Costco’s third quarter saw a negative market reaction, with shares declining following results that otherwise met most Wall Street expectations. Management emphasized that growth in membership upgrades, expansion of executive member benefits, and new store openings were key factors driving the company’s performance. CEO Ron Vachris pointed to the 1% lift in U.S. sales from extended store hours and a meaningful increase in upgrades to executive membership. CFO Gary Millerchip highlighted that higher employee wages and costs related to expanded hours were largely absorbed through productivity gains, limiting their impact on expenses. Despite steady traffic growth and higher average ticket sizes, management acknowledged that inflation in nonfood categories and ongoing tariff pressures required continued cost mitigation and supply chain adjustments.
Is now the time to buy COST? Find out in our full research report (it’s free).
Costco (COST) Q3 CY2025 Highlights:
- Revenue: $86.16 billion vs analyst estimates of $85.91 billion (8.1% year-on-year growth, in line)
- Adjusted EPS: $5.87 vs analyst estimates of $5.80 (1.2% beat)
- Adjusted EBITDA: $4.12 billion vs analyst estimates of $4.17 billion (4.8% margin, 1.2% miss)
- Operating Margin: 3.9%, in line with the same quarter last year
- Locations: 914 at quarter end, up from 890 in the same quarter last year
- Same-Store Sales rose 5.7% year on year, in line with the same quarter last year
- Market Capitalization: $406.6 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Costco’s Q3 Earnings Call
- Christopher Horvers (JPMorgan) asked about member awareness and sales impact of extended hours. CEO Ron Vachris described broad communication efforts and said the 1% sales lift was based on post-launch analysis, with further impact possible over time.
- Michael Lasser (UBS) questioned membership renewal rates given the growth in online sign-ups. CFO Gary Millerchip acknowledged a likely short-term decline, emphasizing ongoing digital engagement and auto-renewal initiatives to stabilize rates.
- Chuck Grom (Gordon Haskett) inquired about margin performance across categories and holiday assortment changes. Millerchip cited broad-based margin improvement from supply chain efficiency and Kirkland Signature, while Vachris detailed the strategic shift in seasonal categories.
- Simeon Gutman (Morgan Stanley) focused on e-commerce grocery trends and competition. Vachris noted strong Instacart-driven traffic and said new executive benefits were accretive, but competitive impacts were hard to isolate.
- Edward Kelly (Wells Fargo) asked about the outlook for tariffs and margin impacts. Millerchip described ongoing mitigation efforts and stated any price increases will be a last resort, with a commitment to maintaining value for members.
Catalysts in Upcoming Quarters
Looking ahead, our team will be monitoring (1) the pace and effectiveness of new warehouse openings and remodels, (2) the impact of digital engagement efforts on member renewal rates and executive upgrades, and (3) the company’s ability to manage inflation and tariff headwinds while preserving pricing discipline. Execution in e-commerce and the success of new product assortments will also be important milestones for Costco’s ongoing growth.
Costco currently trades at $916.80, down from $943.41 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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