Costco WholesaleWide moat

COST — overall economic moat

Investment snapshot
Wide moat→ Holding steadyConfidenceHighValuationExpensive
Strongest advantageAn annual fee that out-earns everything sold in the warehouses
Greatest threatA 46x multiple on a 3.0% net margin, with frequency slowing
Key metricMember renewal rate (92.2% US and Canada)
Verdict: The clearest subscription hiding inside a retailer in this collection - and the strongest evidence for it is that Walmart has run the identical format for forty-three years and still loses money on the goods.
📈 COST valuation, revenue & earnings — P/E, P/S, revenue, EPS →

Costco sells about $270 billion of merchandise a year and keeps almost none of it. In fiscal 2025 net sales were $269,912 million, the goods cost $239,886 million, and running the warehouses took another $24,966 million1. What is left from selling everything in the building — every television, every rotisserie chicken, every pallet of paper towels in fourteen countries — is $5,060 million.

Net sales by merchandise category, FY2025Foods and sundries — 41%Non-foods — 26%Warehouse ancillary and other — 19%Fresh foods — 14%Sums to $269.9bn of net sales. Membership fees of $5.3bn sit outside it.
Costco is a grocer that also sells televisions: food and fresh together are $147.6bn, 55% of net sales. What the chart cannot show is that the $5.3bn of membership fees excluded from it earn more than all of this put together.

Then there is the other line. Membership fees were $5,323 million, collected in advance from people who had not yet bought anything, at no cost of goods whatsoever. Add the two and you have Costco's entire $10,383 million of operating income. The club dues are the larger half.

That arithmetic is the company. It is why Costco runs an 11.12% gross margin when a conventional supermarket needs the mid-twenties and Walmart, for all its scale, still books a 24.2% gross profit rate2. It is why a warehouse stocks fewer than 4,000 items when a supercentre stocks fifty thousand3. It is why the average American hourly employee is paid roughly $32.00 an hour, and why the returns policy is close to unlimited. None of those is generosity. They are all the same decision, which is that the merchandise exists to make the membership worth renewing, and the membership is where the money is.

The scale underneath it is worth stating plainly. 914 warehouses at the end of fiscal 2025, 134.7 million square feet of selling floor, 341,000 employees, 81.0 million paid memberships and 145.2 million cardholders. Average sales per square foot come to roughly $2,0044 — a figure most retailers would regard as a misprint. Costco owns the land and the building at 725 of those warehouses outright and owns the building at 141 more, so it is the landlord of 866 of the 914 boxes it trades from5.

Geographically it is narrower than the fourteen-country list suggests. The United States produced $200,046 million of revenue and $6,878 million of operating income; Canada $36,923 million and $1,849 million; everywhere else $38,266 million and $1,656 million6. Two countries are 86% of net sales and 84% of operating income, and inside the American segment, California alone is 26% of net sales7. Note also which segment earns most per dollar: Canada's operating margin is 5.01%, half again the United States' 3.44%.

Growth in fiscal 2025 came the way Costco likes it. Comparable sales rose 6%, and 5 points of that were people coming more often rather than spending more per trip8. Twenty-four net new warehouses opened. Membership fee revenue rose 10%, of which about 40% came from the fee increase that took effect on 1 September 2024 — the first in seven years — after which the renewal rate barely moved.

The first three quarters of fiscal 2026 have been faster and less pure. Total revenue reached $207,431 million, up 10%, with operating income of $7,884 million and diluted earnings of $14.01 a share9. But the mix inverted: average ticket rose 5% and frequency only 3%, and in the third quarter the split was 7% and 2%10. Ancillary businesses grew 29% in the quarter, led by gasoline and pharmacy, while core merchandise grew 7%. Strip out fuel prices and currency and comparable sales were 7% rather than 10%. Meanwhile membership fees reached $4,057 million against $3,827 million of merchandise profit — over three quarters, the dues have pulled further ahead.

At $915.74 the market values Costco at about $406 billion, roughly 46 times trailing earnings and 1.38 times sales11, for a business that converts 3.0% of revenue into profit and grew earnings 12.7%. Costco's own risk factors put it more bluntly than any analyst would: "We believe that the price of our stock currently reflects high market expectations for our future operating results."12

The number that would falsify the thesis is not comparable sales and not the warehouse count. It is the renewal rate. At the end of fiscal 2025 it was 92.3% in the United States and Canada and 89.8% worldwide; at the end of the third quarter of fiscal 2026 it was 92.2% and 89.7%. Two tenths of a point is nothing on its own. It is the only number on this page that measures whether the members still think the deal is worth it. Each of the three segments is taken in turn in The Revenue Lines.

The number that tests this moat
Reported
Revenue, and where it comes from
$275,235M — $269,912M of goods and $5,323M of dues

The membership line is 1.9% of revenue and 51% of operating income. Any read of Costco that treats the top line as the business gets the company wrong; the fee is where the profit is and the goods are what make the fee renew.

Source: Costco Form 10-K, fiscal year ended August 31, 2025 ↗
Moat scorecardHow ratings work →
Switching costs6/10
Network effects5/10
Pricing power8/10
Hard to replicate8/10
Disruption resistance7/10
Overall durability8/10

Switching is low by design - a member can simply not renew - and the moat holds anyway because the fee is obviously worth paying. Pricing power scores high on the evidence rather than the theory: Costco raised its most profitable price 8% in 2024 and the renewal rate did not move. Replication is hard not technically but financially, since it requires accepting years of merchandise margins no other board would authorise.

Dig deeper
DIG DEEPER 01
The Revenue Lines
One model in three places: the United States is three-quarters of the revenue, Canada the best margin, the rest of the world the fastest growth.
DIG DEEPER 02
The Moat
Half the profit is a subscription and the other half is a gross margin nobody else can survive, and neither half works without the other.
DIG DEEPER 03
Competitors
Four rivals, three of them larger, and only one running the same model — which loses money on the goods.
DIG DEEPER 04
Major Clients
Eighty-two million paying customers, no concentration to disclose, and one number that decides everything: whether they renew.
✦ Future bets — beyond today's moat
✦ FUTURE BET 01
The Future Bets
No moonshot: thirty-five boxes a year, twelve countries with almost nothing in them, a late advertising business, and twenty billion dollars of idle…
⚠ Threats to the moat
⚠ THREAT 01
The Multiple Assumes This Never Stops
Forty-six times earnings on a 3.0% net margin, and the risk factors say so in Costco's own words.
⚠ THREAT 02
Eighty-Six Percent From Two Countries
Fourteen countries on the list and one American state producing about a fifth of the company's sales.
◆ What the market may be missing
◆ THE VARIANT VIEW
What the Market Isn't Pricing In
One of the two businesses inside this company almost never has a bad year, and Costco has been declining to charge full price for it since 1983.
◆ THE VARIANT VIEW
Inside the Latest Quarter (Q3 FY2026)
The best headline growth in years, carried by fuel prices and currency, while the two numbers that forecast the next five years both moved the wrong…
References
  1. ReportedIn fiscal 2025 net sales were $269,912 million, the goods cost $239,886 million, and running the warehouses took another $24,966 million.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
  2. ReportedIt is why Costco runs an 11.12% gross margin when a conventional supermarket needs the mid-twenties and Walmart, for all its scale, still books a 24.2% gross profit rate.
    Walmart Form 10-K, fiscal year ended January 31, 2026 - Sam's Club U.S. segment (net sales $93,015M from 601 clubs and 81 million square feet, gross profit $10,556M, operating expenses $10,639M, membership and other income $2,525M, operating income $2,442M) — FY2026 (ended January 31, 2026) · publ. March 13, 2026 · source ↗
  3. ReportedIt is why a warehouse stocks fewer than 4,000 items when a supercentre stocks fifty thousand.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
  4. Moat Explorer calcAverage sales per square foot come to roughly $2,004 — a figure most retailers would regard as a misprint.
    Moat Explorer calculation: Costco FY2025 net sales of $269,912M over 134.7 million square feet and 914 warehouses; Sam's Club U.S. FY2026 net sales of $93,015M over 81 million square feet and 601 clubs — FY2025 vs Sam's Club FY2026 · publ. September 2026 · source ↗
  5. ReportedCostco owns the land and the building at 725 of those warehouses outright and owns the building at 141 more, so it is the landlord of 866 of the 914 boxes it trades from.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 2 Properties (725 warehouses with owned land and building, 141 land-only leases, 134.7 million square feet of selling floor and 32.2 million of distribution) — FY2025 · publ. October 8, 2025 · source ↗
  6. ReportedThe United States produced $200,046 million of revenue and $6,878 million of operating income; Canada $36,923 million and $1,849 million; everywhere else $38,266 million and $1,656 million.
    Costco Form 10-K, fiscal year ended August 31, 2025 - consolidated financial statements and notes (income statement, balance sheet, Note 11 segment reporting, disaggregated revenue by merchandise category, legal proceedings) — FY2025 · publ. October 8, 2025 · source ↗
  7. ReportedTwo countries are 86% of net sales and 84% of operating income, and inside the American segment, California alone is 26% of net sales.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1A Risk Factors (U.S. and Canada 86% of net sales and 84% of operating income, California 26% of U.S. net sales, cannibalisation, tariffs, supplier and site-acquisition risk, 'high market expectations') — FY2025 · publ. October 8, 2025 · source ↗
  8. ReportedComparable sales rose 6%, and 5 points of that were people coming more often rather than spending more per trip.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
  9. ReportedTotal revenue reached $207,431 million, up 10%, with operating income of $7,884 million and diluted earnings of $14.01 a share.
    Costco Form 10-Q, quarter ended May 10, 2026 - condensed financial statements and notes (total revenue $70,527M, operating income $2,815M, diluted EPS $4.93, balance sheet, segment table, 928 warehouses) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
  10. ReportedBut the mix inverted: average ticket rose 5% and frequency only 3%, and in the third quarter the split was 7% and 2%.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
  11. ReportedAt $915.74 the market values Costco at about $406 billion, roughly 46 times trailing earnings and 1.38 times sales, for a business that converts 3.0% of revenue into profit and grew earnings 12.7%.
    Market data (stockanalysis.com) - $915.74 a share, ~$406.1B market cap, ~46x trailing and ~42x forward earnings, 1.38x sales, 0.64% dividend yield; fiscal-quarter multiples back to FY2021 — September 4, 2026 · publ. September 2026 · source ↗
  12. ReportedCostco's own risk factors put it more bluntly than any analyst would: "We believe that the price of our stock currently reflects high market expectations for our future operating results." The number that would falsify the thesis is not...
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1A Risk Factors (U.S. and Canada 86% of net sales and 84% of operating income, California 26% of U.S. net sales, cannibalisation, tariffs, supplier and site-acquisition risk, 'high market expectations') — FY2025 · publ. October 8, 2025 · source ↗
Sources
Generated September 23, 2026