Costco (NASDAQ: $COST), a membership warehouse club that offers brand-name merchandise at lower prices than conventional retailers, released its Q2 fiscal 2025 earnings on Thursday, March 6, 2025, after markets closed. Here is a deep dive into the results.
Costco Q2 2025 Results
For the second quarter of fiscal 2025, Costco reported revenue of $63.72 billion, a 9.04% increase YoY, missing estimates of $63.13 billion. Net income was up 2.58% YoY to $1.79 billion, for an adjusted EPS of $4.02, missing estimates of $4.11.
Q2 Financial Highlights
The company ended Q2 with $6 billion in net cash from operating activities compared to $5.38 billion in Q2 fiscal 2024. At the end of the quarter, it had $12.36 billion in cash and cash equivalents, compared to $9.1 billion last year.
In Q2, it reported a gross margin of 10.85%, a 5-basis point increase from last year. The SG&A rate came in at 9.06%, an 8 basis point reduction from last year, while Q2 capital expenditure came in at around $1.14 billion.
Costco saw a 6.8% YoY increase in paid household members to 78.4 million, while executive memberships increased 9.1% YoY to 36.9 million.
As of the end of the quarter, it had 897 warehouses in operation, including 617 in the United States and Puerto Rico, 109 in Canada, 41 in Mexico, 36 in Japan, 29 in the United Kingdom, 19 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two in France, and one each in Iceland, New Zealand and Sweden.
It also operates e-commerce stores in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia. Costco forecast 28 new store openings in fiscal 2025, with 25 net new buildings.
Earnings Call Highlights
During the earnings call, Costco announced it had increased the minimum wage to $20 per hour, while the top-of-scale wage had been increased to $31.90 per hour. The company is planning another $1 per house increase in 2026 and 2027. These increases will have a mid-single-digit basis point headwind on SG&A.
Expected Headwinds
Retailers have faced headwinds, with both Walmart (WMT) and Target (TGT) issuing cautious forecasts. They expect Trump’s tariffs to impact prices due to retaliatory measures by impacted countries.
According to one analyst, Target sources nearly a third of its sales from products outside of the USD, with less than half of those from Mexico, China, and Canada. Rising egg prices due to rising bird flu cases in the US have also impacted Costco’s margins. During the earnings call, Costco CFO Gary Millerchip noted that the rising costs of eggs had boosted prices in the bakery section, where eggs are a major ingredient.
The retailer is also facing political headwinds after its decision to continue its DEI program in defiance of Trump’s executive order. In January, 19 Republican attorney generals wrote to the retailer demanding it repeal its DEI programs.
COST Market Performance
Following the Q2 results, COST shares sank 1.81% in premarket trading to $1,008.00 as of 8:34 AM EST on March 7, 2025. The stock is up 17.10% in the past six months and 32.77% in the past 12 months.
In the same period, the S&P 500 has risen 6.1% in the past six months and 12.42% in the past 12 months. COST is trading above both its 50- and 200-day moving averages of $988.42 and $909.60, respectively.
Analysts give COST an overall moderate buy rating. They forecast an average price target of $1,089.58, which is a 6.13% upside based on Thursday’s closing price. The analysts forecast a wide range of price targets, with a high of $1,200 and a low of $907.
Is Costco (COST) A Buy After Its Q2 Results?
Costco is a historically expensive stock, with a forward P/E ratio of 56.50, compared to a forward P/E ratio of 12.25 for Target (TGT). Following the recent Q2 earnings and revenue miss, coupled with the expected impact of tariffs, COST is potentially a hold in the medium term. However, if it experiences further declines, it could potentially become a great addition to your portfolio in the long term.
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