stockrowWhat it does
Costco Wholesale Corporation operates membership warehouses and e-commerce sites. Founded in 1983 and headquartered in Issaquah, it is led by President and Chief Executive Officer Ron M. Vachris.
Members pay an annual fee to shop a limited assortment of nationally branded and private-label goods at warehouses and online. The merchandise range includes grocery and household staples, fresh food, consumer electronics, apparel, home goods, appliances, tires, and seasonal items. Warehouses also provide gasoline, pharmacy, food court, optical, hearing-aid, and tire-installation services.
The company uses a warehouse-club model: large, self-service locations, simple store presentation, merchandise displayed in bulk, a limited product range, and relatively short opening hours. A warehouse carries fewer than 4,000 active stock keeping units in its core business, while online offerings average from 9,000 to 11,000 stock keeping units. Many consumable items are sold in case, carton, or multiple-pack quantities.
Its other businesses include e-commerce, business centers serving food-service, convenience-store, and office customers, and Costco Travel. Costco Travel sells vacation packages, car rentals, cruises, and related products to members in selected markets. The company operated 939 warehouses worldwide at the end of FY2026 and 774 gas stations.
Management said on the call that digitally enabled sales include third-party delivery, and that Uber Eats and DoorDash were expanded across the United States alongside the existing Instacart relationship in the United States and Canada.
How it makes money
Costco earns most of its revenue by selling merchandise and services to members, while annual membership fees provide a separate recurring revenue stream. Its principal merchandise groups are Foods and Sundries, Non-Foods, Fresh Foods, and Warehouse Ancillary and Other Businesses. The latter includes gasoline, pharmacy, food court, optical, hearing aids, tire installation, e-commerce, business centers, travel, and other operations.
In FY2026, Foods and Sundries generated $116.8 billion, Non-Foods generated $77.4 billion, Warehouse Ancillary and Other Businesses generated $61.4 billion, Fresh Foods generated $41.7 billion, and membership fees generated $5.9 billion. The company reported FY2026 net sales of $297,247. It was reported on 20 October that the consensus current-quarter sales estimate is $74.1 billion.
The model is designed around low prices, high sales volume, and fast inventory turnover rather than high merchandise markups. Costco buys in volume, operates no-frills warehouse facilities, limits assortment, and uses distribution methods intended to reduce handling and freight costs. It often sells inventory before payment to suppliers is due, while taking early-payment discounts.
Membership fees are recognized over the one-year membership period. Paid members can upgrade to Executive membership for an additional annual fee and generally receive a 2% reward on qualified purchases, subject to an annual maximum. Executive-member rewards reduce net sales in the category where the reward was earned.
Management said on the call that Executive membership penetration and base membership growth drove membership-fee income growth in the fourth quarter. It also said tariff refunds received in the fourth quarter were partly reinvested in lower prices for members.
| Product or service | Revenue, FY2026 | Share | Change on the year |
|---|---|---|---|
| Food and Sundries | $116.8 billion | 38.5% | 6.59% |
| Non-Foods | $77.4 billion | 25.5% | 8.69% |
| Warehouse ancillary and other businesses | $61.4 billion | 20.2% | 19.9% |
| Fresh Foods | $41.7 billion | 13.8% | 9.81% |
| Membership fees | $5.9 billion | 1.95% | 11.0% |
Customers and how it sells
Costco’s customers are members, who may use their memberships at all warehouses and e-commerce sites. At the end of FY2026, it had 84,100,000 paid members and 150,400,000 cardholders. It had 42,300,000 paid Executive members, whose purchases represented approximately 75.2% of worldwide net sales in FY2026. Executive members generally earn rewards on qualified purchases and are eligible for exclusive shopping hours in the United States.
The company serves household shoppers as well as business customers through business centers. These locations offer walk-in shopping and delivery for food-service businesses, convenience stores, and offices. Members also use warehouse ancillary services, travel, e-commerce, and third-party delivery channels.
The United States was the largest geography in FY2026, generating $219.8 billion, or 72.5% of revenue. Canada generated $40.6 billion, or 13.4%, while Other International generated $42.8 billion, or 14.1%. Costco operates warehouses in the United States and Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand.
Management said on the call that members using the newer delivery marketplaces are younger than the overall member base. It also said members under 40 make up more than one-quarter of members after growing nearly 60% since COVID.
| Segment | Revenue, FY2026 | Share | Change on the year |
|---|---|---|---|
| United States | $219.8 billion | 72.5% | 9.89% |
| Other International | $42.8 billion | 14.1% | 11.8% |
| Canada | $40.6 billion | 13.4% | 9.85% |
Suppliers and costs
Costco buys most merchandise directly from suppliers and routes it either to cross-docking consolidation points, called depots, or directly to warehouses. Depots receive large shipments and quickly send goods to warehouses, reducing freight and handling steps. E-commerce orders are shipped through depots and logistics operations, as well as through supplier drop-ship and other delivery arrangements.
The company has direct relationships with many brand-name producers and does not obtain a significant portion of merchandise from any one supplier. It seeks alternative sources or items when supply becomes unavailable, pursues supply-chain diversification and in-country production, and purchases and manufactures private-label goods where demand, quality, and member value support this approach.
Merchandise cost is the largest expense. Compensation and benefits are the largest expense after merchandise costs; Costco employed 355,000 people worldwide at the end of FY2026. Other operating costs include warehouse expenses, utilities, payment-processing fees, leases, logistics, and technology. Management said on the call that higher fuel prices were being monitored for their effect on freight costs, while contracted shipping rates had largely offset incremental fuel surcharges.
- Revenue$303.2B
- Cost of revenue−$264.3B
- Selling, general and administrative−$27.2B
- Operating income$11.7B
Competitive position
Costco competes worldwide with wholesalers and retailers across supermarkets, supercenters, online retail, gasoline stations, hard discounters, department stores, specialty stores, and single-category operators. In the United States, significant general-merchandise competitors named by the company include Walmart, Target, Kroger, and Amazon. It also competes with warehouse clubs, including Walmart’s Sam’s Club and BJ’s Wholesale Club. Competition is based on price, merchandise quality and selection, location, convenience, distribution, customer service, store hours, and websites and mobile applications.
Costco’s main operating differentiators are its membership format; limited assortment; volume purchasing; direct supplier relationships; warehouse, depot, and inventory-handling efficiency; and Kirkland Signature private-label goods. Its renewal rate was 92.3% in the United States and Canada and 89.8% worldwide at the end of FY2026. Kirkland Signature is positioned at prices generally below national brands and is intended to differentiate assortment and support margins.
Our reading: The membership model is a meaningful moat because fees, renewals, and Executive-member participation link member loyalty to recurring revenue and shopping activity. [item1; item7]
Our reading: The low-cost operating model is a meaningful moat where high volumes, limited assortment, rapid turnover, and depot distribution can be maintained. [item1]
Our reading: Kirkland Signature is a more limited moat because its value depends on continued product quality, competitive pricing, and availability. [item1; item1a]
| Competitor | Where they compete | Threat (our reading) |
|---|---|---|
| Walmart | U.S. general merchandise and warehouse clubs | High |
| Target | U.S. general merchandise retail | High |
| Kroger | U.S. general merchandise retail | Medium |
| Amazon | U.S. general merchandise and online retail | High |
| Sam’s Club | U.S. warehouse clubs | High |
| BJ’s Wholesale Club | U.S. warehouse clubs | High |
Growth opportunities
Costco’s growth drivers include new warehouses, comparable-sales growth, membership expansion, Executive-member upgrades, digital sales, ancillary services, and international expansion. Comparable-sales growth comes from shopping frequency and average spending per visit, while new warehouses add sales capacity and members.
The company added 25 net new warehouses in FY2026. Management said on the call that it plans 33 warehouse openings in FY2027, including five relocations, as it builds toward 30 net new warehouse openings per year. It identified opportunities in new United States markets, infill locations in mature United States markets, and international markets. Management said it plans four FY2027 openings in Europe, five in Canada, and one in Mexico, with a pipeline for Asia, Australia, and other international markets in FY2028.
Digital is another expansion channel. Digitally enabled sales were $33.0 billion in FY2026. Management said on the call that they grew more than 20%, including third-party delivery, and that site and app traffic rose 30% in the fourth quarter. It is integrating selected Costco Next items and brands into the app and website after discontinuing the extended marketplace.
The company also grows through ancillary services. Management said on the call that pharmacy sales grew nearly 20% during FY2026, while travel, gasoline, and pharmacy grew faster than overall sales. It said the expansion of delivery partnerships broadens online member engagement, with average delivery times across Uber Eats, DoorDash, and Instacart under an hour.
- $227.0BFY2022
- $242.3BFY2023
- $254.5BFY2024
- $275.2BFY2025
- $303.2BFY2026
Structural risks
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Costco is highly dependent on its United States and Canadian operations, which comprised 86% of net sales and 83% of operating income in FY2026. California represented 26% of United States net sales.
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Membership growth, Executive-member penetration, renewal rates, member trust, and Kirkland Signature acceptance materially influence sales, membership-fee revenue, and profitability.
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New warehouses and depots depend on available sites, construction or leasing terms, utilities, regulatory approvals, and local acceptance. New locations can also draw sales and members from existing warehouses.
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Merchandise availability, pricing, and quality depend on suppliers, logistics, depots, and processing facilities. Supply disruption, tariffs, commodity volatility, freight costs, product safety failures, or supplier noncompliance can raise costs, cause out-of-stocks, recalls, litigation, or reputational harm.
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Technology systems process transactions, payments, inventory, and operating data. System failures, delayed technology projects, cybersecurity incidents, AI-related data or control failures, and privacy-law noncompliance could disrupt operations and damage member confidence.
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Retail competition spans physical and digital channels. Competitors may have greater technology capabilities, faster AI adoption, or greater market penetration, while price comparison tools can intensify pressure on pricing, convenience, and assortment.
Bottom line
Our reading
Our reading: Costco is a membership-led warehouse retailer whose merchandise sales, recurring fees, ancillary services, and digital channels are built around low prices, rapid inventory turnover, and a limited assortment. [item1; item7]
Our reading: Its scale is concentrated in the United States and Canada, while warehouse openings, international markets, Executive membership, and digital engagement provide expansion routes. [item1; item1a; call_prepared]
Our reading: The business remains exposed to membership loyalty, supplier and logistics execution, competition, cost inflation, technology resilience, and its geographic concentration. [item1a; item7]