Costco Shares: Why Did the Retailer’s Stock Fall on Q2 FY2025 Earnings?

TradingKey - It’s been a busy week or so for global investors, with tariffs from President Trump potentially only the beginning of a global trade war. 

That has set stock markets back in the US with the S&P 500 Index down 3.6% so far this week and the tech-focused Nasdaq Index taking an even bigger hit, falling 4.1% in the past four days. 

However, one of the more “reliable” and defensive companies is big box retailer Costco Wholesale Corporation (NASDAQ: COST). Its shares have outperformed both large indices and are down only 2.1% this week.

Costco also happened to report its latest Q2 FY2025 results (for the 12 weeks ending 16 February 2025) on Thursday (6 March) after the market close in the US. While its overall report was solid, Costco stock slipped 1.2% in after-hours trading. Why was that the case? Here’s what investors should know about Costco’s latest results.

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

Costco Q2 FY2025 profit slightly disappoints

On the whole, Costco delivered a relatively solid set of quarterly results. The company posted Q2 FY2025 net sales of US$62.53 billion, up 9.1% year-on-year. Meanwhile, overall revenue for the period of US$63.7 billion came in slightly ahead of analysts’ expectations for US$63 billion.

However, earnings per share (EPS) came in at US$4.02 for the period and was below the average consensus forecast for the quarter. This shortfall was mainly down to foreign exchange (FX) weakness which negatively impacted earnings in US Dollars.

Despite that slight miss, comparable sales for the period – a key metric for retailers like Costco – jumped 9.1% (excluding impacts from changes in gasoline prices and FX) and came in ahead of expectations.

February comparable sales data for Costco was positive but it did indicate a slight slowdown from January and Q2 FY2025 growth, with comparable sales growth coming in at 8.3%.

E-commerce continues to grow 

One of the big stories from Costco over the past few years has been how it’s been catching up with competitors on the e-commerce front.

Costco has never had a traditionally strong digital offering but the company is focusing a lot of energy on building this out. For example, Costco now curates a selection of high-demand items and exclusive deals for member through its “Costco Next” platform. They can then “Buy Online” and “Pick-up In Store” – a retailing process that is popularly known as “BOPIS”. 

Costco has also invested in building out its own mobile app that allows members to easily browse, order and manage their memberships. As a result, the company is now reaping the dividends of this continued investment into its digital offering. 

E-commerce comparable sales growth for Q2 FY2025 came in at an impressive 22.2% year-on-year – over double its overall comparable sales growth of 9.1% for the period.

What did Costco have to say about tariffs?

Many investors are looking at tariffs and their impact on retailers. Costco’s management did have some commentary surrounding both tariffs and the general health of the US consumer.

Inevitably, they’re also linked as Costco CEO Ron Vachris said that consumers are now becoming more “choiceful” about what they’re buying. Yet that could benefit Costco. As Vachris went on to say:

“In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices, and our teams will continue to rise to this challenge by leveraging our global buying power, strong supplier relationships and innovation”.

That neatly sums up Costco’s offering in the market. It’s seen as a discount – but quality – retailer that has enormous scale. This should shelter the company somewhat, relative to others, when it comes to the broader impact of trade tariffs on pricing.

CEO Vachris did say that it was difficult to predict the impact of tariffs but clarified that Costco is working to minimise price increases as best as possible. Overall, only one-third of Costco’s US sales are imported from other countries – with less than half of this coming from Mexico, Canada, and China.

Where next for Costco stock after earnings?

Investors can expect Costco shares to open slightly lower on Friday but the big number to watch before the market open will be the US February jobs report (otherwise known as the non-farm payrolls). 

That will give investors an idea of the general health of the US labour market – and overall economy – which could impact investor sentiment short term.

As for Costco, the company continues to generate strong cash flows, with operating cash flow of US$6 billion for Q2 FY2025, up from US$5.38 billion for the year-ago period. It also had around US$4 billion in free cash flow for the quarter, up from around US$3.5 billion for the same period a year earlier.

For long-term investors looking at growth and strong cash generation, then buying Costco shares on any further dips in future could turn out to be a smart move.