🏪 Deep Dive: Costco ($COST) – Stability at a Premium | 05.04.25

🏪 Deep Dive: Costco ($COST)

As of May 2, 2025 Simplify Wall Street | Premium Member Notes

📊 Company Overview

Costco remains a dominant force in the warehouse club model, thriving on membership-based recurring revenue and operational efficiency at scale.

• Founded: 1983

• Headquarters: Issaquah, Washington

• Business Model: Annual memberships + high-volume retail + low overhead

• Key Moat: Loyal member base, private-label strength (Kirkland), pricing power

📊 Financial Snapshot (as of May 2, 2025)

🧩 Growth Drivers

1. Sticky Membership Economics

• Over 130 million cardholders.

• Membership revenue exceeds $5B annually with near-100% margin.

• Renewal rate in U.S. and Canada exceeds 92%, creating a stable, recurring cash flow.

2. Private Label Strength — Kirkland Signature

• Accounts for over 30% of sales.

• Delivers higher margin than national brands while keeping prices low.

• Brand loyalty for Kirkland rivals top CPG brands in trust and perception.

3. Global Expansion

• Expanding in Japan, China, Korea, and Europe.

• New stores in emerging markets show higher growth velocity than mature U.S. stores.

4. E-commerce and Delivery Growth

• Building capabilities slowly but steadily.

• Same-day delivery via Instacart and Uber Eats.

• Growth in online grocery and prescription services.

🧱 Risk Factors

1. Valuation Premium

• At nearly 59x earnings, Costco is priced like a tech growth stock, not a traditional retailer.

• Any revenue or margin miss could lead to sharp multiple compression.

2. Thin Margins + Rising Costs

• Operating margin remains under 4%.

• Labor cost increases and inflationary pressures may erode earnings if not offset by volume.

3. E-commerce Gap

• Costco’s digital experience still lags behind Amazon, Walmart, and Target.

• Risk of younger, digital-native shoppers bypassing the in-store model entirely.

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