Membership-only discount retailer Costco (NASDAQ:COST) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 9% year on year to $63.72 billion. Its GAAP profit of $4.02 per share was 2.1% below analysts’ consensus estimates.
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Costco (COST) Q1 CY2025 Highlights:
- Revenue: $63.72 billion vs analyst estimates of $63 billion (9% year-on-year growth, 1.1% beat)
- EPS (GAAP): $4.02 vs analyst expectations of $4.11 (2.1% miss)
- Operating Margin: 3.6%, in line with the same quarter last year
- Free Cash Flow was $1.61 billion, up from -$300 million in the same quarter last year
- Locations: 897 at quarter end, up from 875 in the same quarter last year
- Same-Store Sales rose 6.8% year on year (5.6% in the same quarter last year)
- Market Capitalization: $465.1 billion
Company Overview
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Large-format Grocery & General Merchandise Retailer
Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $264.1 billion in revenue over the past 12 months, Costco is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.
As you can see below, Costco’s 10.2% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and increased sales at existing, established locations.
This quarter, Costco reported year-on-year revenue growth of 9%, and its $63.72 billion of revenue exceeded Wall Street’s estimates by 1.1%.
Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months, a deceleration versus the last six years. We still think its growth trajectory is attractive given its scale and indicates the market is baking in success for its products.
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Store Performance
Number of Stores
A retailer’s store count often determines how much revenue it can generate.
Costco operated 897 locations in the latest quarter. It has opened new stores quickly over the last two years, averaging 2.9% annual growth, faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Costco’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 4.4% per year. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Costco multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.
In the latest quarter, Costco’s same-store sales rose 6.8% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.
Key Takeaways from Costco’s Q1 Results
We liked that Costco beat analysts’ revenue and gross margin expectations this quarter. On the other hand, its operating margin showed no expansion year on year, and its EPS missed. Overall, this was a mixed quarter. The stock traded down 1% to $1,016 immediately following the results.
The latest quarter from Costco’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
