Costco plans 35 new warehouses in fiscal 2026 as member upgrades and digital sales accelerate

Earnings Call Insights: Costco Wholesale Corporation (COST) Q4 2025

MANAGEMENT VIEW

* CEO Ron Vachris highlighted the opening of 10 new warehouses in Q4, bringing the total to 914 worldwide, and announced plans to open another 35 warehouses in fiscal 2026, including 5 relocations. He stated, "We continue to see significant opportunities for expansion both domestically and internationally across the markets where we currently operate." Net sales for the fiscal year were reported at just under $270 billion, with e-commerce sales exceeding $19.6 billion and a record year for gas volumes.
* Vachris noted recent milestones, including the full rollout of Coca-Cola in the $1.50 hotdog combo across all food courts and the 30th anniversary of Kirkland Signature, with increased sales penetration helping to offset inflationary pressures from tariffs. He also emphasized the addition of executive member exclusive hours and a $10 Instacart credit, which have led to a meaningful increase in upgrades from Gold Star to executive membership.
* Vachris detailed technology advancements, such as enhanced checkout technology and improvements in digital and e-commerce, including data augmentation and passwordless sign-in.
* CFO Gary Millerchip reported, "Net income for the fourth quarter came in at $2.61 billion, or $5.87 per diluted share, up 11% from $2.35 billion or $5.29 per diluted share in the fourth quarter last year." He added, "Net sales for the fourth quarter were $84.43 billion, an increase of 8% from $78.8 billion in the fourth quarter last year." Millerchip highlighted a 14% year-over-year increase in membership fee income to $1.72 billion and a 9.3% rise in paid executive memberships.

OUTLOOK

* Vachris stated, "We remain confident in our ability to grow market share by continuing to deliver exciting, high-quality items at the best value for our members," despite macroeconomic uncertainty. Millerchip noted the company plans to open 35 warehouses in fiscal 2026 and continues to prioritize investments in technology, remodels, and manufacturing facilities to support growth. He detailed the shift in e-commerce reporting to digitally enabled comparable sales, stating, "For fiscal year 2025, our digitally enabled sales totaled more than $27 billion."
* Management expects a small decline in renewal rates as online sign-ups, who renew at a slightly lower rate, become a larger part of the membership base, but targets improvement through auto-renewal and targeted digital communications.

FINANCIAL RESULTS

* Q4 net income was $2.61 billion, or $5.87 per diluted share, up from $2.35 billion or $5.29 per share last year. Net sales for the quarter reached $84.43 billion, an 8% increase year-over-year. Comparable sales grew 5.7% (6.4% adjusted), with e-commerce comparable sales up 13.6%. Membership fee income rose by $212 million to $1.72 billion. Executive members reached 38.7 million, representing 47.7% of paid members and 74.2% of sales.
* The gross margin rate increased to 11.13%. Core-on-core margins improved by 29 basis points, with fresh foods, sundries, and nonfoods all higher year-over-year. Supply chain improvements and increased Kirkland Signature penetration contributed to margin gains. SG&A rate was 9.21%, with wage investments and general liability charges partially offset by productivity gains. Capex for Q4 was approximately $1.97 billion.
* Fresh sales were up high single digits, led by double-digit growth in meat. Nonfood and food/sundries also posted strong comps, while ancillary businesses like pharmacy and optical saw solid growth. Gas comps were negative due to lower prices, despite higher volumes.

Q&A

* Christopher Horvers, JPMorgan, asked about extended member hours and their impact. Vachris responded that communication with members has been strong, and the 1% comp lift is based on business analysis. Millerchip noted the impact will unfold further over time.
* Michael Lasser, UBS, questioned the sustainability of membership renewal rates. Millerchip explained the decline is tied to more online sign-ups, which renew at lower rates, but overall membership income and upgrades remain strong. Management aims to improve renewal through engagement and auto-renewal.
* Charles Grom, Gordon Haskett, inquired about core-on-core margins and holiday assortment. Millerchip attributed margin gains to broad-based improvements and supply chain efficiency. Vachris highlighted the introduction of new product categories for the holiday season due to space freed up by thinning traditional assortments.
* Zhihan Ma, Bernstein, asked about the sustainability of membership fee growth. Millerchip expressed continued optimism, citing new warehouse openings and younger member engagement as growth drivers.
* Simeon Gutman, Morgan Stanley, discussed e-commerce and grocery competition. Vachris said Instacart and Uber business continues to grow and the company remains vigilant about new entrants.
* Other questions covered unit growth sustainability, CapEx plans, inflation trends, credit card programs, tariffs, and digital roadmap priorities, with management emphasizing ongoing investments and adaptability.

SENTIMENT ANALYSIS

* Analysts focused on membership renewal trends, inflation, tariffs, and margin sustainability, with a neutral to slightly positive sentiment, probing for risks but recognizing management's proactive strategies.
* Management maintained a confident and upbeat tone in prepared remarks and Q&A, emphasizing adaptability and investment in growth initiatives. Phrases like "we feel very good" and "we are confident" were common. During Q&A, management was candid about renewal rate challenges but stressed overall membership and income growth.
* Compared to last quarter, management's tone remained confident, while analysts maintained a similar level of scrutiny regarding margins, tariffs, and digital strategy.

QUARTER-OVER-QUARTER COMPARISON

* Expansion plans increased from 27 new warehouses in fiscal 2025 to 35 planned for 2026. E-commerce and digitally enabled sales growth continues to be a focus, with a shift in reporting methodology. Membership fee income growth accelerated, and executive membership upgrades rose following new benefits. Renewal rates declined slightly, consistent with prior comments about digital sign-ups. Gross margin and core-on-core margin improvement trends persisted, supported by increased Kirkland Signature penetration and supply chain efficiencies. Analysts maintained focus on inflation, tariffs, and digital engagement, while management's confidence in navigating challenges and expanding strategically remained steady.

RISKS AND CONCERNS

* Management cited ongoing macroeconomic uncertainty, potential impacts from tariffs, and the risk of further decline in renewal rates as online sign-ups increase. Millerchip noted, "We would, therefore, expect to continue to see a small decline in our renewal rate as this change in membership mix gets fully reflected." Mitigation strategies include enhancing auto-renewal, targeted communications, supply chain adjustments, and product assortment changes to offset tariff costs. Analysts questioned the sustainability of fee income growth and the impact of new digital members on renewal rates.

FINAL TAKEAWAY

Costco signaled continued confidence in its growth trajectory, underpinned by an ambitious warehouse expansion plan, strong executive membership trends, and investments in digital and operational capabilities. Management acknowledged near-term headwinds from membership renewal mix and tariffs but emphasized ongoing strategies to drive market share gains, enhance member value, and adapt to changing consumer behavior through technology and product innovation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cost/earnings/transcripts]

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