The Costco story
Costco is a membership warehouse retailer built on bulk goods and thin margins, with the central question whether member loyalty can sustain growth as warehouses and digital shopping expand.
Written from Costco's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.
- $922.92share price, last close
- $409.3Bmarket value
- 17/36TenQ Score checks passed
- 20.4%growth a year the price assumes
The story in brief
- Membership keeps growing. Membership fee revenue reached $1,373 million in the quarter to May 2026, compared with $1,240 million in the prior year period.
- Digital growth stands out. Digitally enabled comparable sales grew 21.5% in the quarter to May 2026, versus 9.8% for the company overall.
- Price requires faster growth. The reverse DCF implies 20.4% annual growth in free cash flow after stock pay for ten years, above Costco's 16.1% historical pace.
What drives the business
- Costco's warehouse model combines annual membership fees, a limited selection of national brands and Kirkland Signature products, and rapid inventory turnover to operate profitably at lower merchandise margins than most retailers.
- In fiscal 2025, Executive members accounted for approximately 73.6% of worldwide net sales, while renewal rates at the end of the fiscal year were 92.3% in the United States and Canada and 89.8% worldwide.
- Foods and sundries, fresh foods, and nonfood merchandise anchor the assortment, while gasoline represented approximately 10% of net sales in fiscal 2025 and ancillary services encourage more frequent visits.
- Costco reported 933 warehouses in July 2026, including 641 in the United States and Puerto Rico, extending a network that totaled 914 at the end of fiscal 2025.
- Net sales rose 11.6 percent to $69.15 billion in the quarter to May 2026, while membership fee revenue reached $4,057 million over the first 36 weeks of fiscal 2026, compared with $3,599 million in the prior year period.
What the price assumes
At $922.92 per share, the reverse DCF implies free cash flow after stock pay grows 20.4% a year for ten years, using a 10.2% discount rate.
Costco delivered 16.1% annual growth on that measure over the last 10 years, while the TenQ check sets a 10.0% bar by slowing the historical pace halfway to 4%.
The implied growth requirement also sits alongside revenue growth of 9.2% and free cash flow of $8.8 billion over the last twelve months, with a free cash flow yield of 2.2%.
What could change the story
- An operating margin of 3.8% over the last twelve months leaves limited room for higher merchandise and employee costs, and trails the 5.0% specialty retail peer benchmark in the TenQ check.
- Competition, tariffs, and changes in consumer spending could strain the combination of low prices and high volumes that supports the membership model.
- The liquidity check fails at 1.07 against a 1.50 bar, although Costco often receives payment for inventory before paying suppliers and holds $20.0 billion in cash and short-term investments against $5.7 billion in debt.
- Cash conversion of 5.1% trails the peer benchmark of 6.9%, making the translation of expanding sales into cash important when the price implies growth above Costco's historical record.
What to watch next
- The May 2026 earnings release contained no numerical guidance, leaving membership fee revenue, renewal rates, and comparable sales as the main operating reference points for subsequent releases.
- Comparable sales excluding gasoline price and foreign exchange effects grew 6.6% in the quarter to May 2026 and 7.0% in the retail month of June 2026, while adjusted digitally enabled growth was 20.8% and 21.5%, respectively.
- Subsequent reports will show whether warehouse expansion and digital growth preserve the 3.8% operating margin and support free cash flow after stock pay, the measure underlying the reverse DCF.
Sources
- Costco's earnings release, filed with the SEC
- Its latest 10-Q or 10-K, for the risk factors
- The COST stock report, for every figure and check