VALUATION HIGHLIGHTS

1. Core Merchandise US constitutes 49% of the Trefis price estimate for Costco's stock.
2. Core Merchandise International constitutes 19% of the Trefis price estimate for Costco's stock.
3. Ancillary Business constitute 17% of the Trefis price estimate for Costco's stock.

WHAT HAS CHANGED?

1. Costco Q2 2026 Snapshot

Costco Wholesale reported fiscal Q2 2026 results with net sales of $69.6 billion, up 9.1% year-over-year, driven by strong comparable sales growth of 7.4% and continued expansion of digitally enabled sales, which rose more than 22%. Net income reached $2.04 billion, or $4.58 per diluted share, exceeding consensus expectations and reflecting the company's disciplined cost management and high-margin membership revenue. Membership fee income remained robust, supporting recurring revenue streams, while investments in e-commerce, warehouse expansion, and technology slightly weighed on operating margins.

Note: Costco FY'25 ended on August 31, 2025 Q@'26 referes to the quarter that ended on

2. Tariff Impact

A key development is that the U.S. Supreme Court struck down sweeping "Liberation Day" tariffs, creating a pathway for importers like Costco to seek refunds for tariffs previously paid. Costco has joined thousands of companies in legal action to recoup tariffs, and its CEO has indicated that any recovered funds could be passed along to members through lower prices and better value, although the timing and process for refunds remain unclear.

At the same time, new tariff policies, such as temporary global tariff rates replacing earlier emergency tariffs, have maintained a level of import cost pressure that is hard for retailers to plan around. Retailers are expressing caution that ongoing tariff uncertainty could continue to influence merchandise sourcing and prices, even as they work to reduce direct tariff impacts through supply chain adjustments, production shifts, and consolidated global purchasing strategies.

3. Raised Annual Membership Fee

The membership fee hike had a clear positive impact on Costco's Q2 results. Membership revenue jumped about 14% year over year to $1.36 billion, a faster pace than overall sales growth (+9%). That lift came primarily from the fee increase-$5 more for basic memberships and $10 more for Executive members-which expanded Costco's high-margin revenue stream. Because membership income flows almost entirely to the bottom line, the hike gave Costco additional leverage to offset cost pressures and contributed meaningfully to the company's stronger EPS.

Costco implemented an increase in its annual membership fees effective September 1, 2024, increasing the annual charge to $65 from $60.The cost of a premium membership increased to $130 from $120, and the maximum annual 2% reward for its executive membership rose to $1,250 from $1,000. Costco has a track record of increasing membership costs every five years or so, but company executives said they were holding back as shoppers grappled with high inflation.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Costco's value that present opportunities for upside or downside to the current Trefis price estimate for Costco:

• Revenue per Square Foot for Costco U.S. : Revenue per Square Foot for Costco US has increased from about $1,503 in FY 2022 to $1,730 in FY 2025. It is an important metric to measure retail sales success and is a factor that drives operating margins. Trefis expects it to increase and reach $2,375 by the end of the forecast period. Increasing new membership signups and higher penetration of executive membership are expected to drive Revenue per Square Foot for Costco U.S. If Revenue per Square Foot for Costco U.S. increases to $2,650 driven by growing membership, there could be about a 5% upside to our price estimate. On the other hand, if the growth is limited to $2,150, there could be about a 5% downside to our price estimate for Costco.


• Number of Costco U.S. Warehouse Clubs: Costco has been steadily expanding in the U.S. by opening more stores. The figure has increased from about 578 in FY 2022 to 629 in FY 2025. Trefis expects the store count to continue to rise and reach 741 in the long term. In case, the number of Costco U.S. Warehouse Clubs reaches 815 by the end of the forecast period, there could be a 5% upside to the Trefis estimate. On the other hand, there could be a downside of approximately 5% if the U.S. Warehouse Clubs count has relatively slow growth and reaches 660 by the end of the forecast period.

For additional details, select a driver above or select a division from the interactive Trefis split for Costco at the top of the page.

BUSINESS SUMMARY

Costco is the second-largest brick-mortar retailer in the U.S. and the largest in the warehouse club category with revenues of $275 billion at the end of fiscal 2025. Costco operates on the business model of charging membership fees from its customers in exchange for heavy discounts on selected brands of a wide variety of merchandise. Costco currently operates 914 warehouses, including 629 in the United States and Puerto Rico, 110 in Canada, 42 in Mexico, 37 in Japan, 29 in the United Kingdom, 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two in France, two in Sweden, and one each in Iceland, and New Zealand. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia.

Besides selling merchandise, Costco provides in-store services like fuel, hot-dog stands, and optical centers to attract customers to shop more frequently.

Costco competes with Sam's Club and BJ's in the warehouse club business. Its competitors have a very similar business model. However, BJ's focuses primarily on retail shoppers while Costco and Sam's Club concentrate on small business customers. Thus, Costco primarily competes with Sam's Club nationwide, while BJ's presence is limited to fewer areas of the US. Warehouse clubs tend to attract business customers with additional rewards and services.

SOURCES OF VALUE

Higher number of warehouses in the U.S. than internationally

The Core Merchandise U.S. segment is the most valuable to the company. Costco has built a strong relationship with its customers and is clearly positioned to thrive in a weak economy. Costco operated about 629 warehouse clubs in the U.S. and 285 warehouse clubs internationally as of the end of FY 2025.

Increasing penetration of executive members

Executive members pay $130 as a membership fee (as opposed to $65 paid by the other members) to get 2% (maximum of $1200) annual rewards on their purchases. They represent more than one-third of Costco's overall customers and two-thirds of its revenues. Executive membership penetration is on an upward trend and has increased from about 45% in 2022 to close to 56% in FY 2025.

International markets present a huge opportunity

Costco has recently expanded in Iceland, New Zealand, and Sweden. It is still expanding in the Asian and Australian markets, where it has a limited presence. Costco has the capability to operate about 100 stores in Taiwan, Korea, and Japan combined and about 20 stores in Australia. It currently has 71 stores in Taiwan, Korea, and Japan combined and 15 stores in Australia. This clearly indicates the expansion opportunity in these selected countries. China and India could be potentially huge markets for future expansion. Other big retailers like Walmart have expressed interest in these markets and are exploring various opportunities to grab a share of the growing retail market in these two economies.

Unique business proposition likely to be received positively in newer markets

Warehouse clubs like Costco present unique opportunities for regular and bulk buyers to save money by buying merchandise discounted at higher rates compared to other retailers. This business model has enabled Costco to thrive despite the weakening economy and is likely to boost sales in developing markets where consumers and businesses are even more cost-conscious.

Focus on e-commerce

Costco has seen tremendous growth in its e-commerce revenues in the recent past. Like other retail chains in the U.S. market, Costco also relies on its store sales for the bulk of its revenues. The retailer earns just 7% ( as of fiscal 2025) of its overall revenues through e-commerce sales. However, this share is likely to go up in the future as the company is deploying several initiatives to develop its web and omnichannel platform.

KEY TRENDS

Threat of self cannibalization exists

Although the company still has scope for expansion in the U.S., we do not negate the possibility of self-cannibalization. Going forward, we expect the U.S. market for the company to saturate in terms of geographic coverage, and expect Costco to focus on international expansion.

Increasing penetration of private label merchandise

The key selling point of Costco is its private label brands such as Kirkland Signature. According to the company, these brands are comparable in quality to national brands and are often cheaper. The retailer has been increasing the share of these brands within its overall product range by 0.5%-0.75% annually. Private label brands accounted for about 28% of Costco's merchandise at the end of 2025.

Competition intensifying in the retail industry

The retail business has become highly competitive. Costco competes with over 900 warehouse club locations across the world. It faces stiff competition from Wal-Mart, Target, and Amazon in the general merchandise retail segment.