How Macro Conditions and Wary Consumers Affected Costco’s Q2
Costco Wholesale Corp. has gotten caught in some of the market headwinds that are impacting businesses across the retail landscape. The company turned in a mixed performance during the recently concluded second quarter, as many members remain in caution mode.
On the plus side, revenue came in higher than expected at $63.7 billion, above the market estimate of $63.1 billion. Same-store sales rose 6.8% during Q2 and U.S. comps were up 8.3% for the reporting period.
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Strong categories in the quarter included gold and jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings, and small electrics, all posting double digit gains with performances fueled by the December holidays. The fresh segment was up in the high single digits, led by double digit growth in meat. Bakery and produce also performed well, while food and sundries had low- to mid-single digit comps, Costco reported.
Meanwhile, adjusted earnings per share (EPS) were $4.02 during Q2, slightly lower than analyst expectations, with a net income of $1.78 billion. According to EVP and CFO Gary Millerchip, the recent membership fee hike contributed about 3% of fee income in the quarter.
President and CEO Ron Vachris acknowledged some of the macroeconomic headwinds during the March 6 earnings call. “As we look ahead to the remainder of this fiscal year, headwinds from foreign exchange look likely to continue. Given events over the last week, it is difficult to predict the impact of tariffs, but our team remains agile and our goal will be to minimize the impact of related cost increases to our members,” he said, noting that about a third of Costco’s U.S. sales are from items imported from other countries, and less than half of those are items coming from China, Mexico and Canada.
“In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices," he said. "And our teams will continue to rise to this challenge by leveraging our global buying power, strong supplier relationships and innovation.”
Vachris also pointed to future growth potential. For example, although only one new warehouse opened in the second quarter, more are planned for the rest of FY2025, with six sites opening this month. “We're projecting 28 new openings during fiscal year '25, of which three will be relocations for 25 net new buildings,” he reported.
As more warehouses open, the leaders expect shoppers to remain mindful. “We believe that the member is probably as much focused now on quality, value and newness as they have been for quite some time. But they are still showing that willingness to spend, but they're being very choiceful where they're spending their dollars. And we think that's likely to continue and maybe even become more choiceful as the impact of some return of inflation and the potential impact of tariffs could flow through as well,” Millerchip remarked. “I'd say we're also seeing a continued sign of what I mentioned last quarter, where there's some indication that members are spending a little bit more on food at home versus food away from home overall.”
Costco is spending a bit more on its employees, too. Starting this month, workers’ hourly rates will increase by $1 per hour to $30.20, with more $1 increases coming in each of the next two years.
Costco currently operates approximately 900 warehouses, including 600-plus in the United States and Puerto Rico, 100-plus in Canada and 41 in Mexico. It also operates e-commerce sites in eight countries. The company is No. 3 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America. PG also named Costco to its Retailers of the Century list.
