Core Insights - The article highlights the stark difference in membership renewal rates between Sam's Club and Costco in China, with Sam's Club achieving a renewal rate of 92% compared to Costco's 60% [1][3][29] - It emphasizes that the success of Sam's Club in China is attributed to its localized strategies and effective operational tactics, while Costco struggles due to its rigid adherence to global practices [22][20][30] Group 1: Membership and Operational Strategies - Sam's Club's high renewal rate is a key indicator of its operational strength in the Chinese market, contrasting sharply with Costco's performance [1][3] - The article suggests that the membership retail model is viable, as evidenced by Costco's global success, but its execution in China has been flawed [2][20] - Sam's Club employs effective internet marketing strategies, leveraging social media platforms to create buzz and engagement around its products [6][7] Group 2: Delivery and Customer Experience - Sam's Club's innovative "front warehouse + online delivery" model significantly enhances customer convenience, addressing a major pain point for warehouse membership stores [9][22] - In contrast, Costco's online services are described as inadequate, with a limited product range and additional delivery fees that deter potential customers [15][16][18] Group 3: Market Adaptation and Future Prospects - Sam's Club's ability to adapt to local preferences, such as offering convenient delivery options and engaging marketing, positions it as a leader in the Chinese market [22][24] - The article raises the possibility that Sam's Club's successful strategies in China could influence its global operations, potentially reversing the current dynamics with Costco [25][26] - The future of both companies in China hinges on their understanding of local consumer behavior and market conditions, with Sam's Club currently having the upper hand [30][31]

Investment Rating - The report assigns a "Buy" rating to Costco Wholesale (COST) with a 12-month price target of $1,133, indicating an upside potential of 7.3% from the current price of $1,055.59 [9][10]. Core Insights - Costco's May same-store sales (SSS) growth was +6.0%, slightly below the consensus estimate of +6.2% and down from +6.7% in April. U.S. comparable sales (ex-gas) were +5.5%, also below the consensus of +6.4% and down from +7.1% in April. The company noted a negative impact from cannibalization of approximately 70 basis points in May [1]. - Worldwide traffic growth decelerated to +3.4% in May, compared to +4.2% in April. U.S. traffic growth also slowed to +2.8% from +5.0% in April, while global ticket sales (ex-gas/FX) increased by an estimated +2.6% [2]. Sales Performance - The report highlights that the Fresh category saw high-single-digit growth, driven by strong performance in meat and bakery. Food & Sundries grew mid-single-digit to high-single-digit, while non-foods increased mid-single-digit. The ancillary business, however, decreased low-single-digit to mid-single-digit [8]. Financial Metrics - The report provides financial forecasts for Costco, projecting revenues of $254.45 billion for the current year, increasing to $310.24 billion by 2027. EBITDA is expected to grow from $11.52 billion to $15.45 billion over the same period. The earnings per share (EPS) is forecasted to rise from $16.56 to $21.51 [10].

Group 1 - Costco's shares fell by 3.9% after reporting May comparable sales that were slightly below estimates [1][4] - In May, Costco's comparable sales increased by 4.3%, or 6% when adjusted for fuel prices and foreign exchange, which was lower than the growth rate of 5.8% for the first 39 weeks of the fiscal year [4] - Overall revenue for the four-week period ending June 1 rose by 6.8%, but this was just below the expected adjusted comparable-sales growth of 6.2% [4][5] Group 2 - Wells Fargo noted that despite the slight miss in sales, Costco continues to perform well but has a high valuation, maintaining an equal weight rating with a price target of $1,000 [5] - Costco's current price-to-earnings ratio is 57, indicating high expectations are already factored into the stock price [7] - The market's reaction to a moderation in growth rates suggests that any further disappointing numbers could lead to additional declines in the stock price [6][7]

Group 1: Core Insights - Costco Wholesale Corporation has launched a Buy Now Pay Later (BNPL) initiative in partnership with Affirm, targeting high-ticket categories through its e-commerce platform [1][7] - The BNPL option aims to reduce psychological barriers to purchase, particularly for younger and budget-conscious consumers, potentially unlocking new purchasing behaviors in large-item categories [2][3] - Costco's e-commerce comparable sales increased by 14.8% in the third quarter, with the BNPL initiative expected to further enhance this growth momentum [3][7] Group 2: Competitive Landscape - Competitors such as Walmart and Amazon have already integrated BNPL options into their platforms, with Walmart focusing on seasonal items and electronics, while Amazon offers Amazon Pay Later for easier access to higher-priced items [4][5] Group 3: Financial Performance and Estimates - Costco's stock has performed well, with a year-to-date increase of 14.8%, surpassing the industry's growth of 8.7% [6] - The Zacks Consensus Estimate indicates year-over-year growth of 8.1% in sales and 11.9% in earnings per share for the current financial year [9] - Costco's forward 12-month price-to-earnings ratio is 54.21, higher than the industry average of 34.39, indicating a premium valuation [8]

Core Viewpoint - The article discusses the investment position of Parkev Tatevosian, CFA, and mentions the involvement of The Motley Fool with Costco Wholesale, highlighting the potential for compensation related to promotions [1] Company Analysis - Parkev Tatevosian has no position in any of the stocks mentioned, indicating a neutral stance on the specific stocks discussed [1] - The Motley Fool has positions in and recommends Costco Wholesale, suggesting a positive outlook on the company's performance [1] Disclosure and Compensation - The Motley Fool has a disclosure policy that outlines its investment positions and potential compensation for promoting services, which may influence the opinions expressed [1] - Parkev Tatevosian may earn additional income through subscriptions linked to his promotions, indicating a financial incentive tied to his analysis [1]

Core Insights - Costco is adjusting its supply chain strategy by increasing local sourcing of its Kirkland private label products to mitigate the impact of high tariffs imposed by the Trump administration [1][2] - The company's net sales reached $62 billion, reflecting an 8% year-over-year growth, despite facing operational pressures from recent tariff policies [2] Group 1: Supply Chain Adjustments - Costco is shifting the procurement of many products from high-tariff countries to local or regional markets to reduce costs and alleviate tariff impacts [2] - The company has proactively stocked seasonal items in advance and increased local production to ensure sufficient inventory while minimizing tariff-related pressures [4] Group 2: Industry Response - Canadian retailers, including Metro and Loblaw, are also prioritizing local sourcing to navigate the uncertainties brought by trade tensions and to support local suppliers [5] - Walmart Canada has not publicly commented on whether it is adopting similar strategies in response to tariff impacts [5]

Core Insights - Costco demonstrates resilience amid market fluctuations, reporting strong financial results for Q3 of FY2025 [1][3] - The company achieved total revenue of $63.2 billion, an 8% year-over-year increase, and net income of $1.9 billion, up 13% [3][5] - Membership fee income reached $1.24 billion, reflecting a significant increase from $1.12 billion in the previous year, with a global membership renewal rate exceeding 90% [5][6] Financial Performance - Total revenue for the quarter was $63.2 billion, with net sales of $61.97 billion and membership fees contributing $1.24 billion [4] - Operating income rose to $2.53 billion, compared to $2.20 billion in the same quarter last year [4] - The diluted earnings per share were $4.28, surpassing expectations by $0.04 [3] Membership Growth - Costco's global paid membership reached 76.2 million, with a total cardholder count of 137 million, indicating a healthy growth trajectory [5][6] - Membership income grew by 11.4%, with a renewal rate of 92.7% excluding foreign exchange impacts [6] E-commerce Development - The e-commerce segment saw a nearly 16% year-over-year growth, reversing previous negative trends [6][8] - Recent leadership changes have shifted the focus towards technology transformation and enhancing the e-commerce business [7][8] Challenges in China - Despite global success, Costco faces significant challenges in the Chinese market, with only seven stores opened since 2019 and a low membership renewal rate of 62% [9][10] - The company's standardized store model and pricing strategy have not resonated well with Chinese consumers, leading to slower expansion compared to competitors like Sam's Club and Aldi [10][12][16] Competitive Landscape - Sam's Club has rapidly expanded in China, with 56 stores and a strategy that includes flexible store formats and enhanced online services [10][14] - Aldi's community-focused store model has proven effective, achieving high sales volumes and plans for further expansion [16] Strategic Outlook - Costco plans to open nine new stores in FY2025, focusing on markets outside of China, indicating a cautious approach to its expansion strategy [16] - The company must adapt to local consumer preferences and competitive dynamics to improve its market position in China [16]

PART I: FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the period ended May 11, 2025, including income, balance sheets, equity, and cash flow statements Condensed Consolidated Statements of Income (in millions, except per share data) | | 12 Weeks Ended May 11, 2025 | 12 Weeks Ended May 12, 2024 | 36 Weeks Ended May 11, 2025 | 36 Weeks Ended May 12, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $63,205 | $58,515 | $189,079 | $174,756 | | **Operating Income** | $2,530 | $2,197 | $7,042 | $6,243 | | **Net Income** | $1,903 | $1,681 | $5,489 | $5,013 | | **Diluted EPS** | $4.28 | $3.78 | $12.34 | $11.27 | Condensed Consolidated Balance Sheets (in millions) | | May 11, 2025 | September 1, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $38,151 | $34,246 | | **Total Assets** | $75,482 | $69,831 | | **Total Current Liabilities** | $37,579 | $35,464 | | **Total Liabilities** | $48,357 | $46,209 | | **Total Equity** | $27,125 | $23,622 | Condensed Consolidated Statements of Cash Flows (in millions) | | 36 Weeks Ended May 11, 2025 | 36 Weeks Ended May 12, 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $9,468 | $8,381 | | **Net cash used in investing activities** | $(3,343) | $(2,706) | | **Net cash used in financing activities** | $(2,182) | $(8,948) | | **Net change in cash and cash equivalents** | $3,930 | $(3,296) | - As of May 11, 2025, Costco operated **905** warehouses worldwide, with the majority (**624**) located in the United States. The company also operates e-commerce sites in **eight** countries[23](index=23&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis highlights strong Q3 FY2025 performance with increased net sales, comparable sales, membership fee revenue, and improved gross margin, supported by robust liquidity - Key drivers of profitability are identified as increasing net sales, particularly comparable sales, which are influenced by shopping frequency and average ticket size. The company's **low-price, high-volume model** enables it to operate with **lower gross margins** than typical retailers[66](index=66&type=chunk)[68](index=68&type=chunk) - Highlights for Q3 2025 vs. Q3 2024 include: - Net sales increased **8%** to **$62.0 billion** - Membership fee revenue increased **10%** to **$1.24 billion** - Gross margin percentage increased by **41 basis points** - Net income increased to **$1.9 billion**, or **$4.28 per diluted share**[77](index=77&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q3 2025 saw an 8% rise in net sales, driven by comparable sales growth and new openings, alongside a 10% increase in membership fees and improved gross margin, despite higher SG&A expenses Comparable Sales Growth (Q3 2025 vs Q3 2024) | Region | Reported Comp Sales | Comp Sales (ex-FX & Gas) | | :--- | :--- | :--- | | U.S. | 7% | 8% | | Canada | 3% | 8% | | Other International | 3% | 9% | | **Total Company** | **6%** | **8%** | - Membership fee revenue grew **10%** in Q3 2025 to **$1.24 billion**, driven by new member sign-ups and a fee increase effective September 1, 2024. Total paid members reached **79.6 million**, with a worldwide renewal rate of **90.2%**[84](index=84&type=chunk)[85](index=85&type=chunk) - Q3 gross margin percentage increased by **41 basis points** to **11.25%**. Excluding the **12 basis point** positive impact from gasoline price deflation, the margin increased by **29 basis points**, driven by improvements in core merchandise and ancillary businesses, partially offset by a LIFO charge[86](index=86&type=chunk)[87](index=87&type=chunk) - SG&A expenses as a percentage of net sales increased by **20 basis points** to **9.16%** in Q3. This was primarily due to investments in employee wages and a one-time expense for increased employee vacation[93](index=93&type=chunk)[94](index=94&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position, primarily from operating cash flow, funding significant capital expenditures and shareholder returns through dividends and share repurchases - Primary liquidity sources are cash from operations and existing cash balances. At May 11, 2025, cash, cash equivalents, and short-term investments totaled **$14.85 billion**[100](index=100&type=chunk) - The company plans to spend over **$5.0 billion** on capital expenditures in fiscal 2025. It opened **17** new warehouses in the first 36 weeks and plans **10** more for the remainder of the fiscal year[106](index=106&type=chunk) - During the first 36 weeks of fiscal 2025, the company repurchased **658,000** shares for approximately **$623 million**. The remaining authorization under the share repurchase program was **$2.24 billion**[109](index=109&type=chunk) [Market Risk Disclosures](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure, primarily from foreign currency and interest rate fluctuations, remains consistent with prior disclosures, with no material changes reported - There have been no material changes to the company's market risks related to foreign-currency exchange rates and interest rates as disclosed in the most recent Form 10-K[114](index=114&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of May 11, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 11, 2025[116](index=116&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the third quarter of fiscal 2025[117](index=117&type=chunk) PART II: OTHER INFORMATION [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including class actions and a government investigation, but management anticipates no material adverse effect on its financial position - The company is defending against several legal actions, including employee class actions, opioid litigation, and privacy-related lawsuits concerning website trackers[51](index=51&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - The U.S. Attorney's Office is conducting a False Claims Act investigation related to prescription medications[57](index=57&type=chunk) - The company does not believe that any pending litigation, individually or in aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows[60](index=60&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the company's risk factors since the last Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the last Annual Report on Form 10-K[120](index=120&type=chunk) [Share Repurchases](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased common stock during Q3 FY2025, with a significant remaining authorization under its share repurchase program Common Stock Repurchase Activity (Q3 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Feb 17 - Mar 16, 2025 | 68,000 | $1,025.03 | $70 | | Mar 17 - Apr 13, 2025 | 76,000 | $922.61 | $70 | | Apr 14 - May 11, 2025 | 71,000 | $988.05 | $70 | | **Total Q3** | **215,000** | **$976.71** | **$210** | - The share repurchase program is conducted under a **$4.0 billion** authorization approved in January 2023, which expires in January 2027. As of the end of Q3 2025, **$2.242 billion** remained available[121](index=121&type=chunk)

Core Insights - Costco is testing a new checkout technology called "Scan & Go" to enhance the checkout experience for its members, addressing a significant concern among customers [1][10] - CEO Ron Vachris reported positive early results from the tests, indicating strong member adoption and satisfaction [2][7] - The company aims to improve the member experience further by exploring additional technology pilots for faster checkout processes [7][10] Checkout Technology - The "Scan & Go" technology allows customers to scan items as they shop and pay through an app, similar to offerings from competitors like Sam's Club and BJ's Wholesale [4][5] - Traditional checkout lanes and some self-checkout options are still available at all Costco locations [3][11] - The technology has reportedly been successful in expediting transactions and reducing wait times for customers [1][9] Competitive Landscape - Competitors such as Sam's Club and BJ's Wholesale have implemented similar technologies, with Sam's Club offering a "Scan & Go" option and BJ's providing "ExpressPay" for quicker checkouts [4][5] - The competitive pressure from these retailers highlights the importance of Costco's initiative to adopt new technologies to retain and attract members [2][4]

Company and Industry Summary Company Overview - The company reported net sales of **$20.97 billion** for the month, representing an increase of **6.8%** from **$19.64 billion** in the same period last year [3] Sales Performance - Comparable sales results for the month were as follows: - **U.S.**: **4.1%** - **Canada**: **3.3%** - **Other International**: **6.6%** - **Total Company**: **4.3%** - **E-commerce**: **11.6%** [3] - When excluding impacts from changes in gasoline prices and foreign exchange, comparable sales were: - **U.S.**: **5.5%** - **Canada**: **6.3%** - **Other International**: **8.4%** - **Total Company**: **6%** - **E-commerce**: **12%** [4] Traffic and Transaction Insights - Comparable traffic or frequency increased by **3.4%** worldwide and **2.8%** in the U.S. [4] - The average worldwide selling price per gallon of gas decreased by approximately **10.4%** year-over-year [5] - Average transaction value increased by **0.9%**, and when excluding gas deflation and foreign exchange, it was up **2.5%** [5] Regional Performance - Strongest comparable sales in the U.S. were observed in the **Northwest**, **Midwest**, and **Los Angeles** regions [6] - Internationally, the best results were in **Mexico**, **Taiwan**, and **Korea** [6] Merchandising Highlights - Foods and sundries showed positive mid to high single-digit growth, with strong performance in: - **Cooler** - **Candy** - **Frozen Foods** - Fresh foods increased by high single digits, particularly in: - **Meat** - **Bakery** - Non-foods also performed well with mid single-digit growth, especially in: - **Jewelry** - **Majors** - **Gift Cards** - Ancillary business sales declined by low to mid single digits, while pharmacy, optical, and hearing aid departments were top performers [7][8] Challenges and Risks - The negative impact of foreign currencies on total and comparable sales was approximately: - **Canada**: **-1.6%** - **Other International**: **-1.0%** - **Total Company**: **-0.4%** [5] - Gas price deflation negatively impacted total reported comparable sales by approximately **-1.3%** [5] - The negative impact of cannibalization was approximately **-70 basis points** for the company in May [6] Future Outlook - The upcoming June reporting period will include five weeks, starting from June 2 and ending July 6, compared to the previous year's five weeks from June 3 to July 7 [8]