Costco Reports Q2 Earnings: Revenue Growth Amid Tariff Challenges

Costco Wholesale Corporation has delivered its second-quarter financial results, disclosing a revenue increase but an earnings per share (EPS) shortfall relative to analyst expectations. The results for the quarter ending February 16 showcased a 9% rise in total revenue, reaching $63.72 billion, exceeding the anticipated $63.13 billion.

Earnings Overview

The company reported a net income of $1.79 billion, translating to earnings of $4.02 per share. However, this figure is below the expected $4.11 per share. Compared to the same quarter last year, Costco’s net income has increased from $1.74 billion or $3.92 per share.

Comparative Sales Growth

Costco’s quarterly comparable sales, which reflect sales from warehouses and e-commerce sites open for more than one year, rose by 6.8% year over year, surpassing the estimate of 6.4%. Notably, U.S. comparable sales increased by 8.3%, while e-commerce sales exhibited significant growth of 20.9% during the period.

Membership Metrics

Membership fees also saw an uptick, amounting to $1.19 billion in the second quarter, which is an increase from $1.11 billion in the same quarter of the previous fiscal year. Currently, Costco has 78.4 million paid memberships and approximately 140.6 million total cardholders. The company’s global membership renewal rate stands at an impressive 90.5%, marking a slight increase from the prior quarter.

Tariff Implications and Cost Management

CEO Ron Vachris addressed the potential impact of tariffs, noting that one-third of U.S. sales stem from imports, with a significant portion sourced from countries such as China, Canada, and Mexico. “In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices,” Vachris stated. He emphasized that the company would strive to mitigate cost increases through strong supplier relationships and efficient global buying power.

The retailer is facing tighter margins, particularly in the grocery segment due to tariff implications. President Donald Trump recently imposed a 25% tariff on imported goods from Mexico and Canada and doubled tariffs on China. However, the U.S. will temporarily exempt certain goods from these tariffs until April 2, given their compliance with the United States-Mexico-Canada Agreement.

Sales Performance and Consumer Behavior

Noteworthy sales categories included gold and jewelry, furniture, hardware, and toys, all witnessing double-digit growth. Vachris remarked that despite reportable slower sales month-on-month from January to February, with comparable sales declining from 7.5% to 6.5%, overall shopping traffic increased by 5.7% year over year.

In terms of the fresh foods category, Costco has seen high single-digit growth, with meat sales increasing considerably as consumers gravitate towards more affordable protein options. This trend highlights Costco’s commitment to adapting to consumer preferences while managing inflationary impacts, especially in its bakery and meat departments.

Conclusion

As Costco navigates turbulent economic conditions, its focus remains on delivering value to members and maintaining strong sales growth. The company’s ability to adapt to external pressures, including tariffs and inflation, will be pivotal in sustaining its market position.