Key Points

Membership fees keep fueling predictable, high-margin recurring revenue.
Exceptional customer loyalty strengthens Costco's long-term competitive advantage.
New warehouses continue expanding Costco's global growth runway.

Costco (NASDAQ: COST) has never traded at a bargain valuation. Yet elite businesses seldom do. The warehouse retailer has spent decades crafting one of retail's most resilient models, and multiple enduring trends point to continued shareholder rewards well into the next decade.

Membership has its privileges

The core edge for Costco is not bulk groceries or discounted electronics. It is membership. In fiscal 2025, Costco produced about $5.32 billion in membership fee revenue, rising 10% from $4.83 billion the year before. Even more striking, renewal rates reached 92.3% in the U.S. and Canada and 89.8% worldwide. These stand among the strongest retention figures in any subscription business and illustrate why membership fees form a powerful moat.

Costco's membership engine kept gaining strength this year. In the third quarter of fiscal 2026, membership fee revenue advanced 10.7% year over year to $1.37 billion, exceeding overall sales growth. Paid memberships rose 4.1%, while executive memberships grew 9.6%. Renewal rates held steady at 92.2% in the U.S. and Canada and 89.7% globally, underscoring the reliability of this recurring revenue.

Such recurring income grants Costco significant flexibility. It can price merchandise at slimmer margins than most retailers because memberships supply dependable profits. This pricing benefit draws customers back, forming a self-reinforcing cycle competitors struggle to match. The company is also expanding rapidly.

Penetrating new markets

Costco's physical presence keeps growing with its membership base. As of the third quarter of fiscal 2026, the company ran 931 warehouses worldwide, including 639 in the United States and Puerto Rico. Management sees meaningful room for additional sites, especially in international markets where warehouse clubs remain relatively uncommon.

Each new warehouse drives extra merchandise sales and attracts thousands of new paying members, reinforcing the recurring revenue model. E-commerce is also contributing more. For Q3 2026, digitally enabled comparable sales grew 21.5%.

Balance sheet remains strong

Costco's financial position is a major strength. In fiscal 2025, the company produced $13.3 billion in operating cash flow and closed the year with roughly $14 billion in cash and equivalents. This strength supports new warehouse openings, distribution and technology investments, regular dividend increases, and capital returns without heavy balance-sheet pressure.

Valuation cannot be overlooked. Costco trades at a premium earnings multiple versus many retailers, leaving limited room for shortfalls if consumer spending weakens or growth moderates.

Still, few retailers combine Costco's recurring membership income, highly loyal customers, steady store expansion, and robust cash generation. These strengths have supported growth through multiple economic cycles, and little suggests they will fade 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.