Costco Wholesale (NasdaqGS:COST) 2025 Update Summary Industry Overview - The conference call pertains to the retail industry, specifically focusing on Costco Wholesale's sales performance for the month of September 2025. Key Financial Metrics - **Net Sales**: $26.58 billion, an increase of 8% from $24.62 billion in September 2024 [2] - **Comparable Sales**: - US: 5.1% - Canada: 6.3% - Other International: 8.5% - Total Company: 5.7% - Digitally Enabled: 26.1% [2][3] - **Traffic Growth**: Comparable traffic increased by 2.1% worldwide and 1.4% in the US [4] - **Average Transaction Value**: Increased by approximately 3.5%, with a 3.8% increase when excluding gas deflation and foreign exchange impacts [5] Sales Performance Insights - **Regional Highlights**: - Strongest comparable sales in the US were observed in the Northwest, Midwest, and Los Angeles [5] - Internationally, the best results were in Korea, Australia, China, and Taiwan, driven by holiday shifts [6] - **Merchandising Performance**: - Food and sundries: Positive mid-single digits - Fresh foods: Up mid to high single digits, with strong performance in meat and bakery [6] - Non-foods: Positive high single digits, with jewelry, majors, and health and beauty performing well [7] - Ancillary business sales: Up mid-single digits, with pharmacy, hearing aid, and optical as top performers [7] External Factors Impacting Sales - **Gas Price Deflation**: Remained relatively flat, negatively impacting total reported comparable sales by less than 10 basis points [4] - **Foreign Exchange Impact**: - Canada: Negative impact of approximately -2.5% - Other International: Positive impact of approximately +1% - Total Company: Negative impact of approximately -0.2% [4] Future Outlook - The next reporting period will cover four weeks from October 6 to November 2, 2025, compared to the same period in 2024 [8]

Core Insights - Costco Wholesale Corp. reported an 8% year-over-year sales increase through last month, indicating continued sales growth and alleviating concerns from Wall Street regarding future growth prospects [1] Company Performance - The 8% sales gain reflects Costco's ongoing ability to attract customers and maintain a strong sales trajectory [1] - This performance marks a continuation of Costco's streak of sales gains, suggesting robust operational health and consumer demand [1] Market Reaction - The sales increase has eased Wall Street's concerns about Costco's future growth, indicating positive market sentiment towards the company's performance [1]

Core Insights - Gold prices have reached record highs, exceeding $4,000 per ounce, which is significantly boosting demand at Costco [1] - Costco is estimated to sell around $200 million of gold and silver monthly, with inventory often selling out within hours [2] - Despite high prices potentially deterring some buyers, Costco continues to sell its gold supplies quickly, aided by its low markup strategy [4] Sales Performance - The company reported strong online sales for gold, contributing to its overall e-commerce growth, which was up 15.6% year-over-year [9] - Digital sales growth follows a previous increase of 16.1% in the prior year, indicating a consistent upward trend since Costco began selling gold [9] Membership and Marketing Strategy - Gold and silver sales are exclusive to members, creating additional buzz that attracts new sign-ups [10] - The relatively low membership fee of $65 is seen as negligible compared to the high-value purchases, such as gold bullion priced around $3,600 [10] Competitive Advantage - Costco's low markup on gold and silver makes it appealing to both professional and amateur collectors, positioning the wholesale club as an entry point for gold investing [4][8] - The strategy of routing significant sales through Costco.com allows the company to demonstrate strong e-commerce growth with minimal risk [9]

Core Insights - Shares of Costco have entered correction territory, declining nearly 14% from their all-time highs [1] Company Summary - Costco's stock has experienced a significant drop, indicating a potential shift in market sentiment [1]

Consumer Sentiment & Economic Concerns - Prime Day sales are viewed as an early indicator of US consumer health following the shutdown [1][2] - Growing concern around the cost of goods is leading consumers to seek ways to save money [4] - A government shutdown is estimated to negatively impact quarterly GDP by 0.1% per week, raising concerns about consumer spending if workers miss paychecks [9][10][11] Costco's Performance & Strategy - Costco is favored due to softening job markets, as consumers seek value [3][4] - Costco's membership renewal rate of over 90% provides a cushion and profitability tailwind [5] - Consumers may shift to buying in bulk at Costco to save money, even if it requires driving further [8] - Despite a high valuation of approximately 47 times forward earnings, Costco is seen as a way for consumers to stretch their dollars [5][6] AI Investment - The industry advises clients to continue investing broadly in the AI market with a long-term view, considering it's still in the early stages [13][14]

Core Viewpoint - The upcoming Amazon Prime Day is seen as an indicator of the health of the US consumer and overall market conditions [1][2] Consumer Behavior - There is a growing concern among consumers regarding rising costs, leading them to seek ways to save money [4] - In previous economic downturns, companies like Costco have performed well as consumers look for cost-effective options [4] Company Analysis: Costco - Costco has a high membership renewal rate of over 90%, providing a cushion for profitability [5] - Despite concerns about consumer spending, Costco's model allows consumers to stretch their dollars by purchasing in bulk [6][8] - The stock is currently valued at approximately 47 times forward earnings, indicating a high valuation [5] Economic Impact - Moody's estimates that each week of a government shutdown could negatively impact quarterly GDP by 0.1% [9] - The current government shutdown has not yet significantly impacted consumer behavior, but concerns are rising as it continues [10][11] AI Market Perspective - The AI sector is viewed as a long-term investment opportunity, with ongoing developments expected to influence the market positively [13][14] - Despite potential overvaluation, continued investment in AI-related stocks is encouraged as the market evolves [14]

Membership and Warehouse Operations - As of August 31, 2025, Costco operated 914 warehouses worldwide, an increase from 861 in 2023[15] - Total paid members reached 81 million by the end of 2025, up from 71 million in 2023, with Executive members accounting for approximately 73.6% of worldwide net sales[29][28] - The membership renewal rate was 92.3% in the U.S. and Canada, and 89.8% worldwide at the end of 2025[31] - The company plans to continue opening new warehouses in existing and new markets, but faces risks such as local regulations and competition from established players[49][51] - The company operated 914 membership warehouses as of August 31, 2025, with a total operating floor space of approximately 134.7 million square feet[106][107] - The company opened 27 new warehouses in 2025, including three relocations, resulting in a total of 24 net new warehouses[133] Financial Performance - Net sales increased by 8% to $269,912 million in 2025, driven by a 6% increase in comparable sales and sales at new warehouses[133] - Membership fee revenue rose by 10% to $5,323 million, supported by new member sign-ups and membership fee increases[138] - Gross margin percentage increased by 20 basis points to 11.12%, with a 19 basis point improvement in core merchandise categories[140] - Operating income rose to $10,383 million, a 11.8% increase from $9,285 million in the previous year[197] - Net income for the year ended August 31, 2025, reached $8,099 million, up 9.9% from $7,367 million in 2024[197] - The diluted net income per share for 2025 was $18.21, up from $16.56 in 2024, indicating a growth of 10.0%[197] - Total revenue for the year ended August 31, 2025, was $275,235 million, an increase of 8.2% from $254,453 million in 2024[197] Employee and Labor Relations - The average hourly wage for employees in the U.S. was approximately $32.00 at the end of 2025, following a wage increase to at least $20.00 for entry-level positions[38] - Costco employed 341,000 employees worldwide at the end of 2025, with a retention rate of approximately 94% for employees with at least one year of service in the U.S. and Canada[35][36] - The company relies on a large workforce and must attract, train, and retain qualified employees to maintain operations, which could be impacted by labor costs and competition[69] Supply Chain and Operational Efficiency - The company is highly dependent on the efficient operation of its supply chains and distribution processes, with disruptions potentially affecting sales and member satisfaction[55] - The effectiveness of investments in supply chain improvements may be unpredictable and not yield the anticipated benefits[52] - The company aims to maintain less than 4,000 active SKUs per warehouse, significantly lower than other broadline retailers, while offering 9,000 to 10,000 SKUs online[21] Risks and Challenges - Cybersecurity threats are increasing, with potential impacts including reputational damage, litigation, and disruption to operations, which could adversely affect competitiveness and financial condition[62] - The company faces challenges in predicting sales trends, which could lead to excess inventory or out-of-stock situations, negatively impacting net sales and operating income[57] - The company must navigate a complex landscape of privacy and data protection regulations, with noncompliance potentially leading to significant penalties[63] - The company faces risks related to product safety, which could result in lost sales, increased costs, and reputational harm if products do not meet safety standards[66] - Economic factors such as inflation and changes in consumer confidence could adversely affect demand for the company's products and services[73] Capital and Investment - Capital expenditures in 2025 totaled $5,498 million, with plans to spend between $6,000 million and $6,500 million in fiscal 2026, including the opening of up to 35 new warehouses[156] - The company has a share repurchase program authorized for $4 billion, which is set to expire in January 2027[114] - Cash dividends declared in 2025 totaled $2,183 million or $4.92 per share, a significant decrease from $8,589 million or $19.36 per share in 2024, which included a special dividend[159] International Operations - The company's international operations accounted for 27% of net sales and 34% of operating income in 2025, indicating a significant reliance on global markets[80] Tax and Compliance - The effective tax rate for 2025 was 25.1%, up from 24.4% in 2024[133] - The company is subject to various tax obligations and changes in tax legislation that could adversely affect its financial condition and results of operations[91] - The company must comply with evolving payment card association rules, including data security standards, which could lead to significant costs if internal systems are compromised[65] Technology and Digital Strategy - The company is investing in technology and IT projects to enhance digital resiliency, with potential disruptions in IT systems posing risks to operations and financial reporting[59] - The company is investing in digital experiences, including websites and mobile applications, to meet changing member expectations and compete effectively[67] - The company has implemented cybersecurity measures and maintains a security operations center to manage risks associated with cybersecurity threats[99][102] Shareholder Information - The company’s stock is traded on the NASDAQ Global Select Market under the symbol "COST," with 10,813 stockholders of record as of September 30, 2025[111] - The company’s profitability and expected capital needs are considered when declaring dividends, which are expected to continue on a quarterly basis[112]

Core Insights - Costco Wholesale Corporation (COST) reported its fourth-quarter fiscal 2025 results, highlighting stable growth and a loyal membership base, which has historically allowed it to navigate economic challenges better than competitors [1] Financial Performance - Shares of Costco fell 3.4% post-earnings release due to a top-line miss, despite year-over-year improvements in revenues and earnings driven by membership growth, resilient traffic, and e-commerce gains [2] - Comparable sales, excluding gasoline prices and foreign exchange impacts, rose 6.4%, with U.S. comparable sales increasing by 6%, and Canada and Other International markets seeing gains of 8.3% and 7.2%, respectively [2] - Membership fee income grew 14% year over year to $1,724 million in Q4, with less than half of this growth attributed to fee increases introduced last September [7] Membership and Growth Strategy - Costco ended the quarter with 81 million paid members, a 6.3% increase from the previous year, with executive memberships growing 9.3% to 38.7 million, accounting for 47.7% of all paid members and driving 74.2% of worldwide sales [3] - The company's high membership renewal rates stood at 92.3% in the U.S. and Canada, and 89.8% worldwide, reflecting strong member loyalty [6] E-commerce and Digital Expansion - E-commerce comparable sales rose 13.6% year over year, with site traffic up 27% and Costco Logistics deliveries increasing by 13% [9] - Management reported that "digitally enabled" sales exceeded $27 billion in fiscal 2025, indicating a strong digital performance [9] Capital Expenditures and Future Outlook - Costco generated $13,335 million in operating cash flow and ended the year with $14,161 million in cash and equivalents, with plans for modestly higher capital expenditures in fiscal 2026 to support 35 new store openings [10] - The Zacks Consensus Estimate for the current fiscal year increased by 16 cents to $20.01, while the estimate for the next fiscal year declined by 3 cents to $21.86, indicating expected year-over-year growth rates of 11.2% and 9.3%, respectively [4] Competitive Landscape - Costco's stock has underperformed relative to the industry, falling 6.2% over the past month compared to the industry's decline of 4.1% [13] - The stock is trading at a significant premium, with a forward 12-month price-to-earnings ratio of 45.11, higher than the industry average of 29.45 and the S&P 500's 23.65 [15]

Core Insights - Costco is experiencing a significant increase in younger members, with nearly half of new sign-ups under the age of 40 during the three-month period ending August 31 [1][5] - The company reported a 92.3% renewal rate across North America, slightly down from the previous quarter due to an increase in online memberships, which tend to have lower immediate renewal rates [2] - Costco ended the fiscal year with 81 million total paid members, a 6.3% increase year-over-year, and 145.2 million cardholders, up 6.1% from the previous year [5] Membership Trends - The influx of younger shoppers is attributed to the ease of online sign-up processes, appealing to those who prefer digital options [3] - The company believes that engaging the younger generation of members presents opportunities for broader member engagement compared to pre-COVID times [5] Traffic and Sales Performance - Big box retailers, including Costco, are seeing increased traffic due to a strong focus on value and innovation [7] - Since Q2 2021, Costco has experienced year-over-year growth in store visits, indicating effective traffic generation to existing stores and new warehouses [8] - Costco's exclusive hours for executive members have been well-received, contributing to a 1% sales boost [10] Industry Context - Despite Costco's growth, the broader retail and dining traffic has declined for three consecutive months, indicating a potential consumer slowdown [12] - The report highlights a disparity in spending habits, with higher earners continuing to spend while middle- and lower-income consumers are cutting back, raising concerns about reliance on high-income shoppers for economic stability [12]

Core Insights - Costco has begun offering Ozempic and Wegovy, injectable prescription drugs from Novo Nordisk, at its pharmacies nationwide for $499 per month, matching prices at CVS, Walmart, and the company's website [1][2] - Wegovy is approved for chronic weight management, while Ozempic is approved for treating type 2 diabetes and reducing cardiovascular risks, with Ozempic being prescribed off-label for weight loss [3][4] Company Financials - Costco reported a net sales increase of 8% for the fourth quarter ending August 31, 2025, reaching $84.4 billion, up from $78.2 billion the previous year [5] - For the fiscal year, net sales rose 8.1% to $269.9 billion from $249.6 billion [5] - The company's current market capitalization stands at $402.6 billion [5]