Costco on Thursday reported another sturdy — if mixed — quarter, demonstrating that its focus on keeping prices low continues to bring more shoppers to its stores at an uncertain time for the U.S. economy. Total revenue in its second quarter of fiscal year 2025 rose 9% year over year to $63.72 billion, topping Wall Street expectations of $63.13 billion, according to estimates compiled by LSEG. Earnings per share (EPS) in the 12 weeks ended Feb. 16 came in at $4.02, missing the consensus of $4.11, LSEG data showed. The reported figure includes a 13-cent hit from foreign exchange rates, a common theme this earnings season among multinational companies dealing with a strong U.S. dollar. EPS rose 2.6% on an annual basis, though the year-ago period included a $94 million tax benefit. Without it, EPS would’ve been up 8.4%. Costco Why we own it: Costco is the best-run retailer in the world, with a business model focused on offering its members a relatively small universe of products at hard-to-beat prices. Costco has succeeded for decades, but the high inflation of recent years has made the company’s value-focused ethos really shine. Competitors: BJ’s Wholesale , Walmart , fellow Club holding Amazon Last buy: June 15, 2020 Initiation date: Jan. 27, 2020 Bottom line Costco did not report its prettiest quarter, but a Picasso is still a Picasso. Nothing in the numbers or what was said on Thursday’s conference call suggests the best-of-breed retailer has lost a step in both its operations and its appeal to customers who want more bang for the buck and a fun shopping experience. The EPS miss is hardly a back-breaker. Operating margins still expanded on a year-over-year basis for the eighth quarter in a row, albeit at a slightly lower pace than Wall Street expected, and its top-line grew at a hearty 9% clip. Same store sales — often called comparable store sales, or comps — also exceeded expectations during the important holiday quarter. Membership renewal rates also creeped up compared with the first quarter. Shares of Costco were down a little more than 1% in extended trading Thursday. The muted move after earnings is far from unusual with Costco because the company reports sales on a monthly basis, meaning often a lot of the good news is priced into the stock. Indeed, Costco shares were up nearly 4% since its last earnings on Dec. 12 report versus a 5.2% decline in the S & P 500 . COST 1Y mountain Costco’s stock performance over the past 12 months. Costco’s earnings arrive at a time of growing concern on Wall Street about the health of the U.S. economy and the impact of President Donald Trump’s tariff policy on prices and consumer spending. On the earnings call, CFO Gary Millerchip said Costco was not really seeing any change in member behavior compared with the prior few quarters. Members are showing a willingness to spend, but they’re just being choosy about what they spend their money on, he said. That dynamic could be even more pronounced if there’s a return of inflation and “the potential impact of tariffs could flow through as well,” Millerchip said. Costco’s merchants try to lean into a choosier consumer by bringing in new and exciting products at attractive prices, he said. For example, he noted that sales of 98-inch and 100-inch TVs, Stern pinball machines and gaming computers were strong during the holiday season. Overall, nonfood categories led the way for Costco’s sales growth in the mid-teens on a comparable basis in the quarter. Fresh foods were up high single digits, he said, noting that spending shifts toward lower-cost meats continued. On tariffs specifically, CEO Ron Vachris said Costco can work through the impact in multiple ways, which was reassuring to hear. With Costco’s emphasis on a “treasure hunt” shopping experience, Vachris said the company can be flexible with what it sells and, if necessary, replace heavily tariffed products with something else that is less exposed. For items that can’t avoid tariffs, such as fresh foods and other grocery items, Vachris offered up a classic Costco refrain: “When it rains, it rains on everyone.” He added, “Our people are very well equipped to lower prices and defer any cost increase that comes our way.” The great irony in owning Costco is that its stock is not cheap, especially now at nearly 55 times forward earnings estimates. But when it comes to stock-picking, quality often carries a premium. For now, we’re reiterating our 2 rating , meaning we’ll wait for a pullback before buying more, and price target of $1,100 a share. Commentary Total comparable sales, an important retail industry metric, rose a better-than-expected 6.8% in the quarter, driven by a 5.7% increase in traffic, or shopping frequency, and a 1% increase in ticket. We like to see the gains being led by traffic because it signals that more people are visiting Costco’s warehouses, which bodes well for continued market share gains versus retail peers. Excluding the impact of gas price changes and foreign exchange, Costco saw a 9.1% increase in comps. Comparable e-commerce sales, a growing focus for the company and investors, were up 20.9% in the quarter, or 22.2% when excluding foreign exchange. The growth rate is up significantly from the 13% clip (13.2% in constant currency) observed in the first quarter. It’s slightly faster than what was observed in the third and fourth quarters of fiscal 2024. Another growth initiative is its advertising business, known as “retail media.” After completing its first targeted media campaign last quarter, Millerchip said Costco now has entered into roughly 10 similar programs with partners and “see a lot more in the pipeline.” The finance chief said Costco’s plan is to use that revenue stream to reinvest in the business and keep prices low, which is good for keeping paying members around. Its worldwide renewal rate was 90.5% and 93% in the U.S. and Canada, up from 90.4% and 92.8% in the prior quarter. It was nice to see the modest increase because executives have cautioned investors that an increase in digital sign-ups, which tend to renew at a lower rate, will impact its retention rate for the fiscal year. Store openings in Asia also can affect the result here, Millerchip said, because they generate outsized membership sign-ups, but also have lower renewal rates. Still, the overall number of paid memberships continued to trend higher, to 78.4 million at the end of the quarter, up 6.8% year over year. That was 300,000 below Wall Street expectations. Costco opened just one warehouse in the second quarter, but it has a few planned openings in the coming weeks, including its 900th location worldwide in Sharon, Massachusetts, which is roughly equidistant from Boston and Providence, Rhode Island. One of the Wall Street analysts on the call said he’s a lifelong resident of the town, and the “buzz is high” among people in the community. Of course, that’s just anecdotal evidence, but it goes to show the kind of enduring appeal that Costco has among shoppers at a time where Wall Street is closely tracking the company’s expansion trajectory. New stores both in the U.S. and abroad represent opportunities to add members and grow sales further. Costco estimates it will end the year with 915 stores, 25 more than at the end of fiscal 2024. That is down slightly from the 916 store estimate provided alongside earnings in December. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Customers shop at a Costco Wholesale store on Jan. 31, 2025 in Chicago, Illinois.
Scott Olson | Getty Images
Costco on Thursday reported another sturdy — if mixed — quarter, demonstrating that its focus on keeping prices low continues to bring more shoppers to its stores at an uncertain time for the U.S. economy.