Costco's U.S. same-store sales rose 10.7% last quarter, but 7.2% without gasoline and currency

Costco reported net income of $2.998 billion, or $6.75 a share, for its 16-week fiscal fourth quarter ended Aug. 30, up from $2.61 billion, or $5.87, a year earlier. Net sales rose 11.2% to $93.9 billion, according to the results release the company filed with the SEC on Thursday afternoon. For the full fiscal year, net sales rose 10.1% to $297.2 billion and earnings came to $20.76 a share.

The shares closed down 0.91% at $896.48 in regular trading and were little changed after hours, at about $895.57 shortly before 5 p.m., according to Nasdaq.com. The Wall Street Journal led on higher profit, sales and membership fees.

The comp number to use is 7.2%, not 10.7%

The headline figure most readers will see is U.S. comparable sales up 10.7% for the quarter. Costco's own table shows how much of that came from the price at its gas pumps. Excluding changes in gasoline prices and foreign exchange, U.S. comps rose 7.2%. Currency has little effect on U.S. stores, so most of the 3.5-point gap is fuel. Company-wide, comps were 9.4% reported and 6.7% adjusted.

That matters because gasoline lifts sales without lifting profit much. It also explains a small wrinkle in the income statement: merchandise gross margin, net sales less merchandise costs, slipped to 11.02% of sales from 11.13% a year earlier, by our math from the release. Selling and administrative costs fell faster, to 8.94% of sales from 9.21%, so operating income still rose 13.8% to $3.80 billion.

The 7.2% is still a strong number for a retailer of this size. It is just not a 10.7% number. Readers who run a business with fuel exposure will recognise the pattern from our look at $4.48 gasoline.

Membership fees are half the profit

Membership fee income rose 7.3% to $1.85 billion in the quarter and 11% to $5.91 billion for the year. Set against operating income, the quarter's fees came to 48.7% of Costco's $3.80 billion operating profit, down from 51.6% a year earlier because the merchandise side grew faster. That share is the core of the Costco model: the warehouse sells goods at thin margins and the membership card carries much of the profit.

Strip out the tariff refund

Costco said the quarter included a one-time benefit of 15 cents a share from refunds of tariffs collected under the International Emergency Economic Powers Act, less some of that money reinvested in lower prices for members. Without the 15 cents, fourth-quarter earnings would be $6.60 a share, up 12.4% from $5.87. That is the cleaner year-over-year comparison, and it is still double-digit growth.

A lot more cash

• Cash and equivalents ended the year at $20.2 billion, up from $14.2 billion.
• Operating cash flow was $15.8 billion, against $13.3 billion last year.
• Capital spending rose to $6.4 billion from $5.5 billion. Costco now runs 939 warehouses, 647 of them in the U.S. and Puerto Rico.
• About $2.25 billion of long-term debt is now due within a year, up from $75 million, per the balance sheet.

Costco has paid special dividends in the past, most recently $15 a share in January 2024, according to Nasdaq data. A cash pile this size will keep that question alive, but the company said nothing about it in the release.

Who competes with this

Digitally enabled comparable sales rose 19.5%, and 19.8% excluding gas and currency. For independent grocers, a 7% underlying gain at the largest warehouse club, plus fast online growth, is the competition they face on staples.

109,039 independent grocery and convenience are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 10,080 in CA, 10,031 in NY, 9,014 in TX. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

What to watch: Costco's monthly sales reports, which show whether the gasoline effect fades as pump prices move, and any comment on how the rest of the tariff refunds will be used.

Sources: Costco results release (SEC Form 8-K, Exhibit 99.1); The Wall Street Journal; Nasdaq.com. Margin, share and ex-refund figures are Chronicle calculations from the release. This is market information, not investment advice.