Costco FY2025 Q4 Earnings Preview: Decoding Growth Drivers and Market Bets Amid Sky-High Valuation

TradingKey - Since the release of Costco's fiscal 2025 third-quarter earnings report, its stock performance has slightly underperformed the S&P 500 index. After a significant year-to-date rally, the stock has entered a consolidation phase, exhibiting a contracting triangle pattern, reflecting investor caution ahead of the fourth-quarter earnings report.

Costco has pre-announced that its net sales for the fourth quarter of fiscal 2025 reached $84.4 billion, an 8% year-over-year increase, driven by a 5.7% rise in comparable store sales and robust e-commerce performance. The U.S., Canada, and other international markets saw comparable sales growth of 5.1%, 6.3%, and 8.6%, respectively. E-commerce comparable sales surged by 13.6%, with August alone recording an impressive 18.4% increase, highlighting the effectiveness of Costco’s omnichannel strategy. Market focus will shift from revenue growth to profitability metrics, particularly gross margins and fiscal 2026 guidance, to evaluate whether Costco’s operational strength and defensive business model can continue to justify its valuation exceeding a 50x price-to-earnings ratio.

Key Metrics to Watch

Net Sales: Costco has confirmed in its August sales report that net sales for the 16-week fourth quarter (ending August 31, 2025) reached $84.4 billion, up 8.0% from $78.2 billion in the same period last year. This figure is now a given, eliminating any uncertainty regarding the company’s revenue performance.

Earnings Per Share (EPS): The current market consensus expects Costco’s fourth-quarter EPS to be $5.81, compared to $5.29 in the fourth quarter of fiscal 2024, implying an approximate 9.8% year-over-year growth. This growth expectation slightly exceeds revenue growth, suggesting that the market anticipates the company will achieve operating leverage through effective cost control or a favorable sales mix.

Membership Fees, Renewal Rates, and Growth: Costco’s membership model is the cornerstone of its business, with stable, high-margin membership fee income forming a moat that supports its low-margin operations and price competitiveness. Key metrics include: Membership fee income, expected to show significant year-over-year growth in Q4, driven by new member growth and the September 2024 fee increase, following a 4.6% rise in Q3. Renewal rates, which stood at 92.7% in the U.S. and Canada and 90.2% globally in Q3, are critical, as any fluctuations could raise concerns about customer loyalty. New member growth, particularly the pace of premium Executive Membership sign-ups, which drive higher spending, is a key indicator of market appeal and future potential. Investors should closely monitor these metrics to gauge Costco’s operational resilience and valuation support.

Profitability: Despite strong sales growth, profitability remains under scrutiny due to rising merchandise costs, supply chain volatility, and potential tariff threats impacting Costco’s thin margins. Key metrics include: Gross margin, with investors closely watching year-over-year and sequential changes, where declines or expansions reflect either profit sacrifices or improved pricing power and efficiency; Kirkland Signature brand performance, as its high margins can offset pressures from other categories; and SG&A expense ratio, where efficient cost control is critical to achieving operating leverage and translating 8% revenue growth into higher EPS growth.

E-commerce Business: Costco’s e-commerce business is a growth engine, with Q4 comparable sales soaring by 13.6%. Investors should focus on key metrics: Growth sustainability, whether FY2026 can maintain double-digit growth, with management’s outlook being critical; Digital investments, such as Costco Logistics and “buy now, pay later” programs, which enhance long-term competitiveness but may pressure short-term profits; and Omnichannel integration, how online and offline channels drive traffic and sales synergy, demonstrating strategic effectiveness. Management’s commentary on these metrics will reveal the success of Costco’s omnichannel strategy.

Summary

The market currently presents a notable contradiction: on one hand, the September consumer confidence index continues to decline, with growing concerns about the economy, employment, and inflation; on the other hand, Costco demonstrates robust operational performance. This divergence may suggest that consumers are concentrating their spending at retailers like Costco, which offer the best value on essentials (e.g., food and gasoline), with Costco’s growth potentially coming at the expense of weaker competitors. The upcoming earnings call will provide a valuable opportunity for validation. If management confirms increased foot traffic and market share gains due to heightened consumer anxiety, it will reinforce Costco’s positioning as a “defensive growth stock.” Conversely, any indication that even loyal customers are cutting back on spending could signal broader economic weakness. Costco’s Q4 earnings will serve as a critical catalyst for short-term stock price movements, with investors needing to balance acknowledgment of its strong business model against caution regarding its high valuation.

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