; emphasis on technology driving member engagement. Q4 2024: Successfully rolled out BOPIS for TVs in the U.S. and testing models for laptops. Q1 2025: No new emphasis noted this period [–]. | Q2 2025: There is no mention of BOPIS or omnichannel initiatives, indicating a de‐emphasis on these strategies in the current period. | Now less emphasized: Previously a point of focus, BOPIS/omnichannel capabilities have faded from discussion in Q2 2025, suggesting a strategic pivot away from highlighting this channel. |
Rising Labor Costs & Margin Pressures | Q1 2025: Noted higher SG&A driven by rising labor costs with a 15 basis point increase; overall margins remained strong due to productivity gains. Q4 2024: Acknowledged wage increases contributing modestly to SG&A headwinds while emphasizing value delivery to members. Q3 2024: Briefly mentioned rising labor costs with improved efficiency yielding better core margins. | Q2 2025: Labor costs continue to rise with new wage agreements (e.g., $1 per hour top-of-scale increase and higher minimum wages), causing core-on-core margins to be 8 basis points lower; however, overall gross margins improved slightly and cost efficiencies are being pursued. | Persistent headwinds: Rising labor costs remain a challenge, though incremental improvements in SG&A efficiency and focused investments indicate a measured, ongoing impact rather than an escalating crisis. |
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Margin Outlook and Impact of Tariffs and Inflation
Q: Is recent margin expansion ending due to tariffs and inflation?
A: Management doesn't believe margin expansion is ending. While the core-on-core margin was down 8 basis points, the overall gross margin rate increased by 4 basis points. Higher supply chain costs and investments in inventory impacted margins, but they feel confident in their ability to manage costs and continue investing in members. -
Consumer Spending Trends
Q: Are consumers cutting back due to rising egg prices?
A: Management isn't seeing significant changes in consumer purchasing behavior. Members remain focused on quality, value, and newness, showing willingness to spend but being more selective. Nonfoods show strong trends, though categories like consumer electronics and apparel are flatter. -
Wage Headwinds and Productivity Offsets
Q: Are wage headwinds larger due to new agreements?
A: The wage headwind adds about a mid-single-digit basis point increase quarter-over-quarter. There will be a one-time catch-up in Q3 for vacation accruals. Management aims to offset wage pressures through productivity improvements, achieving SG&A leverage of 9 basis points on the core. -
International Growth Prospects
Q: What's the outlook for long-term international growth?
A: International markets showed strong performance, with plans to open 25 to 30 new warehouses annually—just over half in the U.S. and just under half internationally. International markets have similar or better profitability than the U.S., presenting significant growth opportunities. -
Nonfoods and Electronics Sales Trends
Q: How are general merchandise and electronics performing?
A: While consumer electronics are relatively flat, Costco believes they are growing market share. Strong sales were noted in larger TV screens. Nonfoods categories show double-digit growth, except for consumer electronics and apparel ,. -
Alternative Media and New Profit Streams
Q: What's the strategy for alternative media revenue?
A: Costco sees retail media as a significant growth opportunity but is in early stages. Existing alternative profit streams like co-branded credit cards, travel, and e-commerce ad revenue generate a few hundred million dollars. They plan to build capabilities over a multi-year roadmap, focusing on reinvesting value into members rather than declaring a new revenue stream. -
Average Ticket Trends and Basket Size
Q: How are average ticket and basket size trends?
A: Over the last 12 months, they've seen increases in items per basket and overall basket size. Nonfoods growth has improved, contributing to larger baskets. Inflation has been relatively flat until this quarter. -
Kirkland Signature Product Expansion
Q: Can you expand KS products into nonfoods?
A: There's significant opportunity to expand Kirkland Signature into nonfoods. Successes include motor oil and golf balls becoming top sellers. Buyers focus on strategic items, maintaining high success rates for KS introductions. -
Membership Fee Increases and Executive Membership
Q: Any plans for international membership fee increases?
A: Membership fees increased in Australia and Mexico recently, with Japan and Korea just announcing increases. Executive Membership is expanding as markets reach maturity, with significant opportunities to increase penetration internationally. -
Digital Multi-Vendor Mailer and Personalized Marketing
Q: What's the progress on digital MVM and personalization?
A: The digital MVM allows for greater flexibility and has been effective, reaching 40 million members via email. Personalized communication efforts started this month, showing encouraging early signs in member engagement and behavior change. -
Gas Volumes and Gas Station Hours
Q: Are extended gas station hours increasing gallons sold?
A: Early results are positive, with increased member usage of gas stations due to extended hours. Overall gas volumes were down in February but are up year-to-date with low single-digit growth ,. -
Price Gaps vs. Competitors
Q: How are price gaps compared to competitors?
A: Costco focuses on delivering the best value and quality, striving to improve prices proactively rather than reacting to competitors. They feel good about their price gaps and continue to challenge themselves to offer better value. -
Store Expansion Plans
Q: What's the balance of new stores in existing vs. new markets?
A: This year, Costco plans to open 15 locations in the U.S., 3 in Canada, and 7 in other international countries. They continue to see growth opportunities both domestically and internationally ,. -
Throughput and Checkout Initiatives
Q: How are you improving store throughput and checkout?
A: Speed of checkout is a primary focus. Scanning at the front door helps adjust register openings, and they are exploring self-checkout improvements. Currently, there are no plans to extend warehouse hours ,. -
Impact of Weather on Sales
Q: Did weather affect sales in February?
A: Severe weather had some impact, but Costco tends to recover quickly if events aren't extended. They feel they handled the storms well, with any sales impact being offset.