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Costco Earnings: Solid Growth Driven by Membership Fees and Kirkland Strength

  • Writer: Hardik Shah
    Hardik Shah
  • Sep 26
  • 3 min read
Costco New Member Values
Source: Costco Earnings Presentation


TLDR


  • Revenue Strength: Net sales rose 8% in Q4 to $84.4B, with e-commerce up 13.6%.

  • Margin Trends: Core margins improved 29 bps, led by Kirkland Signature penetration and supply chain efficiencies.

  • Forward Outlook: Management plans 35 new warehouse openings in FY26, while navigating tariff risks and digital expansion.


Business Overview


Costco Wholesale Corporation (Nasdaq: COST) operates a membership-based warehouse model offering branded and private-label goods at scale. The company runs 914 warehouses globally, including 629 in the U.S. and Puerto Rico, with a growing presence in Canada, Mexico, Asia, and Europe.


Its Kirkland Signature private label continues to deepen penetration, delivering 15–20% savings versus national brands, while also mitigating tariff impacts.

As CEO Ron Vachris noted, “Kirkland Signature sales penetration continues to increase, bringing even more high-quality value to our members while offsetting potentially inflationary impacts from tariffs.”

Costco Earnings


  • Revenue: Q4 net sales increased 8% YoY to $84.4B; full-year sales grew 8.1% to $269.9B.

  • Comparable Sales: Adjusted comps rose 6.4% in Q4, led by U.S. +6.0%, Canada +8.3%, International +7.2%, and E-commerce +13.5%.

  • Profitability: Q4 net income rose to $2.61B ($5.87 EPS), up 11% YoY. Adjusting for last year’s tax benefit, EPS grew 14%.

  • Margins: Gross margin improved 13 bps to 11.13%, supported by fresh, sundries, and non-foods, offset by LIFO charges and lower gas margins.

  • Membership Fees: Revenue reached $1.72B, up 14% YoY, with Executive Members now 47.7% of paid members and driving 74% of sales.


Forward Guidance


  • 35 new warehouses targeted in FY26 (including 5 relocations).

  • CapEx expected to grow faster than sales again, focused on remodels, logistics, and Kirkland manufacturing.


Risks & Opportunities:

  • Opportunities: Continued penetration of Executive memberships, digital personalization, and B2B business centers.

  • Risks: Tariffs, commodity inflation (beef, coffee, sugar), and slight pressure on renewal rates from younger online sign-ups.


Operational Performance


  • Opened 27 new warehouses in FY25 (24 net new).

  • Extended operating hours and added an Instacart credit for Executive members, lifting U.S. comps by ~1%.

  • Technology rollout included faster checkouts and passwordless mobile sign-in.

  • Supply chain efficiency gains helped offset wage increases and tariff impacts.

CFO Gary Millerchip emphasized Costco’s approach to resilience: “Our merchants adjusted their plans to mitigate tariff impacts and source items that our members need while delivering the lowest price at the best value.”

Market Insights


  • E-commerce traffic grew 27% YoY, with big-ticket items like appliances and furniture performing strongly.

  • Ancillary businesses (pharmacy, optical, hearing aids) had solid quarters.

  • Costco is leaning into Kirkland Signature innovation while selectively trimming discretionary holiday SKUs in favor of higher-value seasonal and big-ticket categories.


Consumer Behavior & Sentiment


  • Executive member upgrades accelerated after new benefits were announced.

  • Younger members now represent nearly half of new sign-ups, though online cohorts renew at slightly lower rates.

  • Value staples like rotisserie chicken and $1.50 hot dog combos remain traffic drivers—Costco sold 245M hot dog combos and 157M rotisserie chickens in FY25.


Strategic Initiatives


  • Expanding digital and retail media with personalized homepage offers and targeted ad campaigns (e.g., Kimberly-Clark with 14:1 ROAS).

  • Ongoing Kirkland Signature product innovation, with >30 launches this quarter.

  • Building out manufacturing capacity (e.g., coffee roasting, hot dog production) to support private-label growth.

  • Strengthening B2B business centers in North America, with future international expansion potential.

On digital progress, Millerchip said: “A key focus of our digital strategy is to deliver a seamless experience and more personalized and relevant communications to our members.”

Capital Allocation


  • Dividends: Paid $2.18B in FY25; continues regular dividend policy.

  • Buybacks: Repurchased $903M of shares in FY25.

  • Balance Sheet: Cash grew to $14.2B, up from $9.9B a year ago, with long-term debt stable at $5.7B.


The Bottom Line


Costco closed FY25 with solid revenue growth, expanding membership economics, and resilient margins. Management continues to balance investments in employees, digital innovation, and Kirkland Signature growth with prudent cost discipline.


Looking ahead, investors should watch:

  1. The trajectory of membership renewal rates as younger cohorts scale.

  2. The impact of tariffs and commodity inflation on gross margins.

  3. Execution of the 35 planned warehouse openings and accelerated CapEx in FY26.


Despite macro uncertainty, Costco remains positioned as a defensive growth play in retail with strong cash generation and customer loyalty.



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