Costco Wholesale reported second-quarter earnings that fell short of Wall Street expectations, primarily due to rising merchandise costs and inflation in key products like eggs and coffee. Despite a revenue increase of 9% to $63.72 billion, the company’s earnings of $4.02 per share missed the $4.11 expectation. CEO Ron Vachris noted that trade tensions and tariffs pose risks, as a third of U.S. sales come from imports, with many items sourced from countries affected by tariffs. Additionally, the company is facing pressure regarding its diversity, equity, and inclusion policies amid political scrutiny, contributing to stock declines.
(Reuters) – Costco Wholesale’s second-quarter profit fell short of Wall Street forecasts on Thursday, impacted by escalating merchandise costs as the membership-only retail chain refrains from raising prices on its products.
The earnings report from Costco arrives amid a turbulent retail landscape, with companies such as Target and Walmart providing cautious forecasts in anticipation of price increases owing to tariff uncertainties.
Costco is susceptible to potential trade conflicts stemming from President Donald Trump’s tariffs on imports to the U.S., as well as retaliatory actions from the impacted nations.
“Approximately one-third of our sales in the U.S. consist of imported goods, with less than half of these sourced from China,” stated CEO Ron Vachris during a post-earnings call.
The company’s margins were adversely affected in the reported quarter by soaring egg prices due to rising cases of bird flu in the U.S., in addition to coffee and cocoa price inflation.
Egg costs, which are integral to cakes and breads, are driving up prices in Costco’s bakery section, overshadowing reduced expenses for other ingredients like sugar, butter, and flour, according to CFO Gary Millerchip.
During the quarter ending February 16, the retailer experienced a 9% rise in merchandise costs, compared to a 5% increase from the previous year.
Costco reported earnings of $4.02 per diluted share, falling below analysts’ expectations of $4.11 per share, according to data gathered by LSEG.
The company’s quarterly revenue increased by 9% to $63.72 billion, surpassing analysts’ average forecast of $63.13 billion.
Shares of Costco declined nearly 1% during after-hours trading.
In late January, 19 Republican attorneys general urged Costco to inform the states within 30 days whether it will eliminate its diversity, equity, and inclusion (DEI) policies or provide an explanation for their continuation.
The company faced strong shareholder opposition regarding a proposal to limit its DEI initiatives, coinciding with U.S. corporations dismantling similar policies following President Donald Trump’s executive order advocating for the termination of DEI practices.
(Reporting by Neil J Kanatt in Bengaluru; Editing by Krishna Chandra Eluri)