Financial Performance Overview

Costco Wholesale Corporation, a leading membership warehouse club chain, has reported strong financial results for fiscal year 2025. The company saw an 8% increase in net sales to $269,912 million, driven by a 6% rise in comparable sales across its U.S., Canadian, and International segments. Membership fee revenue also grew 10% to $5,323 million, reflecting new member sign-ups and membership fee increases.

Revenue and Profit Trends

Costco’s net sales growth was fueled by a combination of increased shopping frequency, higher average ticket, and sales from 24 net new warehouses opened during the year. Core merchandise categories, such as foods and sundries, fresh foods, and non-foods, saw a 10% increase in sales. However, lower gasoline prices negatively impacted net sales by 93 basis points, while changes in foreign currency exchange rates reduced net sales by 78 basis points.

Gross margin percentage improved by 20 basis points to 11.12%, or 11.03% excluding the impact of gasoline price deflation. This increase was primarily due to improvements in the company’s core merchandise categories, particularly fresh foods and the co-branded credit card program. Selling, general, and administrative (SG&A) expenses as a percentage of net sales increased by 11 basis points to 9.25%, or 9.17% excluding the impact of gasoline price deflation, due to higher warehouse operations and other business costs.

Net income increased 10% to $8,099 million, or $18.21 per diluted share, compared to $7,367 million, or $16.56 per diluted share, in the prior year. The effective tax rate for 2025 was 25.1%, up from 24.4% in 2024, but was favorably impacted by discrete tax benefits related to stock compensation.

Strengths and Weaknesses

One of Costco’s key strengths is its membership-based business model, which provides a stable source of recurring revenue through membership fees. The company has maintained high renewal rates, with U.S. and Canada renewal rates at 92.3% and worldwide renewal rates at 89.8%. However, the company’s membership growth in newer international markets and a higher penetration of memberships sold online, including through digital promotions, have slightly lowered the overall renewal rate.

Costco’s focus on controlling costs is another strength, as the company has been able to maintain competitive pricing and profitability despite some costs, such as healthcare and utilities, being partially outside its control. The company’s philosophy of providing competitive compensation and benefits to its employees, rather than minimizing wages, has also contributed to its success in retaining talent and enhancing productivity.

A potential weakness for Costco is the impact of government actions, such as tariffs, on the costs of some of its merchandise. While the company tries to mitigate these effects, higher tariffs can adversely impact its results. Additionally, the company’s e-commerce business, both domestically and internationally, generally has a lower gross margin percentage than its warehouse operations, which can put pressure on overall profitability.

Outlook and Future Considerations

Costco’s management is optimistic about the company’s future prospects. The company plans to open up to 35 new warehouses, including five relocations, in fiscal 2026, continuing its expansion strategy. However, as the company’s warehouse base grows, square footage growth may become a less substantial component of overall growth, and the company may face challenges in securing desirable sites for new locations.

The company’s financial performance will continue to be influenced by factors such as the success of its membership program, the ability to control costs, and the impact of changes in foreign currency exchange rates and gasoline prices. Costco’s management will need to carefully navigate these dynamics to maintain its strong financial position and drive future growth.

Conclusion

Costco has delivered another year of solid financial performance, with strong growth in net sales, membership fees, and profitability. The company’s focus on its membership-based business model, cost control, and employee compensation strategies have been key drivers of its success. While the company faces some external challenges, such as the impact of tariffs and the performance of its e-commerce business, Costco’s management remains optimistic about the company’s future prospects and its ability to continue delivering value to its shareholders.