Briefing

  • Costco Wholesale CFO Gary Millerchip said Thursday the company has a plan to address expected tariffs, though "there is a lot of uncertainty around the timing and scope of policy changes," making the impact difficult to predict. The remarks came from the company's fiscal 2025 first-quarter earnings call transcript.
  • As part of the plan, the Issaquah, Washington-based warehouse club retailer will consider pulling forward inventory purchases — a move Millerchip said the company has taken before due to uncertain shipping times and strike risks. Additionally, the company will work with suppliers to reduce costs, evaluate alternative sourcing, and consider adjusting SKUs or product assortments.
  • Millerchip generally views tariffs as cost-increasing and not something the company welcomes, but he noted that competitors face the same headwinds from tariffs. Quoting former CFO Richard Galanti, he said, "When it rains, it rains on everybody." He added that the company has dealt with tariffs in the past and believes its sourcing team is equally or better equipped to handle and manage such situations. Millerchip took over as head of finance from Galanti, the longtime CFO, in March.

Deep Dive

Costco is one of many companies actively addressing expected tariff impacts after the election. U.S. President-elect Donald Trump proposed during his campaign to impose baseline tariffs of 10% to 20% on all imports and 60% on Chinese goods, a proposal that has drawn significant attention from the business community.

Multiple studies show that the revenue gains from such tariffs would be far outweighed by their costs to U.S. households and economic growth. According to estimates from the Tax Policy Center, these tariffs would cost U.S. households nearly $3,000 on average in additional taxes next year and reduce imports by $9 trillion over the next decade — as CFO Dive previously reported.

While planning mitigation measures, Millerchip said that only a "small percentage" of the company's overall business is subject to import tariffs. For example, he noted that about a quarter of the company's business comes from "non-food" categories, of which only a portion relies on imports.

During the call, Millerchip also discussed consumer trends. He noted that demand for goods remains divided by price preference: some Costco customers tend to choose lower-priced chicken, beef cuts, and pork, while sales of high-quality premium meats are also strong. Meanwhile, the company observed a shift from "eating out to eating at home," reflected in strong sales of meat and fresh products.

Given that annual inflation for dining out is about 4% while at-home food inflation is near 1%, Morningstar equity analyst Noah Rohr, who covers Costco, said in an email that consumers increasing at-home food spending "could suggest a rise in price sensitivity."

Costco CEO Ron Vachris also hinted on the call that consumer behavior reflects pragmatic preferences. "It seems to be a 'basics' Christmas," Vachris said, noting that furniture is driving the company's e-commerce sales. "People are buying very basic items this year, but the trend is good."

For the fiscal 2025 first quarter ended November 24, 2024, the company's net sales rose 7.5% year over year to $60.99 billion, and net income increased to $1.79 billion from $1.58 billion.