The warehouse membership chief remains to be firing on all cylinders.
Costco (COST 0.13%), the world’s largest warehouse membership retailer, posted its newest earnings report on Sept. 25. For the fourth quarter of fiscal 2025, which ended on Aug. 31, its income rose 8% yr over yr to $86.2 billion and exceeded analysts’ estimates by $100 million. Its earnings rose 11% to $5.87 per share and likewise cleared the consensus forecast by $0.06.
These headline numbers had been wholesome, however Costco’s inventory nonetheless dipped after the report and stays about 15% beneath its all-time excessive of $1,078 from this February. Let’s examine what’s working for the retail large — and if you can purchase its inventory after its post-earnings pullback.
Picture supply: Getty Pictures.
Costco’s core numbers are nonetheless rising
As a warehouse membership retailer, Costco generates most of its income from its high-margin membership charges. That is why it may well afford to promote most of its merchandise at low, breakeven, and loss-leading margins. It leverages its scale to barter favorable bulk charges with its suppliers, and it attracts cost-conscious customers with its bulk merchandise.
To keep up a decent management over its inventories and prices, Costco carries a narrower vary of merchandise than superstores like Walmart (NYSE: WMT). To distinguish itself from its opponents, it sells its personal label Kirkland merchandise. It additional will increase the stickiness of its memberships with its meals courts, fuel stations, imaginative and prescient facilities, and different ancillary companies. For Costco to continue to grow, it wants its comparable retailer gross sales to maintain climbing because it opens new warehouses, positive factors new cardholders, and maintains excessive renewal charges. All 4 of these key efficiency metrics have persistently risen over the previous few years.
Metric
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
FY 2025
Adjusted* comps progress
9.2%
13.4%
10.6%
5.2%
5.9%
7.6%
Complete warehouses
795
815
838
861
890
914
Complete cardholders
105.5M
116.1M
118.9M
127.9M
136.8M
140.6M
World renewal fee
88%
89%
90%
90.4%
90.5%
90.5%
Knowledge supply: Costco. *Excludes gas gross sales and overseas change charges.
Costco grew via the COVID-19 pandemic, which drove extra customers to fill up on family merchandise; and the spike in inflation, which introduced in additional cost-conscious consumers. It raised its membership charges for the primary time in seven years final September, however that value hike did not cut back its international renewal fee or stop it from gaining new members.
What are Costco’s catalysts for fiscal 2026?
Costco plans to open 35 new warehouses (together with 5 relocations) in fiscal 2026, roughly cut up in half between the U.S. and its worldwide markets — which embrace Canada, Mexico, Asia, and Europe. That is greater than its earlier fee of 25-30 new warehouse openings per yr. It is going to additionally proceed to develop its e-commerce platform — which is rising sooner than its brick-and-mortar shops — with contemporary options for its app and technological upgrades throughout its logistics community.
Costco additionally expects to realize extra high-value government members, which grew 9% yr over yr to 38.7 million within the fourth quarter. These members get annual rewards on sure purchases, month-to-month credit for same-day and Instacart orders, unique reductions for its ancillary companies, entry to earlier procuring hours, and different perks.
Throughout the convention name, CFO Gary Millerchip stated that “regardless of the present macroeconomic uncertainty,” Costco was nonetheless “assured” in its “capability to develop market share” in fiscal 2026. Costco’s administration did not present an actual income or earnings outlook for fiscal 2026, however analysts count on its income and EPS to rise 8% and 10%, respectively.
Why did Costco’s inventory pull again?
Costco’s enterprise remains to be firing on all cylinders, however three challenges weighed down its shares. First, its inventory nonetheless seems costly at 47 occasions ahead earnings. The bulls may argue that Costco deserves that premium valuation, however a number of progress is already baked into its inventory value.
Second, its adjusted comps progress of 6.4% within the fourth quarter marked a slight slowdown from its 8% progress within the third quarter. Lastly, the Trump administration’s unpredictable tariffs might squeeze its margins over the subsequent yr and offset a few of the advantages from its greater charges.
These points appear minor, however Costco’s inventory was already priced for perfection earlier than its newest earnings report. So whereas Costco’s inventory could be price nibbling on after its post-earnings pullback, buyers ought to understand they’re nonetheless paying a premium for its evergreen enterprise.
Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Costco Wholesale and Walmart. The Motley Idiot has a disclosure coverage.
