Costco (NASDAQ:COST) is set to report fiscal third-quarter 2025 earnings after the market closes on Thursday. With a market cap of $451 billion and a stock price hovering at $1,017 per share, Costco’s results are a bellwether for consumer spending amid 2025’s economic headwinds. 

Analysts expect earnings of $4.23 per share on revenue of $63 billion, up from $3.78 per share last year, driven by membership growth and e-commerce. However, navigating a tariff-heavy landscape and competitive retail pressures will determine whether Costco makes the cut. 

How Costco Can Hit Targets

Costco’s membership model is the primary driver for hitting estimates, with 78.4 million paid household memberships at the end of the second quarter with a 90.5% global renewal rate, up 0.1 percentage points. 

Its September 2024 fee hike is likely to boost third-quarter membership revenue after contributing $1.2 billion in Q2. Strong renewals and Executive membership expansion could push total revenue above the $65 billion forecast, especially if higher-income shoppers, attracted by bulk value, sustain the same sort of growth. Yet tariff-related price perceptions may dampen member upgrades, risking a revenue shortfall if renewals slip below 90%.

E-commerce sales were up 22% on a currency adjusted basis in Q2 and factors in as another catalyst for the retailer. Partnerships like Uber Eats, which enabled non-member access to its stores, and digital innovations such as app-based ordering, help drive online sales, which could exceed 15% growth in Q3. 

On the other hand, logistics costs and competition from Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) digital platforms may pressure margins, causing Costco to potentially miss the $4.24 per share estimates.

Repeat Business

Costco’s pricing power is rooted in its low-margin, high-volume model. It will be critical to see that the retailer maintains this level amid inflation that is still above Federal Reserve target levels and tariffs. 

Second-quarter U.S. comparable sales rose 8.6% excluding gas deflation, reflecting Costco members’ enduring demand for essentials like groceries. April comps grew 4.4%, showing strength despite the fact they cooled from March’s 6.4%. Still, location intelligence data specialist Placer.ai says foot traffic at the retailer saw a 6.1% increase in year-over-year visits.

Costco’s ability to minimize tariff impacts through supplier negotiations and its private-label strength could sustain comps above 6%, beating sales expectations. However, if consumers cut discretionary spending, comps may lag and miss Wall Street’s revenue targets.

Can It Do It?

There is every reason to believe Costco can by leveraging its pricing power and membership growth. For example, Walmart’s first-quarter results showed U.S. comp sales grew 4.5% despite the impact of tariffs, highlighting its resilience in essentials-driven retail. That is a key strength shared with Costco, which generates 70% of its revenue from grocery sales. 

Costco’s fee hike and 22% e-commerce growth mirror Walmart’s digital gains, suggesting there is plenty of revenue upside. But tariff-related price hikes, as Walmart said it could not absorb all of the costs, could pressure Costco’s margins if discretionary sales weaken. But April’s apparently strong comps indicate it will hit $65 billion. Earnings, though, may miss if logistics costs rise.

Will Costco Issue a Special Dividend Tomorrow?

In addition to increasing its regular dividend at a 13% compound annual growth rate for the past decade — it raised the payout again in April by 12.1% — Costco also issues special dividends.  It paid a $15 per share special dividend in 2023 and $10 per share in 2020 signaling the likelihood of another payout, though maybe not tomorrow. 

With over $13 billion in cash, equivalents, and short-term investments, Costco certainly has the wherewithal to do so, but given its three- to four-year pattern, one sooner than next year or the year after doesn’t seem to be in the cards. It generated free cash flow of $2.2 billion in Q2 that could support a special dividend of as much as $10 per share. 

I believe Costco will wait to see how the tariff situation plays out first before spending more money on additional dividends. Because a recession may also prioritize operations, I wouldn’t count on a special dividend being announced. 

Key Takeaways

Tariff mitigation is critical as CEO Ron Vachris emphasized minimizing cost pass-throughs. Costco’s scale and Kirkland Signature’s 25% sales share show price stability, potentially even gaining share from rivals like Target (NYSE:TGT). Yet, a tariff-induced recession or an inflation reversal could curb non-essential sales, slowing comps growth to low- to middle-digit percentage gains. 

With a forward P/E of 51, Costco must sustain 8% revenue growth to justify current valuations, but considering the retailer’s membership and digital strength, COST remains a top stock to own, whether it issues a special dividend or not.

 

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