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1. Company Snapshot

1.a. Company Description

Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan.It offers branded and private-label products in a range of merchandise categories.The company offers sundries, dry groceries, candies, coolers, freezers, liquor, and tobacco and deli products; appliances, electronics, health and beauty aids, hardware, garden and patio products, sporting goods, tires, toys and seasonal products, office supplies, automotive care products, postages, tickets, apparel, small appliances, furniture, domestics, housewares, special order kiosks, and jewelry; and meat, produce, service deli, and bakery products.


It also operates pharmacies, opticals, food courts, hearing-aid centers, and tire installation centers, as well as 636 gas stations; and offers business delivery, travel, same-day grocery, and various other services online in various countries.As of August 29, 2021, the company operated 815 membership warehouses, including 564 in the United States and Puerto Rico, 105 in Canada, 39 in Mexico, 30 in Japan, 29 in the United Kingdom, 16 in South Korea, 14 in Taiwan, 12 in Australia, 3 in Spain, 1 in Iceland, 1 in France, and 1 in China.It also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, South Korea, Taiwan, Japan, and Australia.


The company was formerly known as Costco Companies, Inc.and changed its name to Costco Wholesale Corporation in August 1999.Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington.

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1.b. Last Insights on COST

Negative drivers behind Costco Wholesale Corporation's recent performance include tepid comparable sales, which fell short of estimates in May, and a slight decline in June sales. The company's premium valuation may give value buyers pause, despite its strong e-commerce growth and membership gains. Additionally, Costco faces downgrades, a death cross, and insider selling, which may indicate a shift in investor sentiment. The company's recent earnings release did not provide any significant catalysts for growth, and its robust balance sheet and disciplined buybacks have not been enough to offset these negative factors.

1.c. Company Highlights

2. Costco's Q4 Earnings: A Strong Finish to a Record Fiscal Year

Costco Wholesale Corporation reported net income of $2.61 billion or $5.87 per diluted share for the fourth quarter, up 11% from $2.35 billion or $5.29 per diluted share in the same period last year. Net sales were $84.43 billion, an 8% increase from $78.18 billion in Q4 last year. The company's actual EPS of $5.87 beat estimates of $5.8. Comparable sales were 5.7%, or 6.4% adjusted for gas deflation and foreign exchange. E-commerce sales exceeded $19.6 billion for the fiscal year, a 15% increase.

Publication Date: Oct -24

📋 Highlights
  • Net Income & EPS Growth: Net income rose 11% to $2.61 billion ($5.87 per diluted share), up from $2.35 billion ($5.29) in Q4 2023.
  • Net Sales Expansion: Total sales hit $84.43 billion, reflecting an 8% increase compared to $78.18 billion in the prior-year period.
  • E-Commerce Surge: Fiscal 2025 e-commerce sales surpassed $19.6 billion, marking a 15% growth year-over-year.
  • Membership Fee Growth: Membership fees reached $1.72 billion (14% YoY), driven by 38.7 million paid executive memberships (9.3% increase).
  • Warehouse Expansion: Opened 27 new warehouses in FY2025, totaling 914 globally, with plans for 35 new locations in FY2026.

Operational Highlights

The company opened 10 new warehouses in Q4 and 27 for the fiscal year, bringing the total warehouse count to 914 worldwide. Membership fee income was $1.72 billion, up 14% year-over-year, with 38.7 million paid executive memberships, up 9.3% versus last year. The company's investments in logistics, particularly in big and bulky items sold online, drove a 13% increase in items delivered in the quarter.

Digital Strategy and Growth

Costco's digital strategy focuses on delivering a personalized and relevant experience to members. During Q4, the company launched more targeted messaging on its website, resulting in a strong return on ad spend of 14 to 1 and driving a 22% increase in traffic to product details pages and a 45% increase in digital sales. The company plans to include Instacart-driven sales in its e-commerce definition going forward, which will likely continue to drive growth.

Financial Performance and Valuation

Gross margin rate grew by three basis points, excluding gas, with core on core margin up 29 basis points year-over-year. The SG&A rate was 9.21%, higher or worse year-over-year by 17 basis points. With a P/E Ratio of 51.1 and an EV/EBITDA of 30.39, the market seems to be pricing in significant growth expectations. Analysts estimate next year's revenue growth at 8.1%, which may be challenging to meet given the company's already large size.

Outlook and Expansion Plans

The company plans to open 35 warehouses in fiscal year 2026 and is exploring opportunities in international markets, where it typically sees a larger number of new memberships. The business center opportunity is also being explored, with plans to grow in Canada and the US. Capital expenditure is expected to grow over 2025, likely higher than sales, driven by warehouse growth, remodels, and investments in e-commerce and technology.

3. NewsRoom

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Costco adds Biden Commerce Sec. Gina Raimondo to board on heels of Trump tariff lawsuit

Dec -04

Source: cnbc.com

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Costco Wholesale Corporation Announces Nomination of Gina Raimondo to Board of Directors

Dec -04

Source: globenewswire.com

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Costco sees another month of solid sales growth in November

Dec -04

Source: proactiveinvestors.com

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Costco's stock turns negative for the year as U.S. sales trends decelerate

Dec -04

Source: marketwatch.com

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Why Costco Stock Dropped Today

Dec -04

Source: fool.com

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Battle of the Consumer Staples ETFs: Who Comes Out on Top, XLP or VDC?

Dec -04

Source: fool.com

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Scott Bessent Says Trump's 'Exact Tariff Structure' To Continue 'Permanently' Regardless Of Supreme Court Decision

Dec -04

Source: feeds.benzinga.com

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Costco Wholesale Corporation (COST) Period Ending/ Trading Statement Call Prepared Remarks Transcript

Dec -04

Source: seekingalpha.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.00%)

6. Segments

Membership Warehouses

Expected Growth: 6.0%

Costco's membership warehouses growth is driven by increasing demand for bulk purchases, expanding membership base, and high renewal rates. Efficient supply chain management and strategic pricing also contribute to its 6.0% growth. Strong brand loyalty and investments in e-commerce capabilities further enhance its market position.

7. Detailed Products

Kirkland Signature Brand Products

Kirkland Signature is Costco's in-store brand, offering a wide range of products from groceries to household essentials, often at a lower price point than name-brand products.

Fresh Produce

Costco offers a variety of fresh produce, including fruits, vegetables, and flowers, often in bulk.

Meat, Seafood, and Poultry

Costco sells a range of fresh and frozen meats, seafood, and poultry products, often in bulk.

Dairy and Bakery Products

Costco offers a variety of dairy products, including milk, cheese, and yogurt, as well as bakery products like bread and pastries.

Pharmacy Services

Costco operates pharmacies in many of its warehouse locations, offering a range of prescription and over-the-counter medications.

Optical Services

Costco offers optical services, including eye exams and glasses, in many of its warehouse locations.

Tire Centers

Costco operates tire centers in many of its warehouse locations, offering a range of tires and tire services.

Travel Services

Costco offers travel services, including vacation packages, cruises, and insurance.

E-commerce Services

Costco offers e-commerce services, allowing customers to shop online and have products delivered to their homes.

8. Costco Wholesale Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Costco's unique membership model and bulk purchasing experience make it difficult for customers to switch to traditional retailers, reducing the threat of substitutes.

Bargaining Power Of Customers

While Costco's customers are price-sensitive, the company's loyal membership base and efficient operations allow it to maintain a balance between customer demands and profitability.

Bargaining Power Of Suppliers

Costco's massive scale and efficient supply chain give it significant negotiating power with suppliers, allowing it to maintain low costs and pass savings to customers.

Threat Of New Entrants

The high capital requirements and operational complexities of a warehouse club model create significant barriers to entry, making it difficult for new entrants to compete with Costco.

Intensity Of Rivalry

While Costco faces competition from other retailers, its efficient operations and loyal customer base allow it to maintain a competitive edge, but still face pricing pressure from rivals.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 25.94%
Debt Cost 4.28%
Equity Weight 74.06%
Equity Cost 9.15%
WACC 7.89%
Leverage 35.02%

11. Quality Control: Costco Wholesale Corporation passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Quality: 7.5

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Momentum: 8.5

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Yield: 3.0

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A-Score: 5.4/10

Value: 1.4

Growth: 7.0

Quality: 5.7

Yield: 2.0

Momentum: 6.0

Volatility: 10.0

1-Year Total Return ->

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Target

A-Score: 5.0/10

Value: 6.8

Growth: 5.1

Quality: 4.7

Yield: 7.0

Momentum: 0.5

Volatility: 6.0

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

895.85$

Current Price

895.86$

Potential

-0.00%

Expected Cash-Flows