Costco Wholesale Corporation

What they do

Costco operates membership warehouses and e-commerce sites based on a model of high sales volumes and rapid inventory turnover achieved through low prices, limited SKU selection (under 4,000 per warehouse), and self-service, no-frills facilities. It buys directly from suppliers and uses cross-docking depots to reduce distribution costs. The company generates revenue from merchandise sales (core categories: foods and sundries, non-foods, fresh foods) and warehouse ancillary services (gasoline, pharmacy, optical, food court, hearing aids, tire installation), as well as membership fees, which provide a recurring profit stream.

Revenue drivers

• Core Merchandise – Foods and Sundries — Includes dry grocery, candy, cooler, freezer, liquor, and tobacco; represents the largest merchandise category and drives frequent shopper visits.
• Core Merchandise – Non-Foods and Fresh Foods — Non-foods cover general merchandise; fresh foods include meat, produce, bakery, and deli. Both categories support high average ticket and repeat traffic.
• Warehouse Ancillary Services — Gasoline, pharmacy, optical, food court, hearing aids, and tire installation add incremental sales and differentiate the shopping experience.
• Membership Fees — Annual fees from Gold Star, Business, and Executive memberships provide a high-margin revenue stream that directly supports profitability and low pricing.

Recent performance

For the third quarter of fiscal 2026 (12 weeks ended May 10, 2026), Costco reported net sales of $69.15 billion, an increase of 11.6% year-over-year. Net income was $2.19 billion, or $4.93 per diluted share, versus $1.90 billion ($4.28 per share) in the prior-year quarter. For the first 36 weeks of fiscal 2026, net sales totaled $203.37 billion (up 9.6%) and net income reached $6.23 billion ($14.01 per diluted share). Total company comparable sales grew 9.8% in the quarter (6.6% excluding gasoline and FX), and digitally-enabled comparable sales rose 21.5%. The company operated 931 warehouses as of May 10, 2026.

Strategy

Costco's strategy centers on increasing net sales—especially comparable sales—through higher shopping frequency, a larger average ticket, and membership growth. The company continues to open new warehouses in existing and new international markets (914 warehouses at August 2025 versus 931 currently) and expand e-commerce capabilities, including a digitally-enabled sales metric. Management focuses on operational efficiencies (cross-docking, self-service, limited SKUs) to maintain low gross margins while generating strong cash flow. Membership fee income is a key profit driver, and Costco invests in technology, supply chain, and employee wages to sustain member satisfaction and renewal rates.

Risks

• Concentration in U.S. and Canada — U.S. and Canadian operations accounted for 86% of net sales and 84% of operating income in fiscal 2025, with California alone representing 26% of U.S. net sales; any slowdown in these regions could materially impact results.
• Growth and Expansion Execution — Competition for suitable real estate, local land-use regulations, and the risk of cannibalizing existing locations with new warehouses may hinder the company's ability to expand profitably.
• Macroeconomic and Geopolitical Pressures — Inflation, deflation, exchange rates, tariffs, and global conflicts (noted in forward-looking statements) could raise costs or alter consumer spending patterns, affecting sales and margins.
• Labor and Healthcare Costs — Rising wages and healthcare expenses in the U.S. and other markets could pressure operating margins, as the company emphasizes competitive pay to maintain a productive workforce.

Outlook

Management expects continued net sales growth driven by comparable store sales gains, new warehouse openings, and digital expansion, though they caution that results may be affected by macroeconomic conditions, including tariffs and foreign exchange volatility. The company does not provide specific forward earnings guidance but highlights the importance of membership fee income and operating efficiencies to sustain profitability. Risks such as higher employee costs, competition, and geopolitical uncertainties are noted as potential headwinds.