Dive Brief:
- Costco Wholesale CEO Ron Vachris said in an earnings call Thursday that the company "predominantly" used initial tariff refunds it got in its fiscal fourth quarter to lower prices on produce, meat and beverages, as well as some home furnishing and hardware items, according to a Seeking Alpha transcript.
- The warehouse club retailer received $184 million in tariff refunds, including $10 million in interest, in the quarter ended Aug. 30, or a little more than a third of the total refunds it expects, CFO Gary Millerchip said.
- Asked by an analyst how the company is evaluating reinvesting refunds without the move yielding a “meaningful” rise in sales, Millerchip defended the strategy and sales, which he called “robust” except for gas. “On the pricing investments, we view that as very much a giving value back to our members for the tariff refunds that we received,” Millerchip said. “Our goal was to make sure that we spread those as we could to items that would have the most impact for members.”
Dive Insight:
The U.S. Customs and Border Protection is refunding tariffs invalidated by the U.S. Supreme Court February decision that struck down President Donald Trump’s use of the International Emergency Economic Powers Act to impose them.
Because the tariff refunds and reinvestments and non-recurring items will continue to impact the company’s financial results in fiscal 2027, Millerchip said the company would provide similar information about them in future calls. The Issaquah, Washington-based company reported Q4 net income of $2.99 billion, compared to $2.6 billion in the year-earlier period. Net sales, meanwhile, rose 11.2% to $93.9 billion year-over-year.
Citigroup analysts in a Friday client note wrote that the company’s Q4 delivered an “upside on sales and margins...partially overshadowed by membership growth decelerating.” Citi held its neutral rating on the company, calling it a “crown jewel in retail” that has established itself as one of the “Big 3 market share gainers” alongside Walmart and Amazon.
The company’s comments on plowing the refunds into lower prices come as that strategy has drawn litigation. Costco is one of many retailers facing proposed class action lawsuits from customers who want to recoup some of refunds. Executives did not discuss the suits on the call.
In March, an Illinois customer filed suit alleging Costco engaged in unfair and deceptive trade practices with its plan to use potential refunds to lower prices, rather than sharing any proceeds with customers that already bore the cost by buying goods affected by IEEPA tariffs. The suit cited Millerchip’s comments on a May 2025 earnings call that the company sees raising prices as a “last resort,” even though it was raising prices.
Costco responded with a motion to dismiss the case in May. Its attorneys stated the customer’s consumer fraud and deception claims fail on their merits. “Plaintiff got what he paid for, and Costco never suggested that it would (or even might) later refund part of the purchase price,” the suit states. Earlier this month, Costco said it was awaiting a ruling in the case, CFO Dive previously reported.
In addition to tariffs, on Thursday Millerchip also took a moment to continue a tradition of playfully sharing consumer-friendly details about popular items like Costco’s hot dog and soda offering on earnings calls.
“I do want to address the speculation that’s been blowing up our social media feed and confirm that the rumors are true, for a limited time the food court churro will be returning to all our U.S. locations,” Millerchip said. The company posted on the Twisted Churro move in a recent Instagram post.
Executives on the call also detailed the company’s views on inflation. Millerchip said it was holding in the low single digits and “relatively stable” from previous quarters, but said its impact varied by item. For example, there was some deflation seen in eggs, dairy and butter. At the same time, the company saw inflation in gas, motor oil and resins that were affected by the war in the Middle East as well as in consumer electronics.
“We think it’s difficult to predict what’s going to happen with inflation. I think especially because of the uncertainty around the situation with the Middle East and how long that might impact and what you might see in terms of volatility in prices on oil and oil-related items,” Millerchip said. “And then, of course, there's still uncertainty around potentially where exactly we land on the tariffs that exist today or could exist in the future.”
