Membership-only discount retailer Costco (NASDAQ: COST) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.1% year on year to $86.16 billion. Its non-GAAP profit of $5.87 per share was 1.2% above analysts’ consensus estimates.

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StockStory’s Take

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.

Looking ahead, management is focused on expanding warehouse locations, investing in digital enhancements, and maintaining pricing discipline despite macroeconomic uncertainties. The company expects continued growth in its membership base, with a strong emphasis on recruiting younger members and enhancing executive benefits. Vachris stated, “We remain confident in our ability to grow market share by continuing to deliver exciting, high-quality items at the best value for our members.” Millerchip cautioned that renewal rates may dip in the near term as more online sign-ups enter the member base, but stressed ongoing efforts to improve engagement and renewal among this cohort. The leadership team also highlighted plans to accelerate investment in remodels, supply chain efficiency, and technology to better position Costco for sustained growth.

Key Insights from Management’s Remarks

Management identified executive membership upgrades, expanded store hours, and cost mitigation as the most significant contributors to recent performance.

• Executive membership upgrades: The introduction of additional operating hours and new executive benefits led to a notable increase in Gold Star members upgrading to executive status. Management highlighted that executive members now account for nearly half of all paid memberships and over 70% of global sales, enhancing customer engagement and retail spend per visit.
• Store network expansion: The company opened 10 new warehouses during the quarter, including locations in the U.S., South Korea, and Sweden. Vachris emphasized ongoing international expansion and the importance of fill-in stores to capture incremental membership growth and improve accessibility, particularly in mature markets.
• Digital and technology enhancements: Costco rolled out improved checkout technology and personalized digital communications to reduce wait times and boost e-commerce engagement. The company also launched new digital features such as passwordless sign-in and waiting rooms for high-demand items, aiming to drive higher site stability and member satisfaction.
• Tariff and supply chain management: Management described proactive steps to mitigate tariff impacts, including sourcing more Kirkland Signature products locally and consolidating global buying to lower costs. These efforts, combined with supply chain efficiencies, helped offset inflation and maintain stable gross margins despite industry-wide cost pressures.
• Product mix and innovation: The merchandising team shifted holiday assortments to introduce new categories, such as backyard sheds and saunas, while thinning out traditional seasonal items. This allowed Costco to optimize high-traffic periods and adapt to evolving member preferences, contributing to strong comps in fresh foods, nonfoods, and select discretionary categories.

Drivers of Future Performance

Costco’s outlook centers on sustaining member growth, expanding the store network, and managing cost headwinds from inflation and tariffs.

• Membership growth initiatives: Management expects continued growth in both new and upgraded memberships, driven by enhanced executive benefits and expanded hours. The company is investing in digital engagement strategies and targeted communications to improve renewal rates, especially among younger and online sign-ups, which may initially renew at lower rates.
• Warehouse and remodel investment: The company plans to open 35 new warehouses and accelerate remodels in the coming year. Management sees long-term runway for expansion in both domestic and international markets, with capital expenditure expected to outpace sales growth as investments focus on capacity, logistics, and member experience.
• Tariff and inflation risk management: Leadership outlined a multipronged approach to managing tariff and inflation risks, including global sourcing, limited SKU assortments, and leveraging Kirkland Signature’s value positioning. While management aims to limit price increases, they acknowledged that ongoing changes in tariffs or commodity costs could create incremental margin pressure.

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 $915.99, down from $943.41 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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