• by Sarah Mahoney , Yesterday

Costco is still a warehouse-first business — but its latest earnings suggest the company’s digital engine is getting stronger, powered in part by new AI tools that are improving execution behind the scenes.

In the first quarter of its fiscal year, Costco reported sales up 8.2% to $65.98 billion from $60.99 billion, with comparable sales in the U.S. rising 5.9%. The results beat Wall Street expectations. Net income climbed to $2 billion, up from $1.8 billion in the year-ago period.

Analysts point to digital momentum as one reason. Costco said it generated record ecommerce sales on Black Friday alone, a sign the company can drive meaningful volume online even as it continues to lean on its high-touch, in-person model.

“Costco is showing it can layer digital and AI capabilities onto its warehouse model,” writes Brett Husslein, who follows Costco for Morningstar. “Rising productivity and value are evidenced by record $250 million Black Friday ecommerce sales.” He also noted that AI tools pushed pharmacy in-stocks above 98% and helped accelerate growth in prescription sales.

Membership revenue rose 14%, though Costco reported a small dip in renewal rates — which the company attributed in part to more members, many of them younger, signing up online. Online sign-ups can be less sticky than long-time warehouse loyalists, but Husslein expects that to improve as the company invests further in data and technology. “We expect renewals to improve as Costco builds out its data and tech platforms to deliver more targeted, personalized member communications,” he writes. He also noted that Costco is ramping up its retail media offerings.

At Oppenheimer, analyst Rupesh Parikh reiterated a bullish view, citing Costco’s management team, “unique and improving consumer value proposition,” and what he called open-ended global growth prospects.

Not everyone is convinced the upside is intact. MarketWatch reports that Bill Kirk, an analyst at Roth Capital, downgraded Costco following the results, pointing to cooling traffic trends and the dip in renewal rates. Kirk also flagged “a broader trend of smaller households and delayed household formation in the U.S.,” with the average U.S. household falling to 2.5 people — a structural shift that could create headaches for bulk-based warehouse clubs even as Costco works to broaden its digital reach.