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]

Core Insights - Costco Wholesale Corporation reported strong third-quarter fiscal 2025 results, leading to discussions among investors regarding the stock's future direction [2] - The company's strategic initiatives and operational efficiencies have contributed to a positive market response, with shares rising 4.6% post-earnings release [3] Financial Performance - Costco's top and bottom lines exceeded the Zacks Consensus Estimate, with comparable sales growth of 8% excluding gasoline prices and foreign exchange impacts [4] - In the U.S., comparable sales increased by 7.9%, while Canada and Other International markets saw gains of 7.8% and 8.5%, respectively [4] Membership Growth - The company ended the quarter with 79.6 million paid household members, a 6.8% increase year over year, with executive memberships growing by 9% to 37.6 million [5] - Executive members now account for 47.3% of all paid members and drive 73.1% of worldwide sales [5] Analyst Estimates - Analysts have raised their estimates for the current fiscal year by 6 cents to $18.02 and for the next fiscal year by 14 cents to $19.90, indicating expected year-over-year growth rates of 11.9% and 10.4%, respectively [6] Membership Revenue - Membership fee income rose 10.4% year over year to $1,240 million in Q3, with a recent membership fee increase contributing about 4.6% to this income [9] Digital Expansion - E-commerce comparable sales increased by 14.8% in Q3, with Costco Logistics seeing a 31% rise in items delivered [12] - The company is also investing in digital transformation initiatives, including a Buy Now, Pay Later program in partnership with Affirm [12] Competitive Landscape - Costco's sales figures are part of a broader retail environment with increasing competition from companies like Ross Stores, Dollar General, and Target [13] Valuation - Costco stock has outperformed the industry, rallying 26.4% over the past year compared to the industry's 13.8% gain [15] - The stock is trading at a forward 12-month price-to-earnings ratio of 54.42, significantly higher than the industry average of 34.39 and the S&P 500's 21.82 [16]

Core Viewpoint - Costco Wholesale has demonstrated significant stock performance with a 600% increase over the past decade, but future growth may not justify its current high valuation [1][2][8] Business Model - Costco operates a membership warehouse model, selling items in bulk at low margins while generating most profits from membership fees [4] - The company has built strong brand power, allowing it to attract customers without spending on marketing [5] Recent Performance - In the latest quarter, Costco reported an 8% increase in net sales and a 5.8% increase in comparable-store traffic year-over-year [6][7] - Paid memberships rose by 6.8%, indicating a robust customer base despite concerns about consumer spending [7] Valuation Concerns - The stock's price-to-earnings (P/E) ratio has increased from a range of 25-35 pre-pandemic to nearly 60 today, suggesting a disconnect between stock price and earnings growth [8][10] - Analysts project long-term earnings growth of 9% to 10% annually, which may not be sufficient to support the current high valuation [10][11] Future Projections - If Costco's earnings grow at a 10% annualized rate, projected earnings per share for fiscal years 2026 to 2030 would be $19.80, $21.78, $23.96, $26.35, and $28.99 respectively [12][15] - Applying a historical P/E of 30 to the projected earnings could suggest a share price of $870 by 2030, while the current trading price is $1,040, indicating potential overvaluation [13][14]

Core Insights - Costco's FQ3 earnings report shows an 8.0% adjusted increase in comparable sales, indicating solid performance despite initial market skepticism [1][3] - The company is expected to reach new stock price highs by 2025, driven by strong cash flow and capital returns [2] Group 1: Financial Performance - Revenue grew by 8% year-over-year, surpassing consensus estimates and outperforming competitors in the retail sector [3] - U.S. comparable-store sales increased by 7.9%, while Canadian sales rose by 7.8% and Other International sales grew by 5.5% [3] - Net income increased nearly 13% to $1.9 billion, with expectations of continued strength as the year progresses [4] Group 2: Strategic Outlook - Costco plans to invest in digital and warehouse expansions, with digital sales growing by 15.7% [4][5] - The company is adjusting its supply chain to focus on localized products affected by tariffs [5] - Investments in e-commerce and warehouse automation are underway, including a buy-now-pay-later feature for members [6] Group 3: Dividend and Cash Flow - Costco has a strong history of special dividends, with cash flow increasing by 40% to $13.836 billion, potentially exceeding $15 billion by year-end [8] - The last special dividend was $15 per share, and future payments may be larger if delayed [9] Group 4: Analyst Sentiment - Analysts maintain a Moderate Buy rating, with a 12-month price target of $1,035.32, indicating a potential upside of over 10% [10][11] - Institutional investors own nearly 70% of Costco stock, providing additional support for the company's long-term trajectory [11][12] Group 5: Market Trends - Costco's stock chart appears bullish, remaining in an uptrend despite a 1% pullback after the Q3 release [13] - Key resistance levels are identified near $1,050 and $1,075, which, if surpassed, could lead to new highs [13][14]

Core Insights - Costco Wholesale operates 905 locations, with 624 in the U.S., generating nearly $62 billion in net sales in Q3 2025, averaging around $68 million in quarterly net sales per location, indicating strong performance in physical retail [1][2] - Despite substantial sales, Costco's same-store sales growth was less than 6% in Q3, reflecting the challenges of growth at a larger scale [4] - The company has significant growth potential in its e-commerce segment, with net sales growth of nearly 15% in Q3 and over 16% for the first three quarters of fiscal 2025, outpacing overall business growth [6] E-commerce and Digital Growth - Costco's partnership with Affirm aims to enhance digital transactions through buy now, pay later options, which can drive e-commerce sales [7] - The growth of Costco's digital business is expected to improve profit margins, as the company can track customer purchases effectively through membership accounts [8] - Advertising revenue generated from personalized marketing efforts allows Costco to maintain low prices for its members, reinforcing its low-price leadership strategy [10] Membership and Retention - Costco's membership retention rate was close to 93% in Q3, indicating strong customer loyalty, which is crucial for its business model [12] - Membership growth was only 7% in Q3, but an increase in membership prices led to a more than 10% year-over-year increase in membership income, contributing significantly to overall profits [13] - The company's ability to keep prices low while growing its digital efforts supports its membership-based business model, which is vital for long-term investment success [14]

Group 1: Hong Kong Stock Market Highlights - Mixue Group (02097) rose over 7%, reaching a new high, with Daiwa raising its target price to HKD 608, optimistic about same-store sales growth and store opening speed [1] - Lianlian Digital (02598) increased nearly 10% following the official enactment of the "Stablecoin Regulation" in Hong Kong [1] - Automotive stocks collectively declined, with Li Auto-W, Great Wall Motors, and GAC Group all dropping over 2%, as the Ministry of Industry and Information Technology and the China Association of Automobile Manufacturers opposed "involution-style" price wars [1] - CSPC Pharmaceutical Group (02005) fell over 7% after reporting a 36.9% year-on-year decline in revenue and a 59.5% drop in net profit attributable to shareholders for Q1, with expectations of a 45%-60% decline in profit for the first half of the year due to demand drop and intensified competition [1] - Solar energy stocks dropped across the board, with New Special Energy, Xinyi Energy, Fuyao Glass, and Xinyi Solar all declining over 4%, as the anticipated "531" rush in May did not materialize following the April rush [1] - Chinese property stocks fell collectively in early trading, with R&F Properties, Sunac China, New City Development, and Agile Group all dropping over 4%, as data showed a 10.8% year-on-year decline in sales for the top 100 real estate companies from January to May, with a 17.3% drop in May alone [1] Group 2: Other Notable Stocks - Chongqing Rural Commercial Bank (03618) rose nearly 5% after being included in the CSI 300 Index, becoming the first local financial institution from Chongqing to be included, with a 6.25% year-on-year increase in net profit attributable to shareholders for Q1 [2] - Baker Hughes (02149) increased over 8%, reaching a new high after completing a placement of 3 million new H-shares, raising approximately HKD 117 million [2] - Giant Bio (02367) fell over 4% amid ongoing controversies regarding its product components, with the company stating it received an apology from the relevant testing agency and will pursue accountability for the rumors [2] - Chip stocks declined across the board, with Hua Hong Semiconductor, Jingmen Semiconductor, SMIC, and Shanghai Fudan all dropping over 2%, influenced by fluctuating U.S. policies and a decline in the Philadelphia Semiconductor Index [2] - Beike-W (02423) dropped nearly 6% as Huaxi Securities reported a significant slowdown in second-hand housing transaction growth, with a mere 8% year-on-year increase in 15 cities for the first 29 days of May, the lowest since October of the previous year [2] Group 3: U.S. Stock Market Highlights - AstraZeneca (AZN.US) rose over 2% after its cancer drug Imfinzi received EU approval for specific muscle-invasive bladder cancer treatments [3] - Trump Media & Technology Group (DJT.US) increased over 2.4% after announcing the completion of approximately USD 2.44 billion in financing, planning to use about USD 2.32 billion for Bitcoin reserves, potentially becoming one of the largest Bitcoin holders among U.S. public companies [3] - Nvidia (NVDA.US) fell over 2.92% after the CEO announced plans to sell up to 6 million shares by the end of 2025 [3] - Palantir (PLTR.US) rose over 7.73% as reports indicated the Trump administration relies on its technology for inter-agency data sharing, with over USD 113 million in government contracts since Trump took office [3] - Costco (COST.US) increased over 3.12% after reporting Q3 earnings that exceeded expectations, with revenue of USD 63.2 billion, an 8% year-on-year increase, and EPS of USD 4.28, demonstrating its scale advantage and member loyalty [3]