● Analysis Background
On December 14, 2024, Costco reported its financial results for the first quarter of fiscal year 2025. This report examines the company’s financial and operational performance, strategic priorities, and key investment considerations.
● Company Overview
Costco is a membership-based warehouse club that provides a wide selection of merchandise at low prices. Headquartered in Issaquah, Washington, the company operates more than 870 warehouses globally, primarily in the U.S., Canada, and Mexico. Costco is known for high-volume sales, limited SKUs, and strong private-label brand (Kirkland Signature) performance.
● Business Segments and Performance Structure
- U.S. Operations: Core contributor to revenue, especially in food, health & beauty, and household essentials.
- International: Growth from Canadian, Mexican, and Asian markets. Expansion in China remains a focus.
- Membership Income: High renewal rates (~92% in U.S./Canada) and a stable source of margin-enhancing revenue.
● Q1 FY2025 Financial Summary
| Metric | Q1 FY2025 | Q1 FY2024 | Year-over-Year Change |
|---|---|---|---|
| Total Revenue | $57.8B | $54.4B | +6.2% |
| Net Income | $1.59B | $1.36B | +16.9% |
| EPS (Diluted) | $3.58 | $3.07 | +16.6% |
| Operating Income | $2.27B | $2.00B | +13.5% |
| Operating Margin | 3.9% | 3.7% | +0.2pp |
| Free Cash Flow | $1.18B | $1.03B | +14.6% |
| Q2 FY2025 Guidance | Revenue growth of 6%–7% expected | — | — |
● Key Strategic Developments
- Digital Expansion: Continued investment in e-commerce and delivery capabilities.
- Private Label Growth: Kirkland Signature's increasing penetration across food and non-food categories.
- International Footprint: Ongoing investment in China and Japan to support long-term international growth.
● Investment Considerations
Strengths
- Resilient business model with strong customer loyalty and pricing power.
- Consistently high renewal rates and growing membership base.
- Operational efficiency and disciplined cost control.
Risks
- Consumer spending sensitivity amid inflation or economic slowdown.
- Labor cost increases and supply chain constraints.
- Competitive pressure from Amazon, Walmart, and regional clubs.
● Conclusion and Outlook
Costco delivered solid Q1 FY2025 results, underpinned by revenue growth, expanding margins, and strong membership income. With a loyal customer base, ongoing digital investments, and international opportunities, Costco remains well-positioned for stable growth. The company continues to be a core holding for defensive retail investors.
Next Earnings Release Expected: March 7, 2025