Warehouse club retailing giant Costco Wholesale (COST -1.72%) reported first-quarter results for fiscal 2025 on Thursday, Dec. 12 that topped earnings estimates but fell short on revenue estimates. Earnings per share (EPS) of $4.04 surpassed Wall Street's consensus expectations of $3.79. Despite its effective cost strategies pushing earnings upwards, total revenue of $62.15 billion missed analyst predictions of $66.52 billion.
The quarterly performance, while financially strong, pointed out challenges in meeting revenue goals, potentially tied to customer spending patterns and geographic growth hurdles.
| Metric | Q1 2025 | Q1 Estimate | Q1 2024 | Change (YOY) |
|---|---|---|---|---|
| EPS (diluted) | $4.04 | $3.79 | $3.58 | 12.8% |
| Revenue | $62.15 billion | $66.52 billion | $57.8 billion | 7.5% |
| Net income | $1.8 billion | N/A | $1.59 billion | 13.2% |
| Comparable sales | 5.2% | 5.2% | N/A | N/A |
Source: Costco. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Business Overview and Focus Areas
Costco Wholesale operates globally, offering discounted prices through its warehouse-like retail locations. Central to its strategy is the membership model, which provides a stable income source. In Q1 2025, membership fees rose to $1.166 billion, up from $1.082 billion in the prior quarter, reflecting a price hike in the annual membership fees. Moreover, Costco's focus on operational efficiencies and limited SKUs (stock-keeping units) supports its high-volume, low-margin sales strategy.
The company's core strengths include its efficient operating model, cost management, and geographic expansion. Automated processes, volume purchasing, and no-frills design minimize operational costs, enabling low pricing. Its private-label Kirkland Signature offers higher margins, adding to its product assortment appeal. With 897 locations worldwide, it continues to expand, aiming to enhance its global presence and cater to changing consumer preferences through its e-commerce platform.
Quarter Highlights
Costco showed strong earnings performance in Q1 with EPS growing by 12.8% year over year. Operational efficiency drove the operating income up to $2.196 billion from $1.984 billion. Retail membership played a critical role, with U.S. and Canadian renewal rates at 92.9%, signaling sustained customer loyalty. Executive memberships propelled sales, demonstrating the model's ongoing strength.
Geographically, Costco expanded its footprint by opening new warehouses, although it met some growth challenges in specific regions. E-commerce remained a bright spot, with a 13% sales increase, reflecting successful adaptation to digital shopping trends. Despite this, total revenue fell short of expectations, influenced by shifts in consumer spending and international expansion challenges.
Product strategy focused on charter SKU offerings like Kirkland Signature, maintaining its efficiency and popularity. Yet, competitive and external factors, such as fluctuating exchange rates and gasoline prices, affected revenue. A notable one-time event: a $100 million tax benefit related to stock-based compensation, boosted net income considerably during the period.
Looking Forward
Costco’s management, despite not giving direct future guidance, remains optimistic about growth through continued geographic expansion and e-commerce strategies. Plans include new warehouse openings, especially in international markets, emphasizing global interest. Technology improvements and inventory management enhancements, like those seen in the Costco app, remain priorities to enhance customer experience.
Investors should monitor how Costco manages revenue growth in the coming quarters. Adjustments in forward guidance or strategy may arise as it navigates dynamic market conditions. With expansion in digital and physical realms, Costco aims to bolster its position and leverage opportunities for sustained financial success.
