Costco (COST, Financial) missed EPS estimates for the first time since Q1 2022, leading to a profit-taking pullback in its stock, which had risen 12% year-to-date. The 2Q25 earnings miss was primarily due to foreign exchange (FX) headwinds, resulting in a $0.13/share impact. Despite record results from its Canada and international operations on a constant currency basis, negative FX fluctuations caused these markets to underperform expectations.

- The EPS miss wasn't due to weak demand or operational issues. The stock's decline is likely linked to concerns over tariff-induced inflation, which may cause consumers to reduce discretionary spending. Costco's affluent customer base remains a crucial asset, particularly in its non-food categories.

- Non-food categories saw mid-teens comp growth in Q2, with significant increases in gold and jewelry, toys, housewares, appliances, sporting goods, home furnishings, and small electronics. CFO Gary Millerchip noted that while customers are willing to spend, they are "very choiceful," a trend that may intensify with returning inflation. This possibility of reduced demand for non-food items is pressuring the stock.

- Following a membership fee increase last September, investors are closely watching membership fee income growth and customer retention. Membership fee income rose by 7.4% to $1.193 billion, with the fee increase contributing about 3% of this growth. Due to deferred accounting, most benefits from the fee increase will be seen over the next four quarters, especially in 4Q25. Paid household memberships increased nearly 7%, and the worldwide renewal rate rose by 10 bps quarter-over-quarter to 90.5%.

- Costco is effectively managing expenses, with SG&A as a percentage of revenue improving by 8 bps year-over-year to 9.06%. A new employee agreement raises the average wage for U.S. and Canada employees to over $31/hour, adding some uncertainty for shareholders amid a challenging economic environment.

Overall, Costco delivered a solid performance with adjusted comps of +9.1% and net income growth exceeding 8%. While the EPS miss is disappointing, it was largely due to FX headwinds. The more significant concern is tariffs' potential impact on non-food categories, though Costco has a strong history of navigating tough economic times.