Earnings call transcript: Costco Q4 2025 beats estimates, stock rises

Costco Wholesale Corp (COST) surpassed Q4 2025 expectations, reporting EPS of $5.87 and revenue of $86.16 billion, leading to a 0.74% after-hours stock rise. The retailer achieved 11% net income growth, 5.7% comparable sales, and a 14% increase in membership fee income, driven by robust member acquisition and executive upgrades. Looking ahead, Costco plans 35 new warehouse openings in FY2026 and is actively mitigating tariff impacts through strategic sourcing and Kirkland Signature expansion, though current valuations suggest the stock trades above its fair value.

Analysis

Costco Wholesale Corp. (COST) reported a solid fourth quarter for fiscal year 2025, exceeding analyst expectations with an EPS of $5.87 against a forecast of $5.81 and revenue of $86.16 billion versus an $86.08 billion estimate. The results were driven by strong underlying performance, including an 11% year-over-year increase in net income to $2.61 billion, an 8% rise in net sales, and a 5.7% growth in comparable sales. E-commerce was a notable bright spot, with sales surging 13.6%. Membership fee income grew a robust 14% to $1.72 billion, aided by a fee increase and accelerating upgrades to Executive status, which now represent 74.2% of worldwide sales. However, the overall membership renewal rate saw a slight decline to 89.8% globally, a trend the company attributes to a growing mix of online sign-ups who renew at lower rates. On the margin front, core-on-core gross margin expanded by 29 basis points due to supply chain efficiencies and increased penetration of the private-label Kirkland Signature brand. This expansion helped offset a 17 basis point increase in the SG&A rate, which was pressured by wage investments. Management outlined a proactive strategy to mitigate tariff impacts through sourcing shifts and an emphasis on Kirkland products. Looking ahead, the company plans an aggressive expansion with 35 new warehouses in fiscal 2026, though InvestingPro analysis suggests the stock's current P/E ratio of 53.28 indicates a valuation that may be above its intrinsic fair value.

Key Decisions for Investors

• Given the strong operational execution, including an 11% YoY net income increase and robust 13.6% e-commerce growth, investors should weigh the positive fundamentals against the stock's high valuation, indicated by a P/E ratio of 53.28.
• It is prudent to monitor the company's ability to defend margins, as the 29 basis point improvement in core-on-core margin will continue to be tested by tariff impacts and rising SG&A from wage investments.
• Investors should track membership metrics closely, particularly the renewal rate which dipped to 89.8% worldwide, to assess if strategies to improve retention of digitally-acquired members are succeeding in supporting the 14% growth in membership fee income.
• The planned opening of 35 new warehouses in fiscal 2026 signals a confident growth outlook, but it is important to watch for the impact of cannibalization on comparable sales and the sustainability of sales lifts from initiatives like extended store hours.