Costco (COST) has been a tremendous investment for investors. Over the past decade, COST stock has outstripped the performance of the S&P 500 by a three-to-one margin. It’s returned over 750% versus 237% for the benchmark index.
The warehouse club has also rewarded shareholders who stuck by the retailer, paying a dividend that it has raised at a 13% compound annual growth rate for the last 10 years.
Yet with President Trump promising to raise tariffs on Mexico and Canada next month, as well as imposing new duties with European trading partners and China, could Costco’s future growth prospects be limited? And if growth slows, will COST stock suffer?
Costco only broke through the $1,000 per share threshold in December and trades at $1,055 per share today. Should investors worry the looming trade war will cause COST stock to crash?
Costco operates 897 warehouses worldwide, including 617 in the U.S. and Puerto Rico, 109 in Canada, 41 in Mexico, and the rest overseas. While the retailer doesn’t break down its import costs or volumes by country in its financial reports or public statements, the broad scope of its groceries, electronics, and household goods suggests a significant portion of its inventory is sourced from Mexico, Canada, Europe, and China.
Data from the Observatory of Economic Complexity indicates Costco was the 12th largest importer of goods in 2024, receiving some 13,300 shipments. By far, the greatest percentage of goods comes from China, or more than 81% of the total. The OEC also says Italy and Norway are two of Costco’s other major home ports for goods.
Yet Canada and Mexico are major export markets for the retailer, too. Costco imports things like beef, pork, and vegetable oils from Canada while beer, liquor, tomatoes, and avocados come from Mexico.
Food is the biggest category for Costco, accounting for 60% of its total $249.6 billion in annual sales. Fresh food alone is responsible for one-fifth of all sales.
The cost of tariffs, of course, are not paid by the countries, but by the consumers. Retailers pass along the higher costs to shoppers in the form of higher prices. Yet the purpose of Trump’s tariffs is to level the playing field. He has said whatever countries charge U.S. goods coming into their countries, he will charge them to export to the U.S.
And Costco has been through a round of Trump’s tariffs before during his first administration. From January 2018, when Trump imposed tariffs of 30% to 50% on solar panels and washing machines, followed by tariffs of 25% on steel and 10% on aluminum in March, COST stock rose 67% through January 2020 compared to 30% returns by the S&P 500.
Now the current duties Trump is proposing are far more extensive and sweeping, so they will likely cover far more goods than before. Yet Costco won’t be alone in facing the higher costs, and because it operates on such thin margins to keep prices for consumers as low as possible, shoppers will still return to its warehouse clubs.
And since Costco makes about half of its operating profits from its membership fees, there shouldn’t be too much of a hit to profits.
In its recent fiscal first quarter earnings report, the warehouse club showed robust visits to its stores. Adjusted comparable store sales were up 7.1% for the period with e-commerce comps surging over 13% from the year-ago period.
Costco also raised its membership fee last year to $65, a direct cash infusion to the top line from its 76.2 million paid subscribers. It added $1.17 billion to the top line.
Wall Street expects Costco’s earnings to keep growing, with earnings forecast to grow 10% annually for the next five years. The 26 analysts covering the warehouse club have a buy rating on the stock and set a consensus one-year price target of $1,009 per share.
While that implies COST stock is slightly overvalued at current prices, the high end estimate of $1,175 per share implies there is more upside potential ahead.
Although Costco won’t escape unscathed from any new Trump tariffs, it’s not likely it will be crushed either. The $1,000 per share threshold doesn’t appear to be in danger of being breached notwithstanding some greater economic calamity. Yet the retailer has been through these market cycles before and has always emerged stronger.
