COST

Business Context and Reporting Period

Company: Costco Wholesale Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: 12 weeks ended May 11, 2025 (Fiscal Q3 2025) and 36 weeks ended May 11, 2025.
Operations: Operates 905 membership warehouses worldwide as of May 11, 2025, including 624 in the U.S. and 281 internationally. The company operates on a 52/53-week fiscal year ending the Sunday closest to August 31.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 8% in Q3 2025 compared to Q3 2024, driven by an 8% increase in net sales and a 10% increase in membership fees.
• Comparable Sales: Comparable sales increased 6% in Q3 2025, driven by a 5% increase in shopping frequency and a slight increase in average ticket. Excluding foreign currency and gasoline price impacts, comparable sales grew 8%.
• Profitability: Net income rose 13% to $1.903 billion. Gross margin percentage expanded 41 basis points to 11.25%, aided by performance in fresh foods and foods/sundries, partially offset by a LIFO charge and lower gasoline prices.
• Expenses: SG&A expenses as a percentage of net sales increased 20 basis points to 9.16%, influenced by investments in employee wages and a one-time expense for increased employee vacation.
• Foreign Exchange: Changes in foreign currency rates negatively impacted net sales by approximately $699 million and net income by $35 million in Q3 2025.

Guidance, Outlook, and Risks

• Capital Expenditures: The company spent $3.532 billion on capital expenditures in the first 36 weeks of 2025 and intends to spend slightly over $5.0 billion for the full fiscal year 2025.
• Warehouse Expansion: Opened 17 new warehouses (including 2 relocations) in the first 36 weeks of 2025; plans to open 10 additional new warehouses (including 1 relocation) by the end of fiscal 2025.
• Dividends: Declared a quarterly cash dividend of $1.30 per share (a 12% increase from the prior year), paid on May 16, 2025.
• Share Repurchases: Repurchased 215,000 shares in Q3 2025 at an average price of $976.71. $2.242 billion remains available under the $4.0 billion authorization expiring in January 2027.
• Risks and Contingencies:
  • Legal Proceedings: Ongoing litigation includes class actions regarding wage/hour violations, privacy law violations (pixel trackers), and opioid abuse impacts. The company does not believe these will have a material adverse effect on financial position.
  • Regulatory: An agreement was reached to settle an EPA investigation regarding misbranded devices for an immaterial amount.
  • Market Risks: Exposure to foreign currency fluctuations, interest rates, and geopolitical conditions including tariffs.

Investor Verification Checklist

• Membership Renewal Rates: Verify the sustainability of the 92.7% renewal rate in the U.S. and Canada and 90.2% worldwide, noting the negative impact from digital promotion sign-ups.
• Gasoline Price Sensitivity: Monitor the impact of gasoline price deflation on net sales and gross margin percentage, as lower prices reduced sales volume impact in this period.
• Foreign Currency Impact: Assess the continued negative effect of foreign exchange rates on international segment performance and consolidated net income.
• Capital Allocation: Track the execution of the $5.0 billion capital expenditure plan and the pace of share repurchases under the remaining $2.242 billion authorization.
• Legal Exposure: Monitor developments in the privacy class actions (Castillo et al.) and wage/hour litigation for potential accruals or settlements.