Costco reports Q1 sales growth, highlights membership and e-commerce strength

Costco Wholesale, the world’s third-largest retailer by sales after Walmart and Amazon, produced another honest quarter ending November 24, the company’s first fiscal quarter of 2025. Following custom, the CEO, Ron Vachris, led off the company’s investor call on December 12 with his ‘fun facts’:

Costco’s US bakery division baked a record 4.2 million pies in the three days leading up to Thanksgiving, its food courts sold 274,000 pizzas on Halloween, its pharmacies achieved huge volume growth on the back of an almost 20 per cent increase in prescription sales, and its e-commerce operation completed almost one million deliveries, all of them company records. And the icing on the cake (or maybe the gravy on the pie is more appropriate): one of its seven new warehouse openings for the quarter, in Pleasanton, California, racked up US$2.9 million in sales, a record first day for any store in the company’s history.

The company’s leaders like flying at some low altitudes when they are conveying to investors and club members how their business is doing. In this spirit, Gary Millerchip, the company’s CFO reported chirpily that Costco’s private label Kirkland’s Signature was offering steep reductions on organic peanut butter, chicken stock and Sauvignon Blanc.” And, innovation was present in abundance: “we introduced new Kirkland Signature oxy powder and Kirkland’s Signature food storage bags, both offering significant value to the national brand alternatives” he trumpeted. Not the typical kind of high-fallutin’ spiel from the CFO of a company as big as Costco, but impactful nonetheless. 

Continuing momentum

For the fiscal first quarter, net sales were US$60.1 billion, up 7.5 per cent from a year ago. That carried on the momentum from the 5.0 per cent year-on-year growth in fiscal 2024. Membership fees added on another US$1.2 billion to the top line.

Same-store sales increased by 7.1 per cent after adjustment for changes in gasoline prices (which were down sharply year-on-year) and foreign exchange rates. Growth was evenly spread across Costco’s three broad geographic reporting areas: 7.2 per cent in the US, 6.7 per cent in Canada and 7.1 per cent outside of US and Canada. E-commerce sales grew at a 13.2 per cent clip, substantially faster than the company average. In the US, fresh food, led by meat, produced the highest same-store sales growth. Although big-ticket premium items in the fresh department are holding up, the company’s CFO, Gary Millerchip notes that there are members “gravitating more towards lower cost per pound options”. He also perceives a shift from dining away from home toward dining in. 

Costco delivered net income for the quarter of US$1.8 billion, up more than 13 per cent on a year ago. Sales growth in the first quarter was again driven by increased foot traffic, which was up more than five percent year-over-year, while average transaction value has been virtually flat. This has been fairly consistent across the three geographic segments. In the e-commerce segment, site traffic rose by 16 per cent and average transaction value by four percent. (The Costco app was downloaded 2.9 million times during the quarter.) Gold and jewelry topped the list of best-selling items, followed by hardware, gift cards, home furnishings, health and beauty, and sporting goods.

No bias toward international

The company added six new warehouses and relocated one in the first quarter. It now operates 897 member warehouses, of which 171 are outside the US and Canada. Of these, 76 are spread across four countries in Asia: Japan, Korea, Taiwan and China. It also operates e-commerce sites in three of the four, China being the exception.

Routinely the question arises as to whether Costco is approaching saturation in the US and needs international to become the company’s future growth engine. CEO Vachris is consistent in his response that Costco is taking a balanced approach and over the next few years he expected about 30 openings of which slightly fewer than half would be in the US.

Notwithstanding the huge turnover at the Pleasanton store on its opening day, the fact remains that newer stores in the US are overall less productive than the longer-established ones. The more recently opened generation of stores are mainly infil that have overlapping trade areas with established ones. The Pleasanton store sits less than 10 miles from two other Costco warehouses in the San Francisco East Bay area, one in Livermore to the east and another in Danville to the north. Costco units ring the east, south and west sides of the bay like a necklace. However, the CEO insists that the new stores “take pressure” off existing high-volume ones, and this accounts for his forward projection of 15+ additions to the US store fleet annually. This is not so much a white-space strategy as a pressure valve.

Membership income, renewal rates solid after fee increase

Total membership at the end of the quarter stood at 77.4 million, up 7.6 per cent from last year. Executive memberships totalled 36.4 million, and these accounted for more than 73 per cent of sales. Renewal rates were solid at 90.4 per cent worldwide. Membership income growth was 7.8 per cent, with the recent increase in the company’s membership fee from US$60 to US$65 only just beginning to have an impact, estimated to be no more than one percent of the total fee growth.

Exploiting more categories is a company specialty

One of Costco’s strengths in maintaining its reputation as a ‘treasure hunt’ platform is its ability to identify niche categories that conventional retailers do not typically address. Precious metals ― the company sells both gold and platinum ― is one such category. Another is travel. Costco now offers a range of travel services, including tour packages, car rentals, ocean cruises, accommodations and flights. Millerchip: “Last year, we sold enough rental cars to fill every US Costco parking spot 8.5 times.”

And for some lucky couple: Costco travel services sold a five-month around-the-world cruise taking in the Galapagos, Easter Island and other exotic locations. The price tag was a cool US$293,000 for two and included a US$25,000 Costco shop card.

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