Costco Profit Tops Wall Street Expectations as Deals Lure Inflation-Weary Consumers

Free samples and $4.99 rotisserie chickens? In this economy?

No one keeps costs down like Costco, and consumers know it. In its third-quarter earnings call on Thursday, the members-only retailer showed that it’s unsurprisingly thriving in the new (or is it rather just everlasting?) era of penny-pinching. The quarterly report also offered a snapshot of the US consumer at a critical moment.

Inflation Strikes Back

The return of inflation is very real. As is the resilience of the US consumer, though cracks are beginning to show. Commerce Department data released Thursday showed that the personal consumption expenditures price index (PCE) rose 3.8% year-over-year in April, the biggest jump since May 2023. Consumer spending ticked up 0.5% from the previous month, while, crucially, the personal savings rate fell to 2.6%. That’s the third-lowest rate in 65 years of economic data, behind only lows in late 2022 and mid-2005.

When money’s a bit tight, the $65 annual Costco membership is a no-brainer. The chain has garnered year-over-year increases in customer visits for six straight months through April, according to data analytics firm Placer.AI. Traffic to its e-commerce website and app climbed 37% in the past quarter, the company said Thursday. Like Walmart, Costco continues to attract the upper leg of consumers in the K-shaped economy, with warehouse locations largely in more affluent areas. Case in point: Home furnishings and gold and jewelry were among its top sales categories in the quarter.

On metrics followed closely by Wall Street, the Issaquah, Wash., based retailer posted:

• Revenue of $70.5 billion in the three months through May 10, up 11% from a year earlier, and net income of nearly $2.2 billion, which beat expectations and rose from $1.9 billion a year ago.
• As usual, membership fees accounted for the majority of profits. Paid memberships in the quarter grew 4% year-over-year, while renewal rates came in a hair under 90%, also topping analysts’ estimates.

The company used its earnings call to highlight the ability to lower prices on many items and has said it can continue to do so if it receives tariff refunds from the US government.

Pumped-Up Kicks: The real killer category for the company, however, is gas. Drivers poured into its fuel stations, which typically offer lower prices than retail competitors. “The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter,” CEO Ron Vachris said on a call with analysts Thursday. Better yet, gas station visitors tend to spend more time in the store and maybe score a free mini ravioli served in a paper cup.