Costco Wholesale Corp Earnings - Q3 2025 Analysis & Highlights

Key Takeaways

Byline: The Costco Wholesale Corporation's Q1 2026 Earnings Call highlighted key themes including financial performance growth, warehouse expansion strategies, digital and technological advancements, membership trends, and inflation management. Management also discussed growth opportunities, capital expenditure plans, and provided insights into sales trends and operational efficiencies.

Key Financial Results:

  • Net income for the first quarter was $2.001 billion, or $4.50 per diluted share, up from $1.798 billion, or $4.04 per diluted share in the first quarter last year.
  • Excluding discrete tax items, net income and earnings per diluted share both grew 13.6%.
  • Net sales for the first quarter were $65.98 billion, an increase of 8.2% from $60.99 billion in the first quarter last year.
  • Comparable sales were 6.4% both before and after adjusting for gas price deflation and FX.
  • Excluding gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were 7.1%.
  • Digitally enabled comparable sales were 20.5%, both with and without adjusting for FX.
  • Membership fee income was $1.329 billion, an increase of $163 million or 14% year-over-year.
  • Adjusting for FX, the increase in membership fee income was also 14%.

    • Business Segment Results:

  • Fresh sales were up mid-to-high single digits, led by double-digit growth in meat.
  • Bakery experienced high-single digit growth driven by the introduction of new items.
  • Non-Food comp sales were in the mid-single digits.
  • Food and sundries comps also grew mid-single digits, with candy and food showing the strongest results.
  • Kirkland Signature continues to grow at a faster pace than overall sales.
  • Within ancillary businesses, pharmacy, food court, hearing aids, and optical departments all had strong quarters.
  • Gas pumps were low-single digits.

    • Capital Allocation:

  • Capital expenditure in Q1 was approximately $1.53 billion.
  • Estimated capital expenditure for the full year will be approximately $6.5 billion.

    • Industry Trends and Dynamics:

  • Overall inflation remained relatively consistent with recent quarters.
  • Fresh and food and sundries saw higher inflation in commodities such as beef, seafood and coffee, but this was offset by lower inflation in eggs, cheese, butter and produce.
  • In non-food, the company saw low-single digit inflation for the third consecutive quarter, primarily driven by gold and imported goods.
  • The supply chain has remained stable.

    • Competitive Landscape:

  • The company's relentless focus on quality, value, and newness continued to deliver market share gains across virtually all departments.
  • Kirkland Signature items typically offer 15% to 20% value compared to the national brand alternative with equal or better quality.
  • The company's goal is to be the first to lower prices where they see opportunities to do so.

    • Macroeconomic Environment:

  • The company's buyers continue to do a great job reducing the impact of tariffs for their members.
  • Strategies to reduce the impact of tariffs include changing the country of production for some items, sourcing more items produced in the US, consolidating buying efforts globally, and leaning into Kirkland Signature.

    • Growth Opportunities and Strategies:

  • In Q1, the company opened 8 new warehouses, including a relocation in Canada, their third warehouse in France, four net new US locations, and two additional Canadian business centers.
  • This brings the total warehouse count to 921 worldwide.
  • The company continues to see significant opportunities for future warehouse growth, both domestically and across the international markets where they operate.
  • The company continues to plan for 30-plus net openings per year in future years.
  • In fiscal year 2026, the company has five relocations planned, including three in the US and one each in Canada and Taiwan.
  • The company's digital vision is to deliver a seamless experience that builds trust and loyalty with their members, both in warehouse and online.
  • The company aims to make shopping at Costco easier, faster, and more personal, no matter where or how their members choose to shop.
  • The company is integrating AI into their business where they believe it can strengthen their model.
  • The company is in the process of deploying AI tools in their gas business, which they expect will improve inventory management and drive incremental sales by ensuring they're always delivering the best value to their members.

    • Financial Guidance and Outlook:

  • Delays with a couple of buildings in Spain resulted in the company revising their planned net new openings for fiscal year 2026 down to 2028.
  • The company estimates capital expenditure for the full year will be approximately $6.5 billion.
  • The company will announce their December sales results for the five weeks ending Sunday, January the 4th, on Wednesday, January 7th after market close.

    • Membership Trends:

  • At Q1 end, the company had 39.7 million paid executive memberships, up 9.1% versus last year.
  • The company ended the quarter with 81.4 million total paid members, up 5.2% versus last year and 145.9 million cardholders, up 5.1% year-over-year.
  • The US and Canada renewal rate was 92.2% and the worldwide rate came in at 89.7%, both down 10 basis points from last quarter.
  • This slight decline was due to new online members growing as a percentage of the total base and renewing at a slightly lower rate than warehouse signups.
  • The decline was less than anticipated due to some early success with targeted communications to expiring members.

    • Gross Margin:

  • The reported gross margin rate was higher year-over-year by 4 basis points, both with and without gas deflation coming into 11.32%, compared to 11.28% last year.
  • Core on core margins were higher by 30 basis points.
  • Ancillary and other businesses gross margin was higher by 7 basis points, primarily driven by pharmacy and hearing aids.

    • SG&A:

  • The reported SG&A rate was higher or worse year-over-year by 1 basis point, coming in at 9.6% compared to last year's 9.59%.
  • The operations component of SG&A was higher or worse by 1 basis point.
  • Central was lower or better by 3 basis points.
  • This quarter's SG&A also included a charge relating to a tax assessment for prior years, which negatively impacted the rate by 4 basis points.