Costco Wholesale (COST -0.83%) dominates the retail landscape and raked in $269.9 billion of net sales in its fiscal 2025 (ended Aug. 31). The business has a loyal following, thanks to its relentless focus on low prices and high-quality merchandise. Investors have been rewarded, with shares that have climbed 160% in the past five years (as of Sept. 29).
The company recently provided investors with a fresh financial update. Here are the three biggest takeaways from Costco's latest earnings report.
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Durable demand
With shifting trade policies, the potential impacts of artificial intelligence (AI) on the economy, and general macro uncertainty, this hasn't been an easy year for many businesses. However, Costco stands out because it's as durable as they come.
During the fourth quarter, the company reported same-store sales growth of 5.7%, which was driven by improved foot traffic and higher transaction sizes. This highlights the steady demand Costco benefits from, as it can be viewed as a one-stop shop for all the needs of a typical household.
As mentioned, Costco has a loyal following. Customers love the shopping experience, which provides a no-frills environment that emphasizes cost savings above anything else. The global membership renewal rate was an impressive 89.8% in Q4, despite a price hike that took effect in September last year. It didn't prevent Costco from increasing its membership base by 6.3% year over year, supported by a larger share of consumers under the age of 40.
Ongoing growth
Despite being the world's third-biggest retailer, Costco continues to grow at a healthy clip. During fiscal 2025, the businesses opened 24 net new warehouse stores. As of Aug. 31, there were 629 stores in the U.S. and 285 internationally.
Management plans to open 30 net new locations in fiscal 2026. "We continue to see significant opportunities for expansion both domestically and internationally across the markets where we currently operate," CEO Ron Vachris said on the Q4 2025 earnings call.
While Costco proves that consumers still appreciate the physical shopping experience, it isn't resting on its laurels. E-commerce comparable sales grew 13.6% year over year in Q4, totaling nearly $20 billion (7% of the company total).
The business is finding ways of getting better. For example, Costco is leveraging its data to improve search functionality. And it has created a virtual waiting room for in-demand product launches.
According to Wall Street consensus analyst estimates, Costco's revenue is projected to increase at a compound annual rate of 7.2% between fiscal 2025 and 2028. For a company of Costco's scale, this is a solid outlook that should be encouraging to investors.
Great business, expensive stock
Growing same-store sales and ongoing expansion highlight Costco's continued momentum. Add in the fact that net income jumped 10.9% in Q4, faster than the revenue gain, and it's clear the company is humming along.
It faces a minimal threat of being disrupted or becoming obsolete and is successfully navigating the current economic climate. Given the company's lasting dominance in the retail sector, the final takeaway for investors is that this remains a wonderful business.
Long-term investors should have their eyes on this company as a possible addition to their portfolios. Costco will be able to keep increasing its earnings with each passing year, which is precisely what can drive shareholder returns over time.
However, now isn't a good time to buy the stock. The main issue is that the valuation is too expensive. This is hardly a shock to anyone who follows the business closely. Shares trade at a price-to-earnings ratio (P/E) of 49.9. This multiple has expanded by 86% in the past decade, which showcases the market's appreciation for the company.
Looking out five years and beyond, there's a real risk that the P/E ratio will contract. Investors should wait for a better opportunity.
