10-K: Costco Reports Strong FY25 Growth, Membership Fees Up 10%

Costco Wholesale Corporation announced robust financial results for fiscal year 2025, with net sales increasing 8% to $269.9 billion and membership fee revenue rising 10% to $5.3 billion.

Summary

• Net sales increased 8% to $269,912 million for fiscal year 2025.
• Comparable sales grew 6% overall, or 7% when excluding the impacts of foreign currency fluctuations and gasoline price changes.
• Membership fee revenue rose 10% to $5,323 million, driven by new member sign-ups and fee increases.
• Net income increased 10% to $8,099 million, resulting in $18.21 per diluted share.
• The company opened 27 new warehouses, including three relocations, for a net total of 24 new locations in 2025.
• A 12% increase in the quarterly cash dividend was approved by the Board of Directors in April 2025.
• Capital expenditures for 2025 totaled $5,498 million, with plans to spend $6,000 to $6,500 million in fiscal 2026.

Sentiment

Score: 8

Explanation: Costco demonstrated strong financial performance in fiscal 2025 with significant increases in net sales, comparable sales, membership fees, and net income. The company's strategic growth in new warehouses and commitment to employee welfare are positive indicators. However, it faces headwinds from foreign exchange fluctuations, gasoline price deflation, and ongoing competitive and regulatory pressures, including cybersecurity and legal proceedings. The planned capital expenditures and dividend increase reflect management's confidence.

Positives

• Net sales increased by a strong 8% to $269,912 million in 2025.
• Comparable sales growth of 6% (7% excluding foreign currency and gasoline price impacts) was driven by a 5% increase in shopping frequency and a 1% rise in average ticket.
• Membership fee revenue grew 10% to $5,323 million, reflecting strong member acquisition and successful fee adjustments.
• Net income increased 10% to $8,099 million, with diluted earnings per share reaching $18.21.
• Gross margin percentage improved by 20 basis points, or 11 basis points when excluding the impact of gasoline price deflation.
• The Board of Directors approved a 12% increase in the quarterly cash dividend in April 2025, signaling confidence in future performance.
• Member renewal rates remained high at 92.3% in the U.S. and Canada, and 89.8% worldwide.
• The company expanded its global footprint by opening 24 net new warehouses in 2025, with plans for up to 35 new locations in 2026.
• Competitive employee compensation was maintained, with the starting wage increasing to at least $20.00 per hour and the average hourly rate in the U.S. reaching approximately $32.00 per hour by the end of 2025.
• A high employee retention rate of approximately 94% was achieved in the U.S. and Canada for employees with at least one year of service.

Negatives

• Foreign-exchange rate fluctuations negatively impacted net sales by $1,943 million (78 basis points) and net income by $97 million ($0.22 per diluted share).
• Lower gasoline prices negatively impacted net sales by $2,329 million (93 basis points).
• A LIFO charge of $142 million was recorded in 2025 due to higher merchandise costs, negatively affecting gross margin.
• Selling, general and administrative (SG&A) expenses as a percentage of net sales increased by 11 basis points (3 basis points excluding gasoline price deflation).
• The worldwide membership renewal rate was negatively impacted by a higher number of online memberships and digital promotions, which tend to renew at a slightly lower rate.
• Russ Miller, Senior Executive Vice President, U.S. Operations, is retiring effective February 2026.
• The former Chief Information Security Officer (CISO) left the company in June 2025, and a replacement is actively being sought.

Risks

• High dependence on U.S. and Canadian operations (86% and 84% of net sales and operating income, respectively, in 2025), particularly California (26% of U.S. net sales).
• Potential difficulties in implementing growth strategies, including acquiring suitable property, navigating local regulations, and securing long-term utility contracts.
• New warehouse openings may cannibalize sales from existing locations in established markets.
• Challenges in attracting members in new markets due to lack of familiarity or intense competition.
• Failure to maintain membership growth, loyalty, and brand recognition could adversely affect financial results.
• Disruptions in merchandise distribution, processing, packaging, manufacturing, and other facilities due to extreme weather, pandemics, labor issues, or other catastrophic events.
• Inability to timely identify or effectively respond to changing consumer tastes and preferences, including those related to resource efficiency, environmental protection, human rights, and the transition to a low-carbon economy.
• Demand for gasoline, which represented approximately 10% of total net sales in 2025, could be adversely impacted by climate change concerns and regulations.
• Availability and performance of IT systems are critical; failure to successfully execute IT projects or system disruptions could significantly impact operations.
• Increased cybersecurity threats and the risk of failing to maintain the privacy and security of personal and business information could lead to reputational damage, litigation, and substantial costs.
• Payment-related risks, including compliance with evolving payment rules, potential fee increases from third-party processors, and higher fraud losses.
• Risk of selling products that cause illness or injury, potentially leading to lost sales, increased costs, litigation, or reputational harm.
• Inability to attract, train, and retain a sufficient number of qualified employees, or failure to implement effective succession plans for senior management.
• Exposure to property, casualty, or other losses not fully covered by insurance, especially from catastrophic events.
• Strong competition from a wide range of local, regional, and national wholesalers and retailers, including those with greater financial resources and technology capabilities.
• Adverse effects from general economic factors, domestically and internationally, such as inflation, unemployment, foreign-currency exchange rates, and changes in government fiscal, monetary, and tax policies.
• Suppliers may be unable to timely provide quality merchandise at competitive prices or fail to adhere to company standards.
• Fluctuations in foreign-exchange rates may adversely affect international operating results and merchandise costs.
• Natural disasters, extreme weather conditions, acts of terrorism, or other catastrophic events could negatively affect operations and financial performance.
• Pandemics and other health crises could impact business operations, demand for products and services, supply chain, labor availability, and financial performance.
• Failure to meet financial market expectations regarding operating results could cause the stock price to decline.
• Changes in or failure to comply with a wide array of federal, state, local, and international laws and regulations could result in penalties or operational restrictions.
• Risks associated with legislative, judicial, accounting, regulatory, political, and economic factors specific to the various countries or regions of international operations.
• Changes in accounting standards and subjective assumptions, estimates, and judgments by management could significantly affect reported financial condition and results.
• Risks related to evaluations of internal controls over financial reporting and disclosure controls, including for non-financial reporting.
• Changes in federal, state, and foreign tax rates and legislation, including the global minimum corporate tax (Pillar 2), could adversely affect financial condition and results.
• Failure or perceived failure to meet environmental, social, or governance (ESG) goals or expectations could result in reputational harm or adversely affect the business.
• Involvement in numerous legal proceedings and audits, with potential for unfavorable outcomes that could result in material charges.

Future Outlook

The company plans to open up to 35 new warehouses, including five relocations, and intends to spend $6,000 to $6,500 million on capital expenditures during fiscal 2026. It expects to continue increasing the sales penetration of its private-label Kirkland Signature items and pursue international growth. The company also anticipates continuing quarterly dividend payments. The global minimum corporate tax (Pillar 2) did not materially impact fiscal 2025 financial statements, and the company is evaluating new FASB accounting standards for future disclosure requirements.

Management Comments

• Our philosophy is to provide our members with quality goods and services at competitive prices. We do not focus in the short-term on maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our pricing authority – consistently providing the most competitive values.
• We believe that achieving our longer-term objectives of reducing employee turnover, increasing productivity and enhancing employee satisfaction requires maintaining compensation levels that are better than the industry average for much of our workforce.
• Take Care of Our Employees, is a key component of our code of ethics and is fundamental to our commitment to Take Care of Our Members.
• We believe that our warehouses are among the most productive in the retail industry, owing largely to the commitment and efficiency of our employees. We seek to provide them not merely with employment but careers.
• Our commitment to Take Care of Our Employees includes promoting an inclusive and respectful workplace. We strive for an environment where all employees feel that they belong, are accepted, included, respected and supported.

Industry Context

The retail industry is highly competitive, with Costco competing globally against a wide range of wholesalers and retailers, including supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores. Key competitors in the U.S. include Walmart, Target, Kroger, and Amazon, as well as other warehouse clubs like Walmart's Sam's Club and BJ's Wholesale Club. The increasing prevalence of online and mobile shopping has intensified competition by enabling easier price comparison. Some competitors possess greater financial resources, technology capabilities (including faster adoption of artificial intelligence), better merchandise access, and broader market penetration.

Comparison to Industry Standards

• Operates profitably at significantly lower gross margins than most other retailers due to high sales volumes, rapid inventory turnover, and operating efficiencies.
• Maintains inventory losses (shrinkage) well below those of typical retail operations through strict entrance/exit controls and a membership format.
• Achieves lower labor costs relative to sales volume compared to many other retailers, attributed to shorter operating hours and efficiencies inherent in a warehouse club model.
• Maintains competitive compensation and benefits, leading to a high employee retention rate of approximately 94% in the U.S. and Canada for employees with at least one year of service, which is considered high for the industry.
• Carries a significantly limited selection of less than 4,000 active Stock Keeping Units (SKUs) per warehouse in its core business, contrasting with other broadline retailers.

Management Changes

Corporate Governance

Legal Proceedings

• Class action lawsuit (Martin Reyes v. Costco Wholesale Corporation) filed in November 2023, alleging California labor law violations including failure to pay minimum wage, overtime, provide breaks, accurate wage statements, reimburse expenses, and pay sick pay.
• Related Private Attorneys General Act (PAGA) representative action (Martin Reyes v. Costco) filed in January 2024, seeking civil penalties for alleged labor code violations and a suitable seating claim; a motion to stay was granted on December 18, 2024.
• PAGA action (Nader v. Costco) filed in August 2024, alleging various California Labor Code violations; motions to strike portions of the complaint were granted in February 2025 and May 2025.
• Involvement in In re National Prescription Opiate Litigation (MDL No. 2804), a consolidated multidistrict litigation concerning opioid abuses, with cases filed by various entities and class actions.
• Five class action suits (Birdwell, Scott, R.S., Groves, Castillo) filed between September 25 and October 31, 2023, alleging privacy law violations due to pixel trackers on Costco.com; a consolidated complaint was filed January 26, 2024, and a motion to dismiss was denied in substantial part in November 2024.
• Received civil investigative demands from the Washington Attorney General's Office (January 2, 2024, and August 22, 2024) and a pre-litigation letter from the Los Angeles Office of the County Counsel (January 3, 2024) related to the pixel tracker privacy allegations.
• Class-action lawsuit (Bullard, et ano., v. Costco Wholesale Corp., et ano.) filed June 20, 2024, alleging Kirkland Signature Fragrance Free Baby Wipes contain perand polyfluoroalkyl substances (PFAS), violating consumer protection and false advertising laws; a motion to dismiss was initially granted February 14, 2025, but denied for an amended complaint on May 14, 2025.
• Received a Civil Investigative Demand from the U.S. Attorney's Office, Western District of Washington (January 2023), for a False Claims Act investigation concerning prescription medications.
• Received a Notice of Intent to File Administrative Complaint from the U.S. Environmental Protection Agency (EPA) in May 2024 for alleged violations of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA); an agreement has been reached to settle for an immaterial amount.

Stakeholder Impact

• Shareholders: Benefited from strong financial performance, including increased net sales, net income, and a 12% increase in the quarterly cash dividend. The ongoing share repurchase program also provides value. However, they face risks related to stock price volatility if market expectations are not met and potential impacts from legal proceedings.
• Employees: Benefited from competitive compensation, including an increased starting wage to $20.00/hour and an average hourly rate of $32.00/hour in the U.S. The company's commitment to employee development, internal promotion, and an inclusive workplace fosters high retention. Risks include the inability to attract/retain qualified employees and control labor costs.
• Customers (Members): Continue to benefit from the company's strategy of offering high-quality merchandise at consistently low prices, expanded e-commerce options, and the 2% reward for Executive members. However, they are exposed to risks related to product safety, potential privacy concerns (e.g., pixel tracker lawsuits), and the company's ability to consistently meet evolving consumer tastes.
• Suppliers: The company maintains direct relationships with many producers and seeks supply chain diversification. Suppliers face risks if they cannot meet quality standards or competitive pricing demands.
• Creditors: The company's strong cash flow from operations and existing credit facilities provide a solid financial position. Long-term debt repayments demonstrate financial prudence.

Next Steps

• Open up to 35 new warehouses, including five relocations, in fiscal 2026.
• Spend $6,000 to $6,500 million on capital expenditures during fiscal 2026.
• Continue to increase the sales penetration of Kirkland Signature private-label items.
• Continue international growth.
• Actively source a qualified replacement for the former Chief Information Security Officer (CISO).
• Respond to civil investigative demands from the Washington Attorney General's Office and a pre-litigation letter from the Los Angeles Office of the County Counsel regarding privacy law violations.
• Evaluate new FASB ASUs 2023-09 and 2024-03 for future disclosure requirements.
• Hold the Annual Meeting of Shareholders on January 15, 2026.

Key Dates

Recommendation

Costco delivered strong financial results for fiscal year 2025, with significant growth in net sales, comparable sales, and net income, alongside a 12% increase in its quarterly dividend. The company's membership model continues to show high loyalty, and its expansion plans are robust. However, the stock price already reflects high market expectations, and the company faces several material risks, including foreign exchange headwinds, intense competition, evolving consumer preferences, and significant ongoing legal and cybersecurity challenges. While the fundamentals are strong, the current valuation and existing risks suggest a 'Hold' recommendation for seasoned investors, awaiting further clarity on risk mitigation and sustained growth in a challenging retail environment.

Keywords

Wholesale Club, Retail, Membership Warehouse, E-commerce, Financial Results, Net Sales, Membership Fees, Net Income, Comparable Sales, Dividend, Capital Expenditures, Supply Chain, Cybersecurity, Risk Management, Corporate Governance, Kirkland Signature, International Operations, Employee Compensation, Sustainability, SEC Filing, 10-K