High gas prices fuel Costco memberships and food sales

Near record high gas prices are turning into a boon for Costco Wholesale by attracting customers to its warehouses, CEO Ron Vachris said during the company’s Q3 earnings call Thursday.

Known for offering the lowest gas prices in many markets, Costco beat all-time volume sales records for its gasoline business year over year for the quarter, Vachris said.

“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,” he said. “We believe this will drive even greater loyalty with these members in the future, as members who use our gas stations typically spend more with us in the warehouse.”

Costco ended the quarter with 82.9 million paid members, up 4.1% year over year. With additional members connected to the paid accounts, Costco counts a total 148.5 million card holders, up 4% year over year. The renewal rate also is up 10 basis points to 92.2% year over year, Millerchip said.

Price shift

In addition to low gas prices, Costco is driving membership with lower prices on staples like eggs and beef, and through new products within its private label brand, Kirkland Signature, according to Costco CFO Gary Millerchip.

“Gas prices had a major impact on the quarter, with our members allocating a greater proportion of their total spend to gas. At the same time, we saw very robust sales results, excluding gas, as our combination of merchandising quality, value and newness continue to resonate with members,” Millerchip said.

The retail giant’s stock value stayed relatively flat on mixed results reporting earnings of $4.93 per share on revenue of $70.53 billion for the quarter. That beat the consensus revenue estimate of $69.50 billion but came in just under the earnings estimate of $4.95 per share, according to Earnings Whispers.

Fresh sales up

Meat and bakery led in fresh sales, which reached high-single digits for the quarter, according to Millerchip.

“In meat, we saw strength in both premium cuts of beef and lower-cost proteins, such as ground beef and poultry,” he said. “In bakery, we continue to see success with the launch of exciting new items, including a variety of seasonal pastries and cookies.”

Food and sundries comparative sales reached mid-single digits, led by candy and packaged food, Millerchip noted.

“While egg price deflation was a headwind to sales, this was partially offset by significant growth in other items, such as protein snacks and protein bars,” he said.

Kirkland Signature rollouts

Growth in Costco’s food sales is partly driven by the continued expansion of the retailer’s private label brand, Kirkland Signature.

Millerchip noted that the store brand brings savings of up to 20%, compared to name-brand competitors.

In the third quarter, Costco launched an energy drink, ultra-filtered milk, sea salt popcorn and oven roasted chicken dog food.

Millerchip said Costco aims to lower prices before competitors when the opportunity arises, and the retailer has done so with some of its own private label products, including its Kirkland Signature chicken wings and milk chocolate almonds.

Vachris said it follows the Costco philosophy: “Our goal is to be the first to lower prices and the last to raise them.”

Costco and GLP-1

Costco is leaning in on the GLP-1 trend, despite the drugs’ ability to curb hunger and reduce food consumption.

The warehouse is now offering Wegovy and Ozempic in its member prescription program, and Costco’s center store includes an increasing number of high-protein food products, Millerchip said.

“Anything protein right now is doing extremely well: protein snacks, protein bars, beef sticks; we launched our own Kirkland Signature beef stick with tremendous volume and offering tremendous value to our members,” Millerchip said.

Tariffs repayment

It is unclear how much Costco will recoup from the Supreme Court reversal of the Trump administration’s use of International Emergency Economic Powers Act (IEEPA) to impose international tariffs.

Vachris said the company has begun refund claims in the process set up through US Customs and Border Protection.

The process is expected to take a few months to complete, Vachris said.

“As we’ve mentioned before, our plan is to return to our members in some form the portion of tariffs that were passed on to them,” he said. “How much we return and when depends on a variety of factors, including how much refund money we receive and when it arrives, as well as developments in the lawsuit filed against the company regarding the return process.”