Costco: This is what we call the 'retail king' that transcends cycles!

After the U.S. market closed on December 12, $Costco Wholesale(COST.US) released its Q1 FY2025 earnings report. As a mature leader in a traditional industry, Costco's performance typically doesn't experience significant fluctuations, and this quarter was no exception. Key revenue metrics were largely in line with expectations, while profits slightly exceeded market expectations due to favorable tax benefits. Here’s a detailed breakdown:

1. Core operating metrics: Costco's same-store sales growth for the quarter was 5.2%, slightly down from 5.4% last quarter but still within market expectations. Excluding fuel price and currency fluctuations, comparable same-store sales growth was 7.1%, a slight acceleration from 6.9% last quarter.

The 5.2% same-store sales growth can be broken down into 5.1% traffic growth and 0.1% growth in average spending per customer. Trends show that traffic growth has remained stable over the past three years (around 5%~10%), while average spending per customer has been flat since FY2024 began after a brief decline in 2H FY2023.

2. By region: Same-store sales grew 5.2%/5.8%/4.7% in the U.S./Canada/other international markets. North America’s growth was in line with expectations, while international markets appeared to slow significantly and miss expectations. However, excluding currency and fuel impacts, international comparable growth was 7.1%, still slightly slower QoQ but consistent with expectations. U.S. same-store sales have shown steady recovery since FY2024 after a decline in 2H FY2023.

3. E-commerce sales grew 13% YoY, slowing from 19% last quarter and slightly below the 14.1% consensus. Still, e-commerce growth remains 2x the overall 5%~6% same-store growth. Gold and jewelry sales were the strongest online, posting double-digit growth.

4. Membership fees, a high-margin but smaller revenue stream, totaled $1.16B, up 7.8% YoY, matching expectations. Paid memberships rose by 1.2M QoQ to 77.4M (+7.5% YoY), with average annual fees flat at $60. The fee hike (effective Sept. 1) hasn’t yet impacted revenue, but stricter sharing crackdowns may have slightly lowered renewal rates by 0.1pct QoQ—though they remain near multi-year highs.

5. Financially, Costco posted total revenue of $62.2B (+7.5% YoY), in line with expectations. Gross margin was a bright spot at 11.3% (+0.3pct YoY/QoQ), beating the 11.1% consensus. Excluding fuel, core margins rose 17bps due to product mix optimization and lower rebate costs. However, higher fuel prices drove SG&A up 9.1% YoY to $5.85B, though ex-fuel expenses were flat.

6. Operating profit of $2.2B was in line as margin gains offset fuel costs. But net profit beat by ~6% ($1.8B, +13.2% YoY) due to lower-than-expected taxes ($510M vs. $570M consensus).

Dolphin Research’s take:

Costco’s stability is its hallmark. Beyond tax benefits, the only real surprise was margin improvement. For investors seeking “steady happiness,” Costco delivers: mid-to-high single-digit sales growth, ~1M new members quarterly, >90% renewals, and double-digit profit growth. At 50x PE, valuation debates are moot—it’s a safety play akin to gold, Bitcoin, or Tesla.

Key highlights:

Retail resilience: Traffic up 5.1%, spending flat. U.S. recovery continues; international slowed but met expectations ex-fuel/currency.
E-commerce deceleration: +13% YoY (vs. +19% last quarter), led by jewelry.
Membership momentum: Renewals dipped slightly post-fee hike but remain strong.
Margin upside: 11.3% gross margin (beat by 20bps) on mix and rebate savings.
Tax tailwind: $60M benefit from stock comp adjustments boosted EPS.

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Past Dolphin Research on Costco:

Sept. 10, 2024: Is Costco the Retail "Ideal Type"?

Sept. 27, 2024: How Costco Built Its "Unbreakable" Model

Oct. 15, 2024: Is Costco’s 50x PE a Bubble?