The company discusses its third quarter 2025 performance, highlighting new warehouse openings, financial results, competitive pricing strategies, and the success of the Kirkland Signature brand. They also address the impact of tariffs, investments in digital technology, and initiatives to enhance the member experience.

The company reported a net income of $1.9 billion for the third quarter, marking a 13% increase from the previous year. Despite challenges including a LIFO charge, employee vacation day accruals, and negative impacts from foreign exchange rates, net sales reached $61.96 billion, an 8% increase. Key metrics showed growth in comparable sales, e-commerce sales, and membership fee income, while renewal rates saw slight decreases attributed to digital acquisitions and new memberships from promotional campaigns.

The company experienced a 6.8% increase in paid household members and a 6.6% rise in cardholders year-over-year, with executive memberships growing by 9%. Gross margin improved by 41 basis points year-over-year to 11.25%, driven significantly by the fresh departments due to sales leverage and lower commodity costs, particularly dairy, butter, eggs, and olive oil. Food and sundry margins saw an increase, enabled by price reductions on eggs and butter, while non-food margins were slightly up worldwide but down slightly in the US. Improved margins in gas and e-commerce were key drivers of the overall gross margin increase.

LIFO negatively affected the gross margin rate by 23 basis points, with a $130 million LIFO charge in Q3 2025 compared to an $11 million credit in the previous year. The reported SGNA rate increased year over year by Ed basis points, influenced by investments in employee wages and partially offset by sales leverage and productivity improvements. Capital expenditures for the quarter were approximately lynx billion dollars, with an estimated total for the year of over Ed billion dollars. Fresh categories experienced high single-digit comparable sales growth, led by double-digit increases in meat and strong performance in produce. Non-foods also saw high single-digit comp sales growth, with gold and jewelry, toys, housewares, and home furnishings all up double digits. Food and sundries had mid to high single-digit comps, with cooler and frozen food showing the strongest results.

In Q3 2025, Costco successfully lowered prices on various products, including butter, eggs, and specific Kirkland Signature items, leveraging locally sourced production and moving items to Asia for APAC warehouses. The company introduced over 100 new Kirkland Signature offerings, providing 15% to 20% more value than national brands. Optical departments and ancillary businesses saw significant value additions through high-quality lens manufacturing and affordable luxury frames. Despite negative gas comps due to lower average prices per gallon, Costco navigated inflation and tariff impacts by working closely with suppliers to mitigate costs. The evolving tariff landscape added operational complexity, but Costco's expertise in buying and limited SKU model offered agility. Digital and e-commerce efforts, including targeted campaigns and a personalized product recommendation hub, resulted in double-digit growth in various categories. Big and bulky item sales online surged by 30%, bolstered by Costco Logistics' delivery experience. Costco Next, the curated marketplace, showed healthy year-over-year growth, equaling total sales for fiscal year 2022 in Q3 2025.

Despite the moving tariff scenes and daily changes, Costco has been fortunate with key commodity prices coming down. The company is taking advantage of opportunities to lower prices, seeing an improved competitive landscape and planning to continue investing in price reduction to mitigate tariff impacts for its members.

The dialogue discusses strategies employed by a grocery company to manage inflation and maintain competitive pricing amidst rising costs. Key tactics include closely monitoring commodity prices, swiftly reducing prices when possible, and leveraging supplier relationships to lower costs. The conversation also explores the impact of these strategies on market share, particularly in non-food categories, and the potential for pull-forward demand in specific items.

Buyers proactively pulled forward summer goods and sporting goods ahead of tariff impacts, allowing for stable or slightly increased pricing. Furniture and appliances, with healthy inventory, were less affected, driving non-food sales. Strategic movement of goods and partnerships with non-EU regions mitigated higher tariff impacts. Quantifying demand pull-forward due to tariff fears was challenging.

An expert provides valuable financial insights followed by a question-and-answer session, addressing inquiries from industry analysts regarding market trends and forecasts.

The company discusses the deceleration in sales growth due to lapping gains from precious metals and gift cards, emphasizing strategic priorities to improve member experience in high-volume warehouses through expansion and technological enhancements, while expressing confidence in continued growth opportunities.

Despite a fluctuating macro environment including tariffs, Costco has achieved consistent year-over-year EBIT margin growth. The company attributes this to a focus on long-term business management rather than short-term quarterly performance. Key factors include fresh productivity improvements, reduced spoilage, and commodity deflation benefits. Costco's philosophy centers on driving value for members through global buying, in-country production, and growth in e-commerce and retail media. The goal is to continually lower prices and increase profitability, with a belief that margin growth can be sustained over time as part of this strategy.

The discussion centers on the implications of a significant LIFO (Last In, First Out) charge in Q4, anticipated to moderate in future quarters, and how this contrasts with the substantial headwind experienced throughout 2022. Insights are provided on margin dynamics influenced by market conditions and peer activities in Santorio County, affecting the company's financial outlook.

The LIFO charge for the first two quarters showed a credit due to deflation in non-food items. Inflation started to appear in the third quarter, affecting the LIFO calculation.

The discussion revolves around estimating the Last-In, First-Out (LIFO) charge for the full year, considering the impact of inflation on inventory costs, particularly in non-food items. The estimated full-year LIFO charge is around $145 million, with a $130 million adjustment required in the third quarter to account for higher inflation. If inflation remains constant, an additional $50 million charge is expected in the fourth quarter.

The inflation rate has slightly turned positive, leading to an estimated annual charge of $145 million based on current rates. This charge has been adjusted across the first three quarters, with a final adjustment in the fourth quarter. Higher or lower tariffs could affect the cost of goods, influencing this number. Despite the quarter's inflation adjustment, overall inflation remains relatively low compared to the post-Covid period, affecting inventory values estimated between $12-$13 billion.

The discussion centers on how future inflation levels will impact inventory costs and LIFO charges for the upcoming fiscal year. The company's forecast for 2026 will depend on whether inventory and product landing costs increase, influenced by inflation. No carryover effect from current inflation is expected into 2026, but rising inflation could lead to a higher LIFO charge, whereas reduced tariffs could result in a lower charge.

The $12 to $13 billion LIFO charge pertains primarily to the US inventory, as the company employs the retail method for international operations, focusing on US business for LIFO calculations.

Grocery inflation remained low, with some items like eggs and Paul past experiencing inflation while dairy products saw deflation. Digital sales accounted for about 8% of the business, excluding Instacart deliveries and travel business, reaching up to 12% when gas sales were excluded. Costco logistics handled 20% to 25% of total deliveries, focusing primarily on big and bulky items for efficient cost management.

Over half of the members have downloaded the app, indicating significant digital engagement. There's still room for growth, particularly in improving member experience through quarterly enhancements, such as increased inventory availability, improved search functionality, and enhanced communication. Digital wallet usage for payment card integration accelerates checkout speed, further driving digital engagement. Continued improvements aim to outpace overall growth and increase digital penetration among members.

The company is leveraging digital advancements, such as the digital membership card and scan-and-go technology, to expedite checkout processes and enhance customer experience. Additionally, they are considering extending gas station operating hours to boost gallon growth and sales.

The company discusses the upcoming depot opening in Florida and the opportunities for improving supply chain efficiency and reducing costs through optimized network operations and e-commerce logistics. Strategic planning for future buying is also addressed, detailing nimble decision-making processes in response to changing environments and tariff challenges, leveraging domestic and international sourcing options.

The discussion focuses on the sustainability of recent core gross margin improvements, attributing unique factors such as adjustments for ingredient deflation. It also explores the potential effects of tariff rollbacks on vendor pricing, emphasizing agility in adapting to the changing environment and commitment to delivering value to members through strategic investments and productivity enhancements.

In a dynamic environment influenced by tariffs, Costco prioritizes working with suppliers to offset price increases, focusing on delivering value to members through strategic sourcing and assortment adjustments. The company also explores partnerships, such as with Affirm, to offer flexible payment options for large purchases, enhancing member experience and loyalty.

Despite a recent price increase and concerns about its U.S. branding internationally, Costco reports strong membership growth and positive sales trends. The company is pleased with its renewal rates, sign-up activity, and growing membership count, noting that it's still early to fully assess the impact of the membership fee increase. Internationally, Costco experiences robust sales growth, with all its countries showing positive comp growth. Members express a desire for improved international relations, but this has not significantly impacted sales or membership metrics.

The company anticipates ongoing lower renewal rates for digital memberships, attributed to the characteristics of recent sign-ups. Strategies to address this issue are being considered, acknowledging the nature of new customers impacts renewal rates.

The company observes a decline in renewal rates among digital promotions, attributed to younger members and the impact of newly opened Asian warehouses with higher membership volumes. Strategies include enhancing digital engagement and personalization to move members up the loyalty curve, particularly targeting younger demographics for improved renewal rates.