Key Points
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Membership fees keep fueling predictable, high-margin recurring revenue.
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Exceptional customer loyalty strengthens Costco’s long-term competitive advantage.
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New warehouses continue expanding Costco’s global growth runway.
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Costco (NASDAQ: COST) has never been a cheap stock. But premium businesses rarely are. The warehouse retailer has spent decades building one of the strongest business models in retail, and several long-term trends suggest it could continue rewarding shareholders well into the next decade.
Membership has its privileges
The biggest advantage for Costco isn’t bulk groceries or discounted televisions. It’s membership. During fiscal 2025, Costco generated approximately $5.32 billion in membership fee revenue, up 10% from $4.83 billion the prior year. Even more impressive, its U.S. and Canada membership renewal rate clocked in at 92.3%, while its worldwide renewal rate was 89.8%. Those are among the highest retention rates of any subscription-based business and help explain why membership fees remain one of Costco’s biggest competitive advantages.
Costco’s membership engine has continued to strengthen this year, too. During the third quarter of fiscal 2026, membership fee revenue climbed 10.7% year over year to $1.37 billion, outpacing overall sales growth. Paid memberships increased 4.1%, while executive memberships (the company’s highest-spending customers) grew 9.6%. Worth noting: renewal rates also remained strong at 92.2% in the U.S. and Canada and 89.7% worldwide, reinforcing the stability of Costco’s recurring revenue stream.
That recurring revenue gives Costco tremendous flexibility. It can afford to sell merchandise at thinner margins than most retailers because memberships provide a reliable source of profit. That pricing advantage keeps customers coming back, creating a virtuous cycle that’s difficult for competitors to replicate. Meanwhile, the company continues to expand quite rapidly.
Penetrating new markets
Costco’s physical footprint continues to expand alongside its membership base. As of the third quarter of fiscal 2026, the company operated 931 warehouses worldwide, including 639 in the United States and Puerto Rico. Management continues to see significant opportunity for new locations, too, particularly in international markets where warehouse clubs remain relatively underpenetrated.
Every new warehouse not only drives additional merchandise sales but also brings in thousands of new paying members, reinforcing Costco’s recurring membership revenue model. At the same time, e-commerce is becoming a bigger contributor, too. For Q3 2026, the company reported digitally enabled comparable sales growth of 21.5%.
Balance sheet remains strong
Costco’s financial position remains one of its greatest strengths. During fiscal 2025, the company generated $13.3 billion in operating cash flow and ended the year with about $14 billion in cash and cash equivalents. That financial strength allows Costco to fund new warehouse openings, invest billions in distribution infrastructure and technology, raise its regular dividend, and continue returning capital to shareholders without placing significant strain on its balance sheet.
Of course, you can’t ignore valuation. Costco trades at a premium earnings multiple compared to other retailers, leaving less room for disappointment if consumer spending weakens or growth slows.
Still, it’s difficult to find many retailers with Costco’s combination of recurring membership income, exceptionally loyal customers, consistent store expansion, and strong cash generation. Those advantages have allowed the company to grow through multiple economic cycles, and there’s little reason to believe those competitive strengths will disappear before 2030.
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Jeff Siegel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
