Costco topped Wall Street expectations in the second quarter with gains in earnings, revenue and comparable sales, as its CEO discussed tariff implications and the potential for duty refunds during a conference call.
Net income was $2.04 billion, or $4.58 per diluted share, versus $1.79 billion, or $4.02 per diluted share, in the year-previous quarter, the company reported.
Costco beat a Zacks Investment Research analyst consensus estimate of $4.55 per diluted share and a revenue forecast by 0.52%.
With the effects of gasoline price and foreign exchange rates excluded, comparable sales were up 6.4% in the United States, 7.6% in Canada, and 7.1% in other international markets for a company total of 6.7%. Digitally enabled comps increased 21.7% on a sans gas and foreign exchange basis.
Net sales advanced to $68.24 billion from $62.53 billion in the year-prior quarter, while total revenues grew to $69.6 billion from $63.72 billion. Operating income was $2.61 billion versus $2.32 billion in the year-earlier period.
In the conference call, Costco president and CEO Ron Vachris addressed tariff issues, including possible refunds from International Emergency Economic Powers Act tariffs recently struck down by the U.S. Supreme Court. Costco has already sued to recover funds it paid out in tariffs.
Vachris pointed out that, as regards the IEEPA tariff refund situation, “it is not yet clear what the process will be, what refunds, if any, will be received, and when this will happen. Throughout the past year, we have taken action to reduce the impact of tariffs. In many cases, we did not pass the full cost on to our members.”
Vachris went on to say:
The complexity of the tariffs implemented over the past year, including layering of different tariffs on top of each other and multiple changes in rates throughout the year, also made it challenging to track the exact impact to an individual item sold. As we have done in the past, when legal challenges have recovered charges passed on in some form to our members, our commitment will be to find the best way to return this value to our members through lower prices and better values. We will be transparent in how we plan to do this if and when we receive any refunds.
As the Trump administration continues to adjust its trade strategy to maintain tariff barriers, Vachris said that Costco is counting on its buying expertise and limited-SKU model to effectively manage duty-related costs. To help stabilize prices, Costco has been moving production to lower-cost countries for some goods where that delivers effective savings, consolidating buying efforts globally to lower the cost of goods, and leaning on the company’s Kirkland Signature private-label products, an area where the company has the most supply chain control.
Vachris said Costco has already lowered prices on some products that are less subject to cost pressures.
“We will continue to be a pricing authority, and as some tariffs have been reduced, we are lowering prices on affected items such as certain textiles, bedding and cookware SKUs,” he said.
Gary Millerchip, Costco executive vice president and CEO, said in the conference call that nonfoods comparable sales were positive in the mid-single digits for the second quarter, with better-performing departments including jewelry, majors and small appliances.
The Food and Sundries category was up mid-single digits, while Fresh Foods was positive in the low double digits by region, with the strongest sales registered in the Midwest, Northwest, and Southeast.
Costco operates 924 warehouse clubs, including 634 in the United States and Puerto Rico, 114 in Canada, 42 in Mexico, 37 in Japan, 29 in the United Kingdom, 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, three in France, two in Sweden, and one each in Iceland and New Zealand. The company operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
