Story Stocks^®

Costco's (COST) 3Q25 earnings report showcased a solid recovery from its 2Q25 earnings miss as EPS of $4.28 exceeded expectations, driven by strong comparable sales growth of 8.0% (adjusted for gasoline prices and foreign exchange impacts). Despite persistent foreign exchange (FX) headwinds that continued to pressure EPS in Q3, clipping $0.08 off EPS, COST’s resilient business model, anchored by its value-driven bulk purchasing proposition, enabled the company to overcome these challenges. Furthermore, the company’s ability to maintain competitive pricing and high customer loyalty through its membership model mitigated the adverse effects of currency fluctuations.

• The 8.0% adjusted comparable sales growth in Q3 outperformed expectations of 6.0%, reflecting COST’s competitive edge over peers like Walmart (WMT) and Target (TGT). For 1Q26, WMT and TGT reported comps of +4.3% and (3.8)%, respectively. Key product categories driving COST’s comp growth included its Kirkland Signature private label brand, which outpaced the overall sales growth rate, and food and sundries, which posted mid-to-high single-digit comp growth.
• COST’s e-commerce channel continued to shine, delivering an impressive 15.7% comparable sales growth on an adjusted basis. This surge was driven by increased online penetration, enhanced digital infrastructure, and a broader assortment of high-demand items such as electronics, jewelry, and luggage. Strategic investments in user experience, including faster delivery options and an expanded online-only product portfolio, catered to shifting consumer preferences for convenience. Additionally, COST’s ability to leverage its membership base to drive online engagement further amplified e-commerce growth, positioning the channel as a critical growth driver.
• Membership fee income rose 10.4% yr/yr to $1.24 bln, bolstered by a membership fee increase implemented in the prior year. Despite the hike, COST maintained a stellar renewal rate of 92.7% in the U.S. and Canada, with executive memberships accounting for 47.3% of paid members and driving 73.1% of sales. Paid household member growth remained robust at +6.8%, reflecting the enduring appeal of COST’s value proposition and loyalty-driven model. The fee increase, combined with strong renewal rates and a growing executive membership base, underscores COST’s ability to sustain revenue growth without alienating its customer base.

In conclusion, COST’s Q3 performance highlights its ability to navigate FX headwinds and macroeconomic uncertainty through its resilient membership model, competitive pricing, and strong e-commerce growth. The company’s consistent outperformance in comparable sales relative to peers like WMT and TGT positions it to gain market share, particularly during periods of economic volatility when consumers prioritize value.