Financial Performance Overview

Costco Wholesale Corporation, a leading membership warehouse club chain, has reported strong financial results for the second quarter and first half of fiscal year 2025. The company’s net sales increased 9% to $62,530 in the second quarter and 8% to $123,515 in the first half, driven by growth in comparable sales and the opening of 23 new warehouses since the end of the second quarter of 2024.

Membership fee revenue, a key driver of Costco’s profitability, grew 7% in the second quarter and 8% in the first half, reflecting new member sign-ups and a recent membership fee increase in the U.S. and Canada. The company’s worldwide membership renewal rate remained high at 90.5% at the end of the second quarter.

Gross Margin and Profitability

Costco’s gross margin percentage increased by 5 basis points in the second quarter and 14 basis points in the first half, excluding the impact of gasoline price deflation. This improvement was primarily due to a 14 basis point increase in the gross margin of the core merchandise categories, partially offset by a decrease in the warehouse ancillary and other businesses segment, which includes the lower-margin gasoline business.

The company’s selling, general, and administrative (SG&A) expenses as a percentage of net sales decreased by 8 basis points in the second quarter and increased by 3 basis points in the first half, excluding the impact of gasoline price deflation. The improvement in the second quarter was largely attributable to increased productivity and lower preopening costs, while the year-to-date increase was due to higher central operating costs, partially offset by sales leverage and improved productivity.

Net income for the second quarter was $1,788, or $4.02 per diluted share, compared to $1,743, or $3.92 per diluted share, in the same period of the prior year. The effective tax rate for the first half of 2025 was 24.2%, compared to 23.3% in the prior year, with the current year benefiting from discrete tax benefits related to stock compensation.

Segment Performance

Costco’s operating segments performed as follows:

United States The U.S. segment reported a 10% increase in net sales during the second quarter and first half of 2025, driven by an 8% and 7% increase in comparable sales, respectively. Gross margin percentage in the U.S. segment was in line with the consolidated results, while SG&A expenses as a percentage of net sales decreased, reflecting improved productivity.

Canada The Canadian segment saw a 5% increase in net sales in the second quarter and a 6% increase in the first half, with comparable sales growth of 5% and 5%, respectively. Gross margin percentage in the Canadian segment decreased, primarily due to declines in the core merchandise categories, partially offset by improvements in the warehouse ancillary and other businesses.

Other International The Other International segment reported a 5% increase in net sales in the second quarter and a 6% increase in the first half, with comparable sales growth of 2% and 3%, respectively. Gross margin percentage in the Other International segment decreased, primarily due to declines in the core merchandise categories.

Cash Flows and Liquidity

Costco generated strong cash flows from operating activities, totaling $6,008 in the first half of 2025, compared to $5,382 in the same period of the prior year. The company’s cash and investment position, along with its operating cash flow and available credit facilities, provide ample liquidity to meet its ongoing needs.

Capital expenditures totaled $2,401 in the first half of 2025, as the company opened 8 new warehouses and plans to open a total of 28 new warehouses, including 2 relocations, during the full fiscal year. Costco’s Board of Directors declared a quarterly cash dividend of $1.16 per share, which was paid on February 21, 2025.

Strengths and Weaknesses

Strengths:

• Strong membership growth and high renewal rates, providing a stable revenue stream
• Consistent comparable sales growth, driven by increased shopping frequency and average ticket
• Ability to leverage SG&A expenses and maintain profitability through productivity improvements
• Robust cash flow generation and healthy liquidity position

Weaknesses:

• Exposure to fluctuations in foreign currency exchange rates and gasoline prices, which can impact net sales and gross margin
• Increasing competition from e-commerce and other retailers, which may pressure pricing and margins
• Potential challenges in finding suitable sites for new warehouse openings, especially in existing markets

Outlook and Future Considerations

Costco’s financial performance in the second quarter and first half of fiscal year 2025 demonstrates the company’s ability to navigate a dynamic retail environment and deliver consistent growth. The company’s focus on providing value to its members, controlling costs, and expanding its physical and digital footprint has been a key driver of its success.

Looking ahead, Costco faces several challenges and opportunities. The company’s continued expansion, both domestically and internationally, will be crucial to maintaining its growth trajectory. However, the company must balance this growth with the potential for cannibalization of sales at existing warehouses and the need to find suitable sites for new openings.

The company’s e-commerce business, which has seen strong growth, will also be an area of focus, as Costco works to integrate its online and in-store offerings and maintain its competitive edge in the rapidly evolving retail landscape.

Additionally, Costco will need to closely monitor the impact of macroeconomic factors, such as changes in foreign currency exchange rates and gasoline prices, which can significantly affect its financial results. The company’s ability to adapt its pricing and merchandise strategies to these external forces will be crucial to maintaining its profitability.

Overall, Costco’s solid financial performance, strong membership base, and focus on operational efficiency position the company well for continued success in the future. However, the company must remain vigilant in addressing the challenges and seizing the opportunities that arise in the dynamic retail industry.