Costco's Online Sales Surge by 13%, Warranting Attention from Financial Backers.
When discussing retail titan Costco Wholesale (COST losing 0.74%), there's no shortage of newsworthy topics. First and foremost, Costco shares recently hit the $1,000 mark for the first time. To put this into perspective, the shares were hovering around the $100 mark a decade ago.
Costco's stock is surging, basic explanation, due to robust business performance. For instance, in the initial fiscal quarter of 2025 (which concluded on Nov. 24), the firm recorded a 7.5% year-over-year increase in net sales. Although this may not sound substantial, consider that it translates to over $250 billion in yearly revenue, making such a growth spurt truly impressive.
Costco stock is an attractive investment option thanks to its resilience over the long haul. Costco's unique business model is the key to its strength. Although membership fees only contribute to less than 2% of its revenue, they play a critical role in the overall operation.
Essentially, members pay the annual fees, enabling Costco to sell its goods at rock-bottom prices. Members in turn appreciate the value, continuing their loyalty to the brand due to their subscription.
In a positive development, Costco's member base has become younger in recent years. In the fiscal year of 2024, half of the new members were under 40 years old. This is a promising sign for the future of the industry.
That being said, I believe that Costco's explosive e-commerce growth has been overlooked by many investors. During the first quarter, e-commerce sales increased by 13% year-on-year. This growth may hold the key to unlocking the company's future success.
The significance of Costco's e-commerce growth
To provide a clearer perspective, let's focus on the recent advancements made by Walmart. Over the past year, the retail behemoth has shown impressive growth in its earnings. To be specific, revenue has climbed, which is great. Yet, gross profits have surged even more, and operating income has improved at an even faster pace.
When examining such a chart, investors should ponder what is fueling Walmart's profit margin growth. Well, one major contributor has been advertising. In the company's third quarter of 2025 (which concluded in October), global advertising surged by 28% year-over-year.
During Walmart's Q3 earnings call, the management team summarized their thoughts on the increased digital advertising revenues as follows: "We're creating a highly unique retail media platform and we've been encouraged by ongoing tests showing customer acceptance of growth in digital ads."
Retail media is essentially when a retailer, like Walmart, utilizes their shopping data and peddles ad space on digital platforms to connect with new customers. Without a flourishing e-commerce platform, generating high-margin revenue through retail media is challenging. However, Walmart does have a robust e-commerce business – it generates over $100 billion in annual sales.
In summary, Walmart's e-commerce strength has enabled the company to unlock a new revenue stream with high profit margins. As a result, the company's profits are outpacing its revenue, boosting share prices.
Returning to Costco, this is precisely the path it's following. During the Q1 2025 earnings call, CFO Gary Millerchip acknowledged that: "We are still in the early stages of retail media, but we continue to believe this represents a significant growth opportunity in the future."
Keep in mind that despite its size, Costco's profits remain modest. It boasts just $9.3 billion in trailing-12-month operating profit. Therefore, even a small boost in e-commerce revenue could have a substantial impact. And this is why 13% growth in e-commerce is so significant – it's not just about e-commerce itself. Instead, it serves as a stepping stone to unlocking the "significant growth opportunity" of retail media.
It won't happen overnight, but for those who have already written Costco's story, there are still untold chapters to come.
Investors should consider Costco's focus on e-commerce as a promising avenue for future growth. The company's 13% year-on-year increase in e-commerce sales in the first quarter of 2025 indicates a significant opportunity in retail media, which could significantly boost its profits.
Costco's robust business performance, including its e-commerce growth, makes it an attractive investment option for those who see untapped potential in the company's future.
