Costco Wholesale Corporation

Company Overview

Business Model: Costco Wholesale Corporation operates membership warehouses and e-commerce sites, offering a limited selection of nationally-branded and private-label products at low prices. This strategy aims to generate high sales volumes and rapid inventory turnover, enabling profitable operations at significantly lower gross margins than most other retailers. The Company leverages operating efficiencies through volume purchasing, efficient distribution via cross-docking consolidation points (depots), and reduced merchandise handling in no-frills, self-service warehouse facilities. Membership fees are integral to profitability, reinforcing member loyalty and providing recurring revenue.

Market Position: The Company operates in a highly competitive global retail market, competing with supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores, and other warehouse clubs. Key competitors include Walmart, Target, Kroger, and Amazon in general merchandise retail, and Walmart’s Sam’s Club and BJ’s Wholesale Club in the warehouse club segment. Costco Wholesale Corporation differentiates itself through its membership model, low-price strategy, and a curated selection of high-quality merchandise, including its private-label brand, Kirkland Signature, which generally offers higher margins and is a growing portion of overall sales.

Recent Strategic Developments: In fiscal year 2025, Costco Wholesale Corporation opened 27 new warehouses, including three relocations, resulting in 24 net new warehouses globally. The Company continues to make substantial investments in technology and IT projects to enhance digital resiliency and improve speed, accuracy, and efficiency of supply chains and delivery channels. In March 2025, the Company increased the starting wage for entry-level positions in the U.S. and Canada to at least $20.00 per hour and increased the top of wage scales by $1.00 per hour, bringing the average hourly rate for U.S. hourly employees to approximately $32.00 per hour. In April 2025, the Board of Directors approved a 12% increase in the quarterly cash dividend.

Geographic Footprint: As of August 31, 2025, Costco Wholesale Corporation operated 914 warehouses worldwide. The Company's operations span the United States (U.S.) and Puerto Rico (629 warehouses), Canada (110 warehouses), Mexico (42 warehouses), Japan (37 warehouses), the United Kingdom (U.K.) (29 warehouses), Korea (20 warehouses), Australia (15 warehouses), Taiwan (14 warehouses), China (seven warehouses), Spain (five warehouses), France (two warehouses), Sweden (two warehouses), Iceland (one warehouse), and New Zealand (one warehouse). E-commerce sites are operated in the U.S., Canada, Mexico, the U.K., Korea, Taiwan, Japan, and Australia. U.S. and Canadian operations comprised 86% of net sales and 84% of operating income in 2025, with California operations alone accounting for 26% of U.S. net sales.

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Gross Margin: 11.12%
• Operating Margin: 3.85%
• Net Margin: 3.00%

Investment in Growth (2025):

• R&D Expenditure: Not explicitly disclosed as a separate line item.
• Capital Expenditures: $5.5 billion
• Strategic Investments: Substantial investments in technology and IT projects to enhance digital resiliency and improve supply chain and delivery channel speed, accuracy, and efficiency.

Business Segment Analysis

United States

Financial Performance:

• Revenue: $200.0 billion (+8.6% YoY)
• Operating Margin: 3.44%
• Key Growth Drivers: Comparable sales growth, new member sign-ups, and membership fee increases. California operations are a significant contributor, comprising 26% of U.S. net sales.

Product Portfolio:

• Major product lines and services within segment: Foods and Sundries, Non-Foods, Fresh Foods, Warehouse Ancillary (gasoline, pharmacy, optical, food court, hearing aids, tire installation), and Other Businesses (e-commerce, business centers, travel).
• New product launches or major updates: Not explicitly detailed beyond general merchandise strategy.

Market Dynamics:

• Competitive positioning within segment: Operates in a highly competitive retail market with strong competition from various retailers and other warehouse clubs.
• Key customer types and market trends: Gold Star and Business members, with Executive members representing a significant portion of sales. Focus on adapting to changing consumer tastes and preferences.

Canada

Financial Performance:

• Revenue: $36.9 billion (+5.9% YoY)
• Operating Margin: 5.01%
• Key Growth Drivers: Comparable sales growth, new member sign-ups, and membership fee increases.

Product Portfolio:

• Major product lines and services within segment: Similar core merchandise categories and ancillary services as the U.S. segment, including e-commerce and Costco Travel.
• New product launches or major updates: Not explicitly detailed.

Market Dynamics:

• Competitive positioning within segment: Operates in a competitive retail market.
• Key customer types and market trends: Gold Star and Business members, with Executive members available.

Other International

Financial Performance:

• Revenue: $38.3 billion (+8.0% YoY)
• Operating Margin: 4.33%
• Key Growth Drivers: Comparable sales growth, new member sign-ups, and membership fee increases. Higher rates of square footage growth compared to other segments.

Product Portfolio:

• Major product lines and services within segment: Similar core merchandise categories and ancillary services as the U.S. segment, with e-commerce sites in Mexico, the U.K., Korea, Taiwan, Japan, and Australia, and Costco Travel in Australia and the U.K.
• New product launches or major updates: Not explicitly detailed.

Market Dynamics:

• Competitive positioning within segment: Certain operations have less or no direct membership warehouse competition.
• Key customer types and market trends: Gold Star and Business members, with Executive memberships available in Mexico, the U.K., Japan, Korea, Taiwan, and Australia.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $903 million (943,000 shares) in 2025.
• Dividend Payments: $2.2 billion in 2025.
• Dividend Yield: Not explicitly disclosed.
• Future Capital Return Commitments: $1.96 billion remaining under a $4.0 billion share repurchase authorization approved in January 2023, expiring in January 2027.

Balance Sheet Position (as of August 31, 2025):

• Cash and Equivalents: $14.2 billion
• Total Debt: $5.8 billion
• Net Cash Position: $8.4 billion
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Long-term debt maturities include $75 million in 2026, $2.25 billion in 2027, $148 million in 2029, $1.75 billion in 2030, and $1.58 billion thereafter.

Cash Flow Generation (2025):

• Operating Cash Flow: $13.3 billion
• Free Cash Flow: $7.8 billion
• Cash Conversion Metrics: Not explicitly disclosed.

Operational Excellence

Production & Service Model: Costco Wholesale Corporation operates membership warehouses and e-commerce sites, focusing on offering low prices on a limited selection of nationally-branded and private-label products. This model drives high sales volumes and rapid inventory turnover, supported by operating efficiencies from volume purchasing, efficient distribution, and reduced merchandise handling in no-frills, self-service facilities. Inventory is often sold before payment is required, leveraging early payment discounts. E-commerce operations utilize depots, logistics, and direct drop-ship arrangements with suppliers.

Supply Chain Architecture: The Company primarily purchases merchandise directly from suppliers, routing it to cross-docking consolidation points (depots) or directly to warehouses. Depots facilitate freight volume and handling efficiencies by receiving large shipments and quickly distributing them to warehouses, reducing costs associated with traditional multi-step distribution channels. The Company pursues diversification in its supply chain and seeks to expand in-country production for future product supply needs.

Key Suppliers & Partners:

• Brand-name Merchandise: Direct relationships with many producers of brand-name merchandise. No significant portion of merchandise is obtained from any single supplier.
• Co-branded Credit Cards: Citibank, N.A. is the exclusive issuer of co-branded credit cards to U.S. members.

Facility Network:

• Manufacturing: Operates various processing, packaging, manufacturing, and other facilities to support its business, including the production of certain private-label items.
• Research & Development: Not explicitly detailed.
• Distribution: Utilizes cross-docking consolidation points (depots) and logistics operations. Total square feet associated with distribution and logistics facilities were approximately 32.2 million at the end of 2025.
• Warehouses: 914 membership warehouses worldwide at August 31, 2025, with an average space of approximately 147,000 square feet. 747 warehouses operated gas stations at the end of 2025.

Operational Metrics:

• Stock Keeping Units (SKUs): Carries less than 4,000 active SKUs per warehouse in its core business, significantly less than other broadline retailers. Averages 9,000 to 10,000 SKUs online.
• Gasoline Business: Represented approximately 10% of total net sales in 2025.
• E-commerce Sales: Represented approximately 7% of total net sales in 2025.
• Digitally-enabled Sales: Represented approximately 10% of total net sales in 2025, including Costco Travel.

Market Access & Customer Relationships

Go-to-Market Strategy: Costco Wholesale Corporation's strategy is centered on providing members with a broad range of high-quality merchandise at consistently low prices. The Company utilizes a membership format to reinforce loyalty and generate recurring fee revenue. This includes Gold Star memberships for individuals and Business memberships for businesses, with an option to upgrade to an Executive membership for additional benefits, including a 2% reward on qualified purchases. The Company also extends its reach through e-commerce operations, business centers tailored for specific customer needs, and Costco Travel services.

Distribution Channels:

• Direct Sales: Primary channels include its network of membership warehouses and e-commerce sites.
• Channel Partners: Engages in co-branded credit card arrangements with partners like Citibank, N.A. in the U.S.
• Digital Platforms: Operates e-commerce sites in multiple countries, providing convenience and a broader selection of goods and services.

Customer Portfolio:

• Membership Base: Total paid members reached 81.0 million at the end of 2025, with total cardholders at 145.2 million.
• Executive Members: Executive members comprised 38.7 million of total paid members in 2025 and accounted for approximately 73.6% of worldwide net sales.
• Renewal Rates: Member renewal rates were 92.3% in the U.S. and Canada and 89.8% worldwide at the end of 2025.
• Customer Concentration: Not explicitly disclosed.

Geographic Revenue Distribution (2025):

• U.S. and Canada: 86% of total net sales.
• California Operations: 26% of U.S. net sales.
• Other International: 14% of total net sales.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The retail industry is highly competitive, with competition based on factors such as price, merchandise quality and selection, location, convenience, distribution strategy, and customer service. The market includes global, national, and regional wholesalers and retailers, with an increasing influence from online and mobile channels that enhance comparison shopping.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Walmart: Significant general merchandise retail competitor in the U.S., including its warehouse club, Sam’s Club.
• Target: Significant general merchandise retail competitor in the U.S.
• Kroger: Significant general merchandise retail competitor in the U.S.
• Amazon: Significant general merchandise retail competitor in the U.S., particularly in online retail.
• BJ’s Wholesale Club: Direct warehouse club competitor in the U.S.

Emerging Competitive Threats: Not explicitly detailed beyond general competition from new entrants, disruptive technologies, or alternative solutions.

Competitive Response Strategy: The Company adapts to competitive pressures and market changes through adjustments to its pricing and merchandise mix, including increasing the penetration of its private-label Kirkland Signature items, and through online offerings.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: High dependence on U.S. and Canadian operations (86% of net sales, 84% of operating income in 2025), with California alone comprising 26% of U.S. net sales. Risks include slowing comparable sales, negative operating expense trends, and economic uncertainties.
• Technology Disruption: Failure to timely identify or effectively respond to consumer tastes and preferences, including those related to resource efficiency, environmental protection, human rights, and the transition to a low-carbon economy, could negatively impact demand and market share. Demand for gasoline, a substantial portion of sales, could be impacted by climate change concerns and regulations.
• Customer Concentration: Failure to maintain membership growth, loyalty, and brand recognition, including the Kirkland Signature brand, could adversely affect results.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Disruptions in merchandise distribution (depots), processing, packaging, manufacturing, and other facilities due to extreme weather, catastrophic events, labor issues, or shipping problems could adversely affect sales and member satisfaction.
• Capacity Constraints: Inability to attract, train, and retain qualified employees, while controlling labor costs, could adversely impact business.
• IT Systems: Availability and performance of IT systems are vital. Failure to successfully execute IT projects or maintain system availability due to power outages, cyber incidents, or other failures could adversely impact operations, competitive position, and financial results.
• Payment-Related Risks: Subject to rules, regulations, compliance requirements, and fraud losses associated with various payment methods. Reliance on third parties for payment processing.
• Product Safety: Risk of selling products that cause illness or injury, leading to lost sales, increased costs, litigation, or reputational harm.
• Digital Experience: Inability to successfully develop and maintain a relevant and comprehensive digital experience for members could adversely impact results.
• Insurance Coverage: Property, casualty, or other losses not covered by self-insurance or maintained insurance could adversely impact financial condition.

Financial & Regulatory Risks

• Market & Financial Risks: General economic factors (e.g., energy and gasoline costs, inflation, unemployment, foreign-currency exchange rates, trade-related actions, tariffs) may adversely affect demand, costs, and profitability. Rapid and significant changes in commodity prices may affect sales and profit margins.
• Supplier Dependency: Dependence on suppliers for quality merchandise at competitive prices, with no assurances of continued supply or appropriate pricing. Suppliers are subject to various risks that could limit their ability to provide merchandise.
• Foreign Exchange: Fluctuations in foreign-exchange rates may adversely affect results, particularly as international operations expand (27% of net sales and 34% of operating income in 2025).
• Regulatory & Compliance Risks: Subject to a wide and growing array of federal, state, local, and international laws and regulations (e.g., product and food safety, privacy, labor, environmental). Failure to comply could result in penalties, restrictions, and increased costs.
• Legal Proceedings: Involvement in numerous claims, proceedings, and litigations (e.g., class actions, opioid litigation, privacy law violations, False Claims Act investigation) could result in significant costs or adverse outcomes.
• Accounting Standards: Changes in accounting standards and subjective assumptions/estimates by management could significantly affect financial condition and results.
• Tax Rates & Legislation: Changes in federal, state, and foreign tax rates and legislation could adversely affect financial condition and results.
• ESG Goals: Failure or perceived failure to meet environmental, social, or governance (ESG) goals or expectations could result in reputational harm or adversely affect the business.

Geopolitical & External Risks

• Geopolitical Exposure: Risks associated with legislative, judicial, accounting, regulatory, political, and economic factors specific to the countries or regions of international operations.
• Natural Disasters: Natural disasters, extreme weather conditions, or other catastrophic events (e.g., hurricanes, earthquakes, wildfires, acts of terrorism) could negatively affect operations and financial performance, particularly in California or Washington state.
• Pandemics & Health Crises: Uncertain emergence, severity, magnitude, and duration of global or regional health crises could affect business operations, demand, in-stock positions, costs, labor availability, and supply chain.

Innovation & Technology Leadership

Research & Development Focus: Costco Wholesale Corporation is making substantial investments in technology and IT projects. The focus is on maintaining and enhancing digital resiliency, improving the speed, accuracy, and efficiency of supply chains, and optimizing delivery channels.

Core Technology Areas:

• IT Systems: Critical for processing high volumes of transactions, conducting payment transactions, tracking and valuing inventory, and generating reports for business decisions.
• Digital Resiliency: Investments are aimed at building strong resiliency to mitigate disruptions from power outages, telecommunications failures, cyber incidents, and other events.

Intellectual Property Portfolio:

• Patent Strategy: Relies on trademarks, trade names, copyrights, proprietary processes, trade secrets, trade dress, and domain names.
• Key Brands: Has invested significantly in the development and protection of its well-recognized brands, including the Costco Wholesale trademarks and its private-label brand, Kirkland Signature.
• Competitive Moats: Kirkland Signature products are positioned as high-quality, competitively priced (generally lower than national brands), and contribute to lower costs, merchandise differentiation, and higher margins. The Company expects to continue increasing the sales penetration of private-label items.

Technology Partnerships: Not explicitly detailed.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company's success depends on the continued contributions of its employees, including senior management. Failure to identify and implement a succession plan for senior management could negatively impact the business.

Board Composition: The Board of Directors has delegated certain responsibilities to the Audit Committee, which reviews and discusses with management the identification and mitigation of cybersecurity risks. The Chief Information and Digital Officer and Chief Information Security Officer regularly present cybersecurity-related topics to the Audit Committee. The full Board also receives cybersecurity evaluations periodically.

Human Capital Strategy

Workforce Composition:

• Total Employees: 341,000 employees worldwide at the end of 2025.
• Geographic Distribution: 223,000 in the United States, 55,000 in Canada, and 63,000 in Other International.
• Skill Mix: Approximately 95% of employees are in membership warehouses and distribution channels. Around 5% are represented by unions. The Company also utilizes seasonal employees.

Talent Management:

• Acquisition & Retention: The Company aims to provide employees with careers, not just employment, through competitive compensation and benefits, a commitment to employee development, and promoting from within. A target ratio of at least 50% full-time employees is maintained.
• Retention Metrics: In 2025, the retention rate in the U.S. and Canada was approximately 94% for employees with at least one year of service.
• Employee Value Proposition: In March 2025, the starting wage for entry-level positions in the U.S. and Canada was increased by $0.50 to at least $20.00 per hour. The top of wage scales was increased by $1.00 per hour, resulting in an average hourly rate of approximately $32.00 per hour for hourly employees in the U.S. at the end of 2025. Expansive benefits are offered in the U.S. to support physical, emotional, mental, and financial well-being at low cost to employees.

Diversity & Development:

• Diversity Metrics: The Company is committed to promoting an inclusive and respectful workplace where all employees feel they belong, are accepted, included, respected, and supported.
• Development Programs: Leadership commitment to inclusion is demonstrated through consistent communication, employee development and education, and support of diversity and inclusion initiatives. The Supervisor in Training (SIT) programs in the U.S. and Canada saw approximately 7,500 hourly employees complete the 6-week course in 2025.
• Culture & Engagement: The Company hosts Costco Connects meetings, open listening sessions for employees to discuss personal and professional impacts, with approximately 200,000 employees participating globally in 2025.

Environmental & Social Impact

Environmental Commitments: The Company's operations involve the treatment and disposal of wastewater, stormwater, and agricultural and food processing wastes, as well as the use and maintenance of refrigeration systems, and noise, odor, and dust management. Government regulations limiting carbon dioxide and other greenhouse gas emissions, and other environmental restrictions, may increase compliance, operations, and merchandise costs. More stringent fuel economy standards and policies promoting zero-emission vehicles may also affect future operations and profitability.

Supply Chain Sustainability: Not explicitly detailed in the filing.

Social Impact Initiatives: The Company's code of ethics includes "Take Care of Our Employees," which is fundamental to its commitment to "Take Care of Our Members." This includes promoting an inclusive and respectful workplace and providing competitive wages and excellent benefits.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: The Company experiences a material seasonal impact in its operations, with increased net sales and earnings during the winter holiday season.
• Economic Sensitivity: Demand for products and services can be adversely affected by general economic factors, including higher energy and gasoline costs, inflation, unemployment levels, consumer debt, foreign-currency exchange rates, unsettled financial markets, and changes in government fiscal, monetary, and tax policies.

Planning & Forecasting: Not explicitly detailed.

Regulatory Environment & Compliance

Regulatory Framework:

• Industry-Specific Regulations: The Company is subject to a wide and growing array of federal, state, local, and international laws and regulations covering product and food safety, marketing, information security and privacy, labor and employment, imports and customs, intellectual property, anti-corruption, and environmental or social matters. Extended producer responsibility laws are being implemented in multiple states, which will require new policies and processes and increase expenses.
• International Compliance: Multi-jurisdictional requirements and harmonization challenges exist across its international operations.

Trade & Export Controls:

• Export Restrictions: Trade-related actions in various countries, including tariffs, affect merchandise costs. Higher tariffs are more likely to adversely impact results.
• Sanctions Compliance: Not explicitly detailed.

Legal Proceedings: The Company is involved in numerous claims, proceedings, and litigations, including:

• Class Action Lawsuits: Allegations under California law for wage and labor violations (e.g., Martin Reyes v. Costco Wholesale Corporation, Nader v. Costco).
• Opioid Litigation: Consolidated cases concerning opioid abuses filed by various entities against the Company.
• Privacy Law Violations: Five class action suits alleging privacy law violations stemming from pixel trackers on Costco.com (e.g., Castillo v. Costco Wholesale Corp.), with related civil investigative demands from the Washington Attorney General's Office and a pre-litigation letter from the Los Angeles Office of the County Counsel.
• Product Liability: A class-action lawsuit alleging Kirkland Signature Fragrance Free Baby Wipes contain per-and polyfluoroalkyl substances (Bullard, et ano., v. Costco Wholesale Corp., et ano.).
• Government Investigations: A Civil Investigative Demand from the U.S. Attorney's Office concerning a False Claims Act investigation related to prescription medications. A Notice of Intent to File Administrative Complaint from the U.S. Environmental Protection Agency (EPA) regarding alleged violations of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), which has been settled for an immaterial amount.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 25.1% in 2025, compared to 24.4% in 2024 and 25.9% in 2023.
• Rate Drivers: The 2025 effective tax rate was favorably impacted by discrete tax benefits of $100 million related to stock compensation.
• Geographic Tax Planning: The Company generally no longer considers fiscal year earnings of non-U.S. consolidated subsidiaries (other than China) indefinitely reinvested after 2023 (Taiwan) and 2017 (all other subsidiaries), and has recorded estimated incremental foreign withholding taxes and state income taxes. Undistributed earnings of certain non-U.S. consolidated subsidiaries, totaling $3.18 billion, are considered indefinitely reinvested.
• Tax Reform Impact: The Organization of Economic Cooperation and Development (OECD) Pillar 2 global minimum corporate tax, effective for fiscal 2025, did not have a material impact on the consolidated financial statements.

Insurance & Risk Transfer

Risk Management Framework: The Company predominantly self-insures for claims related to employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle liability, and inventory loss. Insurance coverage is maintained for certain risks to limit exposures to very large losses. The Company utilizes various risk management mechanisms, including a wholly-owned captive insurance subsidiary and participation in a reinsurance program.

Insurance Coverage: The Company maintains cybersecurity insurance that would apply to certain losses arising from significant security incidents.