There are good events and bad events, but sometimes retailers have to find ways to turn even the bad ones into a competitive advantage. As the saying goes, sometimes you have to try to make a silk purse out of a sow’s ear. The good events, of course, are the regular annual observances that drive sales in their discrete categories, like Valentine’s Day and Halloween. Event-based merchandising for these occasions is one of Costco’s specialties, and the buying teams in Issaquah and the compan
pany’s regional hubs are adept at finding the right product at a price that pulls in members.
But Costco is good at harnessing bad events too, and this time around it is the Middle East-wrought fuel crisis, not exactly the kind of “event” that the buying team looks forward to, but an event nonetheless. During the final five weeks of the company’s third fiscal quarter, which ended May 10, Costco set an all-time record for fuel sales volume, pricing its petrol up to 30 or 40 cents per gallon below competitors’. But there is a long tail to this, too, because the company’s leadership thinks many people are using Costco for the first time during the fuel price spike, and it is also cementing loyalty among existing members. Customers using the fuel stations typically cross-shop the warehouse, which is another bonus of the current crisis.
Key financial metrics rise
The company generated revenues of $70.5 billion in the quarter, an increase of 11.6 per cent from a year ago. The revenues consisted of $69.2 billion in sales (up 11.6 per cent), and membership revenues of $1.37 billion (up 10.7 per cent). The company estimates that one-quarter of the membership revenue growth is emanating from the September 2024 fee increase, and that, excluding the fee rise and foreign exchange movements, revenue increased by a very respectable 7 per cent. Gross margin was just above 11 per cent, and net income after tax rose 15.2 per cent to $2.19 billion.
On the top line, same-store sales for fresh food rose in the high single digits, driven by meat and bakery. Non-food comp sales also rose in the high single digits, with gold and jewelry, small electrics, tires, home furnishings, majors, and health and beauty the leading categories. Notably, sales of self-care and wellness items, including fragrances, hair and skincare products, went on a tear. So did bigger-ticket items like saunas and massage chairs.
For the year-to-date, revenues totalled $207.4 billion (9.7 per cent year on year), and net income $6.23 billion (13.5 per cent).
Comparable-store sales in all broad geographic segments increased in the high mid-single digits in both the latest quarter and for the first nine months of the fiscal year. For the nine months, comps were up 6.4 per cent in the US, 7.6 per cent in Canada, and 6.6 per cent internationally (excluding Canada). Digitally enabled sales were up 21.5 per cent and site/app traffic up 37 per cent. All of these numbers are adjusted for fluctuations in fuel prices and foreign exchange.
In digital, the company continues to employ technology it believes improves the customer experience, as evidenced by the almost $5 billion in e-commerce sales driven by personalized recommendations. Leading digital sales categories were pharmacy, gold/jewelry, home furnishings and tires.
Tariff refunds could be on the way
Tariffs are back in the conversation (if they ever left), this time in a more positive way, as the company expects to receive refunds soon thanks to the February Supreme Court ruling that struck down the Trump tariffs.
CEO Ron Vachris told investors that Costco had set up the refund process and would be making submissions over the next few months. He said that “based on what other claimants have experienced, [Costco] should start receiving refunds on approved claims on a rolling basis over the following two to three months.”
The plan is to pass on a portion of the refunds to customers. He noted that how much was passed on and in what form would partly depend on the outcome of a class-action lawsuit filed against the company in March, demanding that all the money be refunded to members.
Online membership sign-ups are younger and don’t renew as often
Costco ended the quarter with 82.9 million paid members worldwide, with a renewal rate remaining near 90 per cent globally and above 90 per cent in the US and Canada.
CFO Gary Millerchip said, “Members who sign up online on average renew at a slightly lower rate than warehouse sign-ups. And as this population has grown as a percentage of our total base, this creates some downward pressure on the overall renewal rate.”
Millerchip said that the renewal rate for members in newer markets like Japan and China is significantly lower because many of these members are in an exploration phase, looking at what Costco offers and often having to travel farther to reach the warehouse.
Millerchip said that in the third quarter, “it was pleasing to see that our focus on increasing the renewal rates of these members through targeted digital communications and retention strategies more than offset the negative impact from this mix change in our membership base”.
Company warehouse pipeline still robust
During the quarter, Costco opened four net new warehouses, bringing its total to 14 for the year so far and bringing its total store fleet to 931 member warehouses (including three business centers), of which 639 are in the US, 115 in Canada, and 177 outside the US and Canada.
Of the international stores, 78 are in four Asian countries: Japan, Korea, Taiwan and China.
At the end of the 2026 fiscal year, the company expects to have an additional 12 net new stores operating, all but one of which will be in the US. The company reiterated its target of opening about 30 new stores annually over the next few years.
Some of these new stores will be relocations of high-volume warehouses into larger buildings, such as vacated hypermarkets and home improvement big boxes with superior parking.
Further reading: Inside Costco’s profit surge and the economics of buying differently
