In a recent appearance on Schwab Network's the Morning Trade Live with Oliver Renick, Chris Wang provided expert insights and analysis on Costco's (COST) 2nd quarter earnings report.

Costco –

  • Solid quarter with 6.8% comp sales growth (+9.1% ex gas and Fx) – company noted strong consumer demand, particularly in non-food
  • Trading a very rich 55x forward PE vs 10 year avg 35.7x
  • Biggest concerns from analysts: Tariffs mentioned 12 times on the earnings call and inflation 18 times
  • Ecommerce sales +20.9% – 43 million visits to the new warehouse tool on the app
  • Planned expansion includes 28 new warehouses in 2025; goal 25-30 new locations/year

It was a very impressive quarter even though they did miss on the bottom line. Net sales grew 9.1% which was an acceleration from 7.5% growth; traffic accelerated to +5.7%; and e-commerce was a standout accelerating to 22% growth from 13% last quarter. Non-food categories (up double-digits) saw the most growth, partly from big-ticket items during the holiday season like 100” TVs, pinball machines and gaming computers.

Overall, Costco is seeing an acceleration in traffic showing that higher-income consumers are finding significant value by shopping at Costco. The overall club channel is gaining share in the elevated inflationary environment. Consumers are looking for value and you can’t find any better value than in a Costco warehouse.

“In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices.” CFO Gary Millership added, “Our goal is always to be the first to lower prices where we see opportunities to do so and the last to increase prices in the face of rising costs.”

Difficult to predict the impact of tariffs; goal is to minimize the impact of cost increases to its members. Costco buyers could look to countries not hit with tariffs for products.  1/3 of US sales are from imports (1/2 coming from China, Mexico and Canada).

Recently extended gas station hours from 6am to 10pm which is past the store hours. Management has also acknowledged the potential for longer store hours is on the table, which could provide a nice comp lift.

Last year, Costco announced the launch of their retail media network. With over 90 million members, they have very valuable data collected on consumer behavior which allows advertisers to better target shoppers with relevant ads. This can be a big growth driver for the company as Walmart launched their retail media network in 2021 and generated $3.4 in global revenue in 2023.