COST Q4 Deep Dive: Warehouse Expansion, Digital Initiatives, and Membership Trends

Membership-only discount retailer Costco (NASDAQ:COST) met Wall Streets revenue expectations in Q4 CY2025, with sales up 8.3% year on year to $67.31 billion. Its non-GAAP profit of $4.50 per share was 5.4% above analysts’ consensus estimates.

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StockStory’s Take

Costco’s fourth quarter results for 2025 reflected steady growth across its core retail operations, with management highlighting ongoing success in expanding its warehouse footprint and driving member engagement. CEO Ron Vachris credited new warehouse openings, relocations, and productivity enhancements as key contributors to revenue growth, alongside increased adoption of digital tools. Management also noted strong performance in both fresh and nonfood categories, aided by new product introductions and supply chain efficiencies. CFO Gary Millerchip emphasized that membership fee income benefited from both a recent fee increase and continued upgrades to executive memberships, while core margin improvements were supported by higher private label penetration and targeted marketing initiatives.

Looking ahead, management expects Costco’s growth to be underpinned by continued investment in new warehouse openings, international expansion, and digital transformation. Vachris described technology as a central pillar, stating the company’s approach is “practical, member-focused, and grounded in tangible business value.” The leadership team remains focused on leveraging artificial intelligence (AI) to enhance inventory management, improve member personalization, and streamline operations. Millerchip cautioned that renewal rates may face modest pressure as the mix of younger, digitally engaged members increases, but early results from targeted communications are encouraging. The company aims to maintain its value proposition while balancing reinvestment and operational efficiency.

Key Insights from Management’s Remarks

Management attributed quarterly growth to new warehouse openings, enhanced digital engagement, and expanded member benefits, while also navigating cost pressures and changing customer behaviors.

• Warehouse network expansion: New warehouse openings in the U.S. and internationally, including creative conversions of existing structures, drove incremental sales and market share. Relocations of high-volume warehouses to larger sites with expanded amenities significantly accelerated growth in select markets.
• Digital and technology adoption: Implementation of digital tools, such as prescanning and scanning membership at entry, led to notable improvements in checkout productivity—up to 20% in early-adopting locations. Enhanced personalization on the website and app resulted in higher member engagement and a positive sales lift.
• AI integration in operations: Early applications of AI in pharmacy inventory management improved in-stock rates above 98% and contributed to mid-teen growth in pharmacy scripts filled. The company is also piloting AI tools in gas inventory management to optimize pricing and availability.
• Membership trends and renewal: Membership fee income saw double-digit growth, supported by both fee increases and upgrades to executive status. However, a slight decline in renewal rates was observed due to a higher proportion of digitally acquired, younger members, which management is addressing with targeted communication strategies.
• Product assortment and supply chain: Management cited broad-based sales improvement across fresh, nonfoods, and sundries. New product launches, especially within the Kirkland Signature brand, and agile supply chain responses to tariffs and inflation helped sustain member value and margin stability.

Drivers of Future Performance

Costco’s outlook is shaped by ongoing warehouse expansion, digital transformation, and proactive cost management, offset by evolving membership dynamics and external cost pressures.

• Accelerated warehouse growth: The company plans to sustain 30 or more net new warehouse openings annually, with a balanced mix of infill and new market entries across the U.S. and international regions. Management believes this will provide a consistent engine for sales and membership growth.
• Digital investments and AI roadmap: Continued enhancements in digital capabilities—including more personalized member communications and integration of AI into core business processes—are expected to drive higher engagement, operational efficiencies, and incremental sales, particularly in pharmacy and gas operations.
• Membership renewal headwinds: Management acknowledged ongoing pressure on renewal rates from the growing share of digitally acquired, younger members. The company is prioritizing targeted communication and engagement strategies to stabilize and eventually improve renewal metrics, but expects some variability in the near term.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) progress toward 30-plus annual warehouse openings and the mix between U.S. and international expansion, (2) continued adoption and impact of digital enhancements, including AI-driven improvements in inventory and personalization, and (3) trends in membership renewals, especially as targeted communications seek to address weaker renewal rates among younger, digitally engaged members. Updates on new product launches and ongoing cost management will also be critical signposts.

Costco currently trades at $878.25, in line with $884.99 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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