Key Takeaways

  • Costco Wholesale executives said on a Thursday earnings call that its tariff mitigation strategies include buying sporting goods and summer-related items early to avoid tariff impacts; diverting goods from countries with "high tariff exposure" to non-U.S. markets; and increasing purchases of its Kirkland Signature private-label products in the countries or regions where goods are sold.
  • In the fiscal 2025 third quarter ended May 11, the warehouse club retailer's CFO Gary Millerchip noted that tariff-driven inflation affected some fresh foods from Central and South America. The company decided it may accept lower margins on some affected "staple" categories, such as bananas, but not on nonessential items like flowers.
  • "So for pineapples and bananas... we felt it was important to really take the impact away from the member by working with our suppliers, finding efficiencies, and accepting that there may be margin impact. We basically held pricing on those items to make sure we protected the member," Millerchip said on the call. In contrast, for flowers from the region, he said "we felt the member could absorb that, and it's more of a discretionary item."

Deep Dive

The Issaquah, Washington-based company reported net income of $1.9 billion for the quarter, compared with $1.68 billion in the year-ago period; third-quarter net sales rose 8% year over year to $61.96 billion.

CEO Ron Vachris said the company executed "strategic product movement" and leveraged its limited SKU count and global footprint to deliver strong financial results and maintain competitive pricing amid a challenging macroeconomic backdrop.

"As the tariff landscape evolved, we remained agile while continuing to honor our commitments to long-term suppliers. For example, during the third quarter, we diverted many items from countries with high tariff exposure to markets outside the U.S.," Vachris said.

The call came at the end of another turbulent week for U.S. policy. On Wednesday, a federal court struck down several of President Donald Trump's sweeping tariff executive orders, saying the president overstepped his authority in using emergency powers to impose them. A federal appeals court then paused that ruling in an order issued Thursday.

When asked by an analyst whether the company expects some suppliers to roll back tariff-driven price increases if some tariffs are overturned, Millerchip said it's difficult to predict given the dynamic environment.

"I think all of our suppliers are being agile. The real focus is, how do we react in the moment to make sure we're serving the member in terms of managing the price of products and continuing to find the most relevant items for the member," Millerchip said.

The company also lowered prices on some key items, including eggs, butter, and olive oil. Millerchip said extended gas station hours, new gas stations, and lower gas prices led to two of the "highest volume weeks ever" at Costco's U.S. gas stations last month.