Costco Wholesale Corp. — the global king of discount retail — reported earnings on September 26 for the fourth quarter of fiscal 2025. At first glance, the results appeared steady: revenue and operating income each rose by 8–9% year over year, extending the company’s long record of consistent growth. But beneath the surface, several warning signs suggest the momentum that once seemed unstoppable may be losing steam.
Sales Look Stable — But Traffic Tells Another Story
Costco’s key metric, comparable sales, rose 5.7% from a year earlier, matching last quarter’s pace. Yet the number of transactions per store — a cleaner gauge of consumer activity — grew only 3.7%, the weakest in nearly three years.
In other words, sales growth is increasingly being driven by price rather than volume. Excluding fuel and currency effects, comparable sales have slowed from 9.1% three quarters ago to 6.4% now — a clear deceleration.
Pricing Power Holding, but Fading Momentum
At first glance, average transaction value appeared to rebound, rising 1.9% from a year earlier versus just 0.4% in the prior quarter. But stripping out fuel and FX effects tells a different story: price gains have actually narrowed over the past three quarters. Inflation’s peak impact may be fading, but the fact that average tickets remain 2.6–3.2% higher than last year shows that price pressures are still weighing on consumers.
Online Demand Offsets Weak In-Store Traffic
If physical traffic is softening, Costco’s e-commerce business is doing the opposite. Online sales jumped 13.6% year over year, supported by a 27% increase in website traffic — up sharply from 20% in the prior quarter.
That divergence may point to a subtle consumer shift: middle-income shoppers seeking value are increasingly turning to digital channels and discounted online offers, even at a retailer known for low in-store prices.
Expansion Continues at a Rapid Pace
Costco opened nine new warehouses during the quarter, bringing its total to 914, slightly accelerating from the previous quarter’s eight openings. That expansion helped offset softer same-store growth, keeping total merchandise sales up 8% year over year.
Membership Fees Surge — but Renewal Rates Slip
Membership revenue climbed 14% to $1.7 billion, far exceeding expectations. Paid memberships rose by 1.4 million, or 6.3% year over year, while the average annual fee per member jumped 7.3% to $85, driving the bulk of the increase.
However, renewal rates — one of Costco’s most closely watched metrics — declined for a third consecutive quarter, falling below 90% globally for the first time since early fiscal 2022. The company attributed this to the expiration of discounted online memberships introduced in 2023, which had lower renewal intent.
Inflation Pressures Push Up Margins — and Costs
Gross margin improved to 11.13%, up 13 basis points from a year earlier. The company said most of that came from lower fuel costs, which contributed 10 bps, while core retail operations added 3 bps after accounting for LIFO inventory impacts and lower profitability from ancillary businesses.
But costs are rising faster than profits. Selling, general, and administrative expenses climbed to 9.21% of revenue, an increase of 17 basis points — more than the margin expansion. Excluding fuel, Costco cited store expansion, labor inflation, and extended operating hours as key contributors.
Operating Margin Narrows, Profit Growth Slows
Because expense growth outpaced gross margin gains, retail operating margins compressed slightly. Total operating income came in at $3.34 billion, narrowly missing the $3.38 billion consensus estimate, and rising 9.8% from a year earlier — the slowest in several quarters.
Net income, however, benefited from a lower tax rate (25.6% vs. 26.2%) and rose 10.9% to $2.61 billion, edging above market expectations.
Stability Endures — but Headwinds Are Emerging
Costco’s hallmark resilience remains intact: steady mid-to-high single-digit growth across revenue and earnings, and minimal deviations from analyst forecasts. Yet subtle shifts in key indicators — slower traffic growth, lower renewal rates, and rising costs — hint at growing pressure on its middle-class customer base.
Volume growth is the lifeblood of retail. When higher prices, not stronger demand, drive sales, sustainability becomes a concern. The trend toward cheaper channels — evident in Costco’s online gains — suggests consumers are feeling the pinch of persistent inflation.
Costco’s rapid store expansion may be amplifying the strain, as new locations typically drag on per-store metrics during their ramp-up period. Meanwhile, rising labor and operating expenses threaten to erode profitability even as the company passes higher product costs through to customers.
Outlook: Still Strong, but Facing Headwinds
If inflation proves sticky, Costco could face a prolonged squeeze — softer consumer demand on one side, rising labor costs on the other. Its long-term fundamentals remain robust, but near-term headwinds may temper earnings momentum.
At roughly 50–60 times earnings, Costco trades well above its historical average — a valuation investors have so far justified by its consistency and defensibility. But with volume growth slowing and costs climbing, even a retailer as steady as Costco may not be immune to a valuation reset.
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