Company Reports

Costco’s strategy is built on a differentiated model for the mature, highly competitive retail industry. The firm earns most of its operating profit from membership fees, enabling it to sell merchandise at near-break-even prices. This reinforces its reputation as a price-leader, drives recurring traffic, and keeps renewal rates around 90%. We believe rising executive membership penetration (with 3 times higher average customer spending) strengthens this high-margin, predictable revenue stream, cementing itself as an industry leader with over 60% share of the domestic warehouse club market.

Costco's fiscal fourth-quarter results included an 11.2% net sales increase and a 6.7% comparable sales gain when excluding the impact of fuel and foreign exchange. Diluted EPS rose 15% to $6.75, while core merchandise margin increased 18 basis points, excluding tariff refunds and reinvestment.

Costco's fiscal third-quarter results featured an 11.6% increase in revenue and diluted EPS of $4.93, up 15.3%. Comparable store sales (excluding fuel) rose 6.6% and membership fee income grew 10.7%, but gross margin fell 21 basis points to 12.8% as fuel sales and discounts squeezed profits.

Costco’s strategy is built on a differentiated model for the mature, highly competitive retail industry. The firm earns most of its operating profit from membership fees, enabling it to sell merchandise at near-break-even prices. This reinforces its reputation as a price-leader, drives recurring traffic, and keeps renewal rates near 90%. We believe rising executive membership penetration (with 3 times higher average customer spending) strengthens this high-margin, predictable revenue stream, cementing itself as an industry leader with over 60% share of the domestic warehouse club market.

Costco's second-quarter results included 9.1% net sales growth, 6.7% comparable sales growth (ex-fuel), and a diluted EPS of $4.58 (up 14%). Digitally enabled sales rose 22.6%, while gross margins expanded 30 basis points to 12.8% even as disinflation on essentials like eggs and dairy took hold.

Costco’s strategy is built on a differentiated model for the mature, highly competitive retail industry. The firm earns most of its operating profit from membership fees, enabling it to sell merchandise at near-break-even prices. This reinforces its reputation as a price-leader, drives recurring traffic, and keeps renewal rates around 90%. We believe rising executive membership penetration (with 3 times higher average customer spending) strengthens this high-margin, predictable revenue stream, cementing itself as an industry leader with over 60% share of the domestic warehouse club market.

Costco's first-quarter results featured 8.2% net sales growth, 6.4% comparable sales, and diluted EPS of $4.50. Digitally-enabled comparable sales rose 20.5%, while artificial intelligence-enabled pharmacy initiatives helped drive a 20-basis-point improvement in gross margin (13.1%).

Unrelenting competition has failed to thwart Costco's standing as an industry leader, with over 60% share of the domestic warehouse club market. Through its membership-based warehouse clubs, Costco serves over 80 million members, delivering high-quality goods and services at low prices.

Costco’s strategy is built on a differentiated model for the mature, highly competitive retail industry. The firm earns most of its operating profit from membership fees, enabling it to sell merchandise at near-break-even prices. This reinforces its reputation as a price-leader, drives recurring traffic, and keeps renewal rates around 90%. We believe rising executive membership penetration (with 3 times higher average customer spending) strengthens this high-margin, predictable revenue stream, cementing itself as an industry leader with over 60% share of the domestic warehouse club market.

Costco's revenue grew 8% in the fourth quarter of fiscal year 2025, driven by 5.7% comparable sales growth. Operating margin expanded 10 basis points to 3.9% and adjusted EPS grew by 11% to $5.29. However, the membership renewal rate fell 40 basis points to 89.8%.

Although Costco operates in a cutthroat retail industry where competitive advantages are difficult to manifest and omnichannel penetration is growing from the likes of Amazon and Walmart, we believe it has a unique edge due to its loyal membership base, meticulous cost management, and impressive scale.

Costco's revenue improved by 8% in its fiscal third quarter 2025, underpinned by 5.7% comparable sales growth (8% excluding gas and currency) and modest store growth. Operating margin expanded 20 basis points to 4.0% and adjusted EPS grew by 13% to $4.28. Membership renewal rate exceeded 90%.

Although Costco operates in a cutthroat retail industry where competitive advantages are difficult to manifest and omnichannel penetration is growing from the likes of Amazon and Walmart, we believe it has a unique edge due to its loyal membership base, meticulous cost management, and impressive scale.

We plan to raise our $560 fair value estimate on wide-moat Costco by a high-single-digit percentage after the warehouse club behemoth posted strong fiscal 2025 second-quarter results. The increase in our fair value stems from a couple of key factors. First, we expect to raise our forecast for companywide comparable sales growth in fiscal 2025 to about 7% from 6%. Second, we plan to bring our operating margin forecast closer to 5% by 2034 (the end of our explicit forecast period), up from our current 4.5% estimate, as the firm’s relative scale advantage should translate into a gross margin benefit over time. Despite our favorable view of Costco’s competitive position and the planned uptick to our fair value, shares look very overvalued, trading at about 55 times our estimate for fiscal 2025 earnings. We surmise that the market is extrapolating Costco’s growth trajectory over the previous five years (companywide comparable sales growth averaged 9% from 2020-24) well into the future. In contrast, we expect comp growth to settle into a mid-single-digit trajectory in the long term as its stout presence in the US and Canada continues to mature.

Despite operating amid a cutthroat retail industry where competitive advantages are difficult to manifest and omnichannel penetration continues to burgeon from the likes of wide-moats Amazon and Walmart, we believe Costco boasts a unique edge due to its loyal membership base, meticulous cost management, and impressive scale.

We plan to modestly raise our $540 fair value estimate for wide-moat Costco following its solid fiscal 2025 first-quarter earnings release, primarily due to the time value of money. Results were mostly in line with our expectations as net sales expanded 7.5%, and adjusted earnings per share of $3.82 modestly trailed our $3.98 forecast. We continue to think that Costco’s attractive merchandise assortment and vast scale should drive further market share gains and a widening cost advantage in the long run. As such, we still model 6%-7% top-line growth in the long term and a midcycle operating margin above 4% (versus 3.6% in fiscal 2024). However, we think shares look overvalued, trading at more than 50 times our forecast for fiscal 2025 EPS.

Despite operating amid a cutthroat retail industry where competitive advantages are difficult to manifest and omnichannel penetration continues to burgeon from the likes of wide-moats Amazon and Walmart, we believe Costco boasts a unique edge due to its loyal membership base, meticulous cost management, and impressive scale.

We plan to slightly raise our $510 per share fair value estimate on wide-moat Costco as the warehouse club behemoth capped off an impressive fiscal 2024 that saw companywide comparable sales rise 6% and its operating margin expand by 30 basis points to 3.6%. We think Costco’s strong results speak volumes as to its attractive product assortment and low-cost value proposition, as its strong customer loyalty (membership renewal rates remain above 90%), frugal cost structure, and $2,000 in domestic sales per square foot (about three times that of wide-moat Walmart) remain the envy of the retail industry. While we maintain our optimistic stance regarding Costco’s prospects—we model mid-single-digit percentage growth in comparable sales and continued margin expansion—we still regard shares, trading at around 50 times our fiscal 2025 EPS forecast, as significantly overvalued.

Despite operating amid a cutthroat retail industry where competitive advantages are difficult to manifest and omnichannel penetration continues to burgeon from the likes of wide-moats Amazon and Walmart, we believe Costco boasts a unique edge due to its loyal membership base, meticulous cost management, and impressive scale.

Wide-moat Costco posted impressive fiscal 2024 third-quarter results, and we plan to slightly raise our $500 fair value estimate as we remain confident in its financial outlook. Still, we think shares are significantly overvalued.