Costco Stock: What to Watch With Upcoming Q2 FY2025 Earnings

TradingKey - Trade and tariffs are in focus right now for investors in global stock markets. That’s mainly down President Trump firing his latest trade salvos via a flurry of tariffs against countries such as Canada, Mexico, and China.

Of course, for US consumers, prices are likely to have to go up if these tariffs remain in place longer term. That’s an issue for retailers in the US and one of the largest around is big box retailer Costco Wholesale Corporation (NASDAQ: COST).

The company will be reporting its Q2 FY2025 results (for the 12 weeks ending 16 February 2025) on Thursday (6 March) after the market closes in the US. Investors will be no doubt keen to hear an update from Costco management on how it’s performing as well as what the company foresees for the rest of the year.

So, here’s a quick breakdown of what investors should be watching when this retail giant reports its latest numbers.  

Will Costco give weak outlook?

One of the big questions on investors’ minds is whether Costco will give comments or an outlook that was as weak as competitor Walmart Inc (NYSE: WMT). When Walmart reported its latest results, the weak projected outlook for 2025 saw the company’s shares take a hit.

However, heading into this quarterly results release, investors already have a pretty good idea how Costco’s business is performing as the company releases monthly sales figures.

For January 2025, comparable sales growth for Costco was an impressive 9.8% and this figure was up from the Q1 FY2025 comparable sales growth of 7.1%. Meanwhile, its e-commerce comparable sales growth for January 2025 was a solid 15.2% versus the 13.2% that it recorded for the Q1 FY2025 period.

That suggests that shoppers are still willing to spend (as of January) post-the-holiday period and investors will get more data as Costco’s February sales numbers will be released alongside its quarterly earnings on Thursday. 

Investors will, of course, want to hear more commentary from Costco management around the recently-imposed tariffs from President Trump on Canada and Mexico – two big trading partners of the US – as well as China.

What is the stock market expecting from Costco?

In terms of overall expectations, analysts are forecasting that Costco will report Q2 FY2025 revenue of US$63 billion, up from the US$58.44 billion from the same period a year ago.

Meanwhile, earnings per share (EPS) is expected to be US$4.13, up from the US$3.92 reported in the year-ago period.

Investors will also be focusing on membership fee revenue as this quarter will be the second since Costco raised its annual membership fee in the US for the first time back in September 2024. 

While membership fee revenue doesn’t form a huge base of the company’s overall revenue, the retention rate of members – which tends to be in the low 90s percentage range – is an important indicator of consumers’ loyalty to Costco. There’ll be interest to see whether Costco can keep members engaged with its offerings.

Analysts from JPMorgan say that Costco “continues to gain share while the consumer is better than they were last summer”. They go on to say that Costco stock remains a “core holding”.

What should investors do with Costco stock?

For investors, it’ll be key to understand what the outlook is for Costco in the upcoming quarters. That commentary from management, more than the reported results, will likely move the stock in the immediate aftermath of earnings.

Like Walmart, it won’t be completely unscathed from tariffs but the silver lining for investors is that Costco has enormous scale and – like Walmart – is in a prime position among US retailers to be able to deal with the tariffs best.

Having said that, Costco stock is not cheap and trades for a price-to-earnings (PE) multiple of around 60x. Then again, Costco shares have never been that cheap and long-term investors appear willing to “pay up for quality”.

Any disappointing short-term news from Costco in its latest numbers, while recognising that the long-term growth story remains intact, could present a valuable buying opportunity for investors if the company’s shares decline.

Looking to quality growth

Costco’s business continues to perform at a high level and membership renewal rates were still above 90%. In the latest period, membership renewal rates worldwide were 90.4%, slightly down from a year ago when it was 92.8% but some of that attrition that could be down to the recent annual price hike. 

As the company continues to invest heavily into its e-commerce operations, investors should see Costco’s e-commerce operation continue to perform better than the overall business.

While shares are not cheap – trading at a forward price-to-earnings (PE) ratio of 54x, versus Walmart Inc’s (NYSE: WMT) 35x – it’s still considered a best-in-class retailer that investors are willing to pay up for.

So far in 2024, Costco shares have risen by around 52%, easily outperforming the 27.6% advance of the S&P 500 Index.