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Costco Wholesale Corp Earnings - Analysis & Highlights for Q2 2025
Overview
PositivesNegativesOutlook
- SG&A rate in Q2 was lower YoY by 8 bps, coming in at 9.06%.
- Canada comp sales were up 4.6% or 10.5% adjusted for gas deflation and FX.
- The recent membership fee increase contributed approximately 3% of fee income in Q2.
- Gas comps were negative low single digits during Q2, driven by the average price per gallon being down slightly.
- The company expects a net year-over-year basis point headwind from the wage investment to be in the mid-single digits.
- The company had the strongest overall comp sales when adjusted for FX and gas, but it came down a little bit from the trend that was seen in Q2.
- The company had an increased cost during Q2 due to higher supply chain costs as it has been buying more inventory.
- Capital expenditure in Q2 was approximately $1.14 billion and CapEx for the full year is expected to be approximately $5 billion.
- The company expects interest rates to continue to be a YoY headwind for the remainder of the fiscal year.
- The company expects a net YoY basis point headwind from the wage investment to be mid-single digits.
- The company expects to minimize the impact of related cost increases to its members due to tariffs.
Q&A Highlights from Costco Wholesale Corp Earnings Call Q2 2025
- Analyst asked about the impact of egg prices on consumer purchasing behavior and the potential slowing of sales due to tariff backlash.
- Gary Millerchip, Costco's CFO, stated that the company has not seen any significant change in consumer behavior due to egg prices or tariffs. He noted that the company's members are still focused on quality, value, and newness, and are willing to spend on these products. He also mentioned that there is a continued sign of members spending more on food at home versus food away from home.
- Gary Millerchip, Costco's CFO, stated that the company has not seen any significant change in consumer behavior due to egg prices or tariffs. He noted that the company's members are still focused on quality, value, and newness, and are willing to spend on these products. He also mentioned that there is a continued sign of members spending more on food at home versus food away from home.
- Analyst asked about the core-on-core margin being down modestly in Q2, and whether this is a sign of a pause in the recent string of margin expansion that Costco has achieved.
- Gary Millerchip, Costco's CFO, explained that the core-on-core margin was down 8 basis points, but the gross margin rate was up 4 basis points, indicating a slight improvement. He also mentioned that the decrease was due to a mix change in non-foods, and that the company is continuing to invest in more value for the member. He stated that the company feels good about its overall margin and ability to keep investing in the member while delivering results.
- Gary Millerchip, Costco's CFO, explained that the core-on-core margin was down 8 basis points, but the gross margin rate was up 4 basis points, indicating a slight improvement. He also mentioned that the decrease was due to a mix change in non-foods, and that the company is continuing to invest in more value for the member. He stated that the company feels good about its overall margin and ability to keep investing in the member while delivering results.
- Analyst asked about Costco's stance on tariffs, specifically regarding fresh foods that come from Mexico.
- Costco's buyers deal with tariffs like they would any other cost increase, and they are prepared to work closely with suppliers to lower prices and mitigate any cost increases. The tariffs are fluid, and it's hard to predict what will happen, but Costco is prepared to deal with whatever comes their way.
- Costco's buyers deal with tariffs like they would any other cost increase, and they are prepared to work closely with suppliers to lower prices and mitigate any cost increases. The tariffs are fluid, and it's hard to predict what will happen, but Costco is prepared to deal with whatever comes their way.
- Analyst asked about Costco's strategy if tariffs are rolled into China, Mexico, and Canada.
- Costco's strategy would be a combination of focusing on their flexibility and the best value for their products, and finding goods from less tariff-impacted countries. They have a reduced SKU model, great partnerships with suppliers, and are well-equipped to deal with anything coming their way.
- Costco's strategy would be a combination of focusing on their flexibility and the best value for their products, and finding goods from less tariff-impacted countries. They have a reduced SKU model, great partnerships with suppliers, and are well-equipped to deal with anything coming their way.
- Analyst asked about the comparison of new item introductions between Kirkland Signature and national brands, especially in categories where KS has a lower penetration, and asked if a high percentage of KS introductions end up in permanent fixtures in the assortment.
- Roland M. Vachris, President and COO, answered that the greatest opportunity for Costco is in non-foods, where brand loyalty is strong but the company has been able to break through and introduce successful KS items. He mentioned motor oil and golf balls as examples of successful KS items in brand-loyal categories. He also stated that the company does not have a race to develop hundreds of KS items but looks at each item individually to determine if there is an opportunity to improve quality or meet the quality of the brand and bring substantial value to it. The recent sandwich bags and storage bags in the sundries department are a good example of a successful KS item. He also noted that there are failures with KS items, but they hold them to the same standards as any branded item, and if sales are not performing or members are not resonating with the item, it is removed quickly.
- Roland M. Vachris, President and COO, answered that the greatest opportunity for Costco is in non-foods, where brand loyalty is strong but the company has been able to break through and introduce successful KS items. He mentioned motor oil and golf balls as examples of successful KS items in brand-loyal categories. He also stated that the company does not have a race to develop hundreds of KS items but looks at each item individually to determine if there is an opportunity to improve quality or meet the quality of the brand and bring substantial value to it. The recent sandwich bags and storage bags in the sundries department are a good example of a successful KS item. He also noted that there are failures with KS items, but they hold them to the same standards as any branded item, and if sales are not performing or members are not resonating with the item, it is removed quickly.
- Analyst asked about the headwind from wage investments and whether there are any new productivity opportunities to help offset the increased wage pressures.
- Gary Millerchip, Executive Vice President and CFO, answered that the company has made a number of wage investments, including a $1 increase at the bottom of the scale and top of the scale and a $0.50 increase in the intervening points between those two. The company has also implemented new wage increases in May. The headwind that the company is seeing is the investment from July and the investment that was made in May. He explained that the headwind is about a mid-single-digit increase in the basis point of investment because the company is essentially cycling last March's investment and replacing it with this new increase. The company is also implementing a catch-up in Q3 for vacation accrual for the full year, which will also be an adjustment in the quarter. Despite the wage investments, the company was able to achieve SG&A leverage of 9 basis points in Q2 due to the continued success of its operators in driving productivity and improving efficiency. The company's goal is to continue to find ways to be more efficient and fund its wage investments through labor productivity and continuous
- Gary Millerchip, Executive Vice President and CFO, answered that the company has made a number of wage investments, including a $1 increase at the bottom of the scale and top of the scale and a $0.50 increase in the intervening points between those two. The company has also implemented new wage increases in May. The headwind that the company is seeing is the investment from July and the investment that was made in May. He explained that the headwind is about a mid-single-digit increase in the basis point of investment because the company is essentially cycling last March's investment and replacing it with this new increase. The company is also implementing a catch-up in Q3 for vacation accrual for the full year, which will also be an adjustment in the quarter. Despite the wage investments, the company was able to achieve SG&A leverage of 9 basis points in Q2 due to the continued success of its operators in driving productivity and improving efficiency. The company's goal is to continue to find ways to be more efficient and fund its wage investments through labor productivity and continuous
- Analyst asked about the company's strategy for building out its alternative media business and how it differs from the approach of its peers.
- Gary Millerchip explained that the company has several revenue streams, including its co-branded credit card program, e-commerce ad revenue, and travel business. He also mentioned that the company is building out its capabilities to deliver a retail media platform for its CPG suppliers and to improve its personalized messaging for members. The company is in the early stages of development and plans to continue building out its capabilities over a multi-year roadmap. The company is not focused on declaring a new revenue stream with a new margin profile but rather on generating value and reinvesting it in its members.
- Gary Millerchip explained that the company has several revenue streams, including its co-branded credit card program, e-commerce ad revenue, and travel business. He also mentioned that the company is building out its capabilities to deliver a retail media platform for its CPG suppliers and to improve its personalized messaging for members. The company is in the early stages of development and plans to continue building out its capabilities over a multi-year roadmap. The company is not focused on declaring a new revenue stream with a new margin profile but rather on generating value and reinvesting it in its members.
- Analyst asked about the replacement of the paper MVM and what the company has learned so far in terms of elasticity or response rate.
- Roland M. Vachris explained that the digital MVM allows the company to be more nimble and flexible, and that merchants have taken some items out of the regular MVM and run the digital MVM for 10 days instead of the usual 28 days. The digital MVM has been effective in driving sales and has been incremental to the mailed MVM. The company has found that members are responsive to the digital MVM, with high open rates for emails about new items and special deals. The company is also experimenting with targeted communication using membership data to make messages more relevant to individual members. The early signs are encouraging, and the company plans to continue developing its capabilities in this area.
- Roland M. Vachris explained that the digital MVM allows the company to be more nimble and flexible, and that merchants have taken some items out of the regular MVM and run the digital MVM for 10 days instead of the usual 28 days. The digital MVM has been effective in driving sales and has been incremental to the mailed MVM. The company has found that members are responsive to the digital MVM, with high open rates for emails about new items and special deals. The company is also experimenting with targeted communication using membership data to make messages more relevant to individual members. The early signs are encouraging, and the company plans to continue developing its capabilities in this area.
- Analyst asked about the average ticket trends in the US ex gas and the impact of inflation on bakery products.
- The average ticket trends in the US ex gas have been consistent over the last 12 months, with an increase in visits. However, inflation has been a challenge, particularly for eggs, which has offset the deflationary impact of other items such as sugar, butter, and flour. The company has made improvements in non-foods growth over the past year, which has helped to increase the number of items in the basket and the overall basket size. The company has also been able to upsell better or bigger products to members, rather than relying solely on inflation.
- The average ticket trends in the US ex gas have been consistent over the last 12 months, with an increase in visits. However, inflation has been a challenge, particularly for eggs, which has offset the deflationary impact of other items such as sugar, butter, and flour. The company has made improvements in non-foods growth over the past year, which has helped to increase the number of items in the basket and the overall basket size. The company has also been able to upsell better or bigger products to members, rather than relying solely on inflation.