To The Moon

$Costco(COST)$ will be reporting its fiscal Q2 2025 earnings result for period ending 28 February on 06 March 2025 after the market close.

COST is expected to show an increase of 8% in its quarterly revenue from $58.44 billion same period last year to $63.134 billion. Majority is on Total Revenue basis which includes Membership Fees

The consensus estimate for earnings per share for COST is expected to come in at $4.09 per share which represent an increase of 10% from the same period last year.

Costco (COST) Last Positive Earnings Call Gave Investors 5.02% Gain Since

COST last positive earnings call on 12 Dec 2024 saw investor gaining 5.02% since.

The earnings call highlighted strong financial growth, record-breaking warehouse openings, and impressive e-commerce and membership expansion. However, challenges included slight declines in membership renewal rates and impacts from gasoline deflation and potential tariffs. Overall, the positive achievements predominantly overshadowed the lowlights.

Costco (COST) Guidance On Continued Expansion Plans

During Costco's Q1 2025 earnings call, detailed guidance was provided on various performance metrics. The company reported a net income of $1.798 billion, or $4.04 per diluted share, which marked an increase from $1.589 billion, or $3.58 per diluted share, in the same quarter the previous year. Net sales grew by 7.5% to $60.99 billion. U.S. comparable sales increased by 5.2%, while Canada and other international comparable sales rose by 5.8% and 4.7%, respectively. E-commerce sales saw a significant increase of 13%. Membership fee income grew by 7.8% to $1.166 billion, with renewal rates slightly down to 92.8% in the U.S. and Canada.

The company also highlighted a gross margin increase of 24 basis points year-over-year to 11.28%. Capital expenditures for the quarter were approximately $1.26 billion, with full-year expectations set at about $5 billion. The call also discussed Costco's continued expansion plans, including 29 new warehouse openings in fiscal year 2025, with a focus on international growth.

Key Drivers And Risks To Watch For Costco (COST) Earnings

Core Strengths to Watch

Membership Model Stability: Membership fees (a high-margin, recurring revenue stream) have grown consistently, with renewal rates near 93% globally. Any fee increases or tiered membership adoption could further boost profitability.

Costco ended Q1 2025 with 77.4 million paid household members, a 7.6% increase from the previous year. Paid Executive Memberships grew by 9.2%.

Comparable Sales Growth: Costco’s comp sales (excluding fuel) have outperformed retail peers for years. Continued strength in grocery, sundries, and discretionary categories (e.g., electronics, apparel) will be critical.

Gasoline Prices and Traffic: Lower gas prices (if sustained) might reduce revenue but improve margins and drive in-store traffic. Conversely, higher prices could boost top-line sales but pressure discretionary spending.

In Q1, Gasoline price deflation negatively impacted sales by approximately 1.6%.

E-commerce Momentum: Online sales growth (driven by same-day delivery, curbside pickup, and website enhancements) could offset slower in-store traffic trends.

E-commerce comp sales were up 13%, with Costco Logistics completing nearly 1 million deliveries in Q1. The majority of these deliveries were completed in 4 days from order.

Introduction of new Kirkland Signature products and partnerships with brands like Peloton and Wrangler. Notable product sales included 4.2 million pies sold before Thanksgiving and record sales in food courts on Halloween.

Margin Pressures and Opportunities

Inflation and Pricing Power: Costco’s ability to leverage bulk purchasing and pass savings to customers (while maintaining margins) will be tested if inflation persists. Private-label growth (e.g., Kirkland Signature) could help.

U.S. and Canada renewal rates dropped by 0.1% to 92.8%, and worldwide rates decreased by 0.1% to 90.4%, primarily due to a mix shift towards digital sign-ups.

Potential tariffs could raise costs, creating uncertainty around inflation and impacting imported goods, which constitute a minority of Costco's business.

Labor and Supply Chain Costs: Wage increases and supply chain disruptions (e.g., Red Sea shipping delays, port congestion) might pressure margins. Costco’s efficient logistics and vendor relationships could mitigate this.

Costco opened 7 new warehouses in Q1 2025, including 1 relocation, resulting in 6 net new buildings, with 4 outside of the U.S. The newest warehouse in Pleasanton, California, achieved the highest-ever opening day sales for a U.S. warehouse at $2.9 million.

Macroeconomic Factors

Consumer Spending Trends: A weaker economy could drive trade-down behavior (benefiting Costco’s value proposition), but discretionary categories (e.g., jewelry, electronics) may soften.

Global Expansion: Performance in international markets (e.g., China, Japan, Europe) will be key. Recent openings (e.g., new warehouses in 2023–2024) may start contributing meaningfully by Q2 2025.

Financial Metrics to Monitor

Revenue Growth: Look for mid-single-digit comp sales growth (ex-fuel) and total revenue growth of ~6–8% YoY. Net income for Q1 2025 was $1.798 billion, or $4.04 per diluted share, up from $1.589 billion, or $3.58 per diluted share, in Q1 2024. Net sales increased by 7.5% to $60.99 billion.

Membership Income: A key indicator of loyalty; watch for growth beyond the typical 5–7% annual increase.

EPS: Margin resilience (operating margins ~3–3.5%) and share buybacks could drive earnings growth even with moderate sales increases.

Inventory Management: Lean inventory levels (a Costco hallmark) will be critical to avoid markdowns if demand slows.

Risks

Consumer Sentiment: A sharper-than-expected pullback in spending on big-ticket items. Potential tariffs could raise costs, creating uncertainty around inflation and impacting imported goods, which constitute a minority of Costco's business.

Competition: Rivals like Walmart, Amazon, and Sam’s Club may intensify pricing or membership perks.

Geopolitical/Supply Chain Shocks: Disruptions in key markets (e.g., Asia, Europe) or shipp Ping lanes.

Costco (COST) Price Target

Based on 25 Wall Street analysts offering 12 month price targets for Costco in the last 3 months. The average price target is $1,088.75 with a high forecast of $1,200.00 and a low forecast of $907.00. The average price target represents a 5.00% change from the last price of $1,036.87.

I would think that COST share price could be affected by the decline in renewal rates as consumer spending could also decline especially with tariffs now in progress, unless we could see President Trump making talks about to meet mid-way.

But as of now I am expecting a downside movement on the share price.

Technical Analysis - Exponential Moving Average (EMA)

Though COST is experiencing challenges from decline renewal rates, inflation as well as impact from tariffs, the share price is still trading sideway, and above the 12-EMA prior to its earnings.

The RSI is also trying to stay in range near the overbought region, but the momentum is not strong enough for me to sense a signal for upside movement, I am expecting COST to experience some volatility post earnings on its trading.

Summary

Costco’s Q2 2025 earnings will likely reflect its resilient business model, but macroeconomic conditions will play an outsized role. Historically, Costco has navigated downturns well due to its value-focused offerings and membership loyalty.

I think as investors we might want to focus on:

1. Membership renewal rates and fee income growth.

2. Comp sales ex-fuel (target ≥5%).

3. Margin trends amid cost pressures.

4. Management’s commentary on consumer behavior and inflation.

Here are two scenario which could move the share price of COST post earnings either way.

Bull Case: Strong holiday season (Nov–Dec 2024), market share gains from trade-down consumers, e-commerce acceleration, and margin expansion from cost controls.

Bear Case: Inflation-driven margin compression, weak discretionary spending, and slower warehouse expansion.

Appreciate if you could share your thoughts in the comment section whether you think COST could improve its capital expenditure and we might see an improvement in U.S. and Canada renewal rates.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.