Costco Wholesale Corp. (NASDAQ:COST) reported a mixed second quarter, acknowledging the impact of tariffs on its business but remained confident to mitigate challenges using its global buying power and supplier relationships to reduce price increases.

What Happened: Acknowledging the impact of tariffs, Ron Vachris, the president and CEO of the membership-based retailer company, said during its earnings call that “When it rains, it rains on everyone.”

Approximately one-third of Costco’s U.S. sales are from imports, with less than half of those coming from China, Mexico, and Canada. This indicates a significant portion of their merchandise could be subject to tariffs.  

The CEO reiterated that Costo will continue to rise to this challenge by leveraging “global buying power, strong supplier relationships and innovation.”

“Our goal is always to be the first to lower prices where we see opportunities to do so and the last to increase prices in the face of rising costs, said Gary Millerchip, the executive VP and CFO of the company. They will likely absorb some cost increases to maintain their value proposition and competitive pricing.

The management also explained how its merchandising flexibility, with its “Treasure Hunt” approach, allows them to readily replace or substitute items if necessary, offering some buffer against tariff impacts on specific goods.

However, the management added that for certain categories like fresh foods with tighter margins, passing along some price increases may be unavoidable.

Furthermore, Vachris said that the tariff situation is very fluid. “But we are prepared,” he added, saying that the company was “well equipped to lower prices and defer any cost increase”.

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Why It Matters: Earlier this week, President Donald Trump imposed 25% tariffs on Canada and Mexico, while hiking the levies on China to 20%, he eventually backtracked on tariffs on certain goods. He has also vowed to impose “reciprocal tariffs” on all its trading partners starting April 2nd.

Amid the tariff uncertainties, many businesses, including Costco, are in line to be directly impacted by such decisions.

Costco’s second quarter revenue beat estimates at $62.72 billion, but adjusted earnings per share missed, coming in at $4.02. Membership fees rose to $1.19 billion, boosted by a price hike in September 2024.

Price Action: Costco’s shares declined 2.2% on Thursday, and fell further by 1.20% in after-hours. The exchange fund tracking Nasdaq 100 index, Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) dropped 2.75% during the same session.

Costco was 12.84% higher on a year-to-date basis and up 30.68% over a year.

Benzinga tracks 26 analysts with an average price target of $1,018.15 for the stock, reflecting a “hold” rating. Estimates range widely from $890 to $1,175. Recent ratings from Telsey Advisory Group, DA Davidson, and Stifel average at $1,058.33, suggesting a potential 4.34% upside.

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