Costco’s Shares Are Not Cheap

Image Source: Costco

By Brian Nelson, CFA

Costco Wholesale Corp. (COST) recently reported fourth quarter fiscal 2025 results, and they were quite good. Both revenue and GAAP earnings per share exceeded expectations. Net sales for the quarter increased 8%, to $84.4 billion, while adjusted comparable sales increased 6.4% on a total company basis, a deceleration from the adjusted annual rate of 7.6%, but still strong. Adjusted comps in the U.S. increased 6%, 8.3% in Canada, and 7.2% in its Other International segment. Adjusted e-commerce revenue grew 13.5% on an adjusted basis. Paid memberships grew 6.3%, while the number of total cardholders expanded 6.1%. Its worldwide membership renewal rate was 89.8%.

Management was upbeat on its outlook on the conference call:

In the fourth quarter, we opened 10 new warehouses, including a relocation in Canada, our 20th warehouse in Korea, our second warehouse in Sweden and 5 net new locations in the U.S. For the fiscal year, we opened 27 new warehouses, including 3 relocations for a total of 24 net new buildings. This brings our total warehouse count to 914 worldwide. We plan to open another 35 warehouses in fiscal year ’26, of which 5 are relocations. We continue to see significant opportunities for expansion both domestically and internationally across the markets where we currently operate.

In the fourth quarter of fiscal 2025, Costco’s gross margin expanded 13 basis points, while SG&A as a percentage of sales dropped 17 basis points, bolstering operating income. Net income for the fourth quarter was $2.61 billion, $5.87 per diluted share, seven cents better than expected and compared to $2.354 billion, $5.29 per diluted share in last year’s quarter. Long-term debt totaled $5.7 billion at the end of the quarter, while cash and short-term investments were $15.3 billion. Merchandise inventories fell to $18.12 billion from $18.65 billion at the end of last year’s quarter. We like the fundamental momentum at Costco and its outlook remains bright, but its valuation is quite stretched at the moment. We remain on the sidelines.

—–