Costco runs 914 warehouses across 14 countries and makes money in two distinct ways. First, members pay an annual fee just to walk through the door. Second, Costco sells a carefully limited selection of about 4,000 products inside those warehouses at very thin markups. The genius of this setup is that the membership fee covers most of the profit, so Costco can price merchandise far below what ordinary retailers charge, which keeps members renewing year after year. The diagram below traces where the money goes.
How Costco Makes Money
flowchart TD
A["Members Pay Fees
5.3B annually"] --> B["Membership Base
145.2M cardholders"]
B --> C["Warehouse Traffic
& Loyalty"]
C --> D["Product Sales
269.9B annually"]
D --> E["Low Margins
12.8% gross margin"]
E --> F["High Volume
Turnover"]
F --> G["Operating Profit
10.5B annually"]
A --> G
D --> H["Ancillary Revenue
Gas, Pharmacy, Food Court
51.2B"]
H --> G
G --> I["Reinvest in
Warehouses & Distribution"]
I --> J["914 warehouses
Worldwide"]
J --> C
G --> K["Member Rewards
2% Executive cashback"]
K --> B
Five years of financial data tell a consistent story. Revenue has climbed every single year, from $195.9 billion in 2021 to $275.2 billion in 2025. That is not a lucky streak. It reflects a business that keeps adding members, keeps those members coming back, and keeps opening new warehouses in new markets.
Costco Annual Revenue (2021 to 2025)
Revenue in billions of dollars. Source: XBRL filings.
Membership fee revenue reached $5.3 billion in 2025, up 10% from the year before. That number matters more than it looks. Membership fees flow almost entirely to the bottom line because they carry almost no direct cost. When Costco raised its U.S. and Canada annual fee effective September 1, 2024, that fee increase alone accounted for roughly 40% of membership income growth in 2025. Meanwhile, 92.3% of U.S. and Canada members renewed their memberships at the end of 2025. That renewal rate is what makes the fee stream so reliable.
92.3%
U.S. and Canada member renewal rate at end of fiscal 2025
What is free cash flow?
Free cash flow is the money left over after a company pays for everything it needs to keep running and growing, including new buildings and equipment. It is a measure of how much real cash the business actually generates. A company that keeps producing rising free cash flow is generally funding its own growth without borrowing heavily.
The cash generation picture is similarly steady. Operating cash flow grew from $9.0 billion in 2021 to $13.3 billion in 2025. Free cash flow, which accounts for capital spending on new warehouses and technology, reached $7.8 billion in 2025, up from $5.4 billion in 2021. Costco also carried a net cash position, meaning it holds more cash than debt, every single year in this period. Net debt stood at negative $8.4 billion at the end of 2025, meaning Costco had $8.4 billion more in cash and investments than it owed in debt.
$5.4B
Free Cash Flow 2021
$7.8B
Free Cash Flow 2025
Free cash flow has grown steadily while the company simultaneously funded new warehouse openings.
Gross margin has stayed remarkably flat across all five years, hovering between 12.1% and 12.9%. That is not an accident. Costco has a stated policy of never marking up merchandise beyond a fixed ceiling. This discipline keeps prices low and members loyal, but it also means gross margin has almost no room to expand. Profit growth has to come from volume and from membership fees, not from charging more per item.
Now for the risks. Several are specific and documented, not just generic warnings. The most concentrated risk is geography. The U.S. and Canada together produced 86% of sales and 84% of operating income in 2025. Inside the U.S., California alone accounted for 26% of total sales. A serious economic slowdown in California would hit Costco harder than it would hit most other large retailers.
The second specific risk is the Kirkland Signature brand. Kirkland products carry higher profit margins than national brands and represent a growing share of what members buy. If customers ever lost confidence in Kirkland quality, those higher-margin sales would shift back to lower-margin national brands, and profitability would take a hit that would be hard to reverse quickly.
2024
milestone
Chief Information Officer hired from outside
In 2023, Costco hired Javier Polit as its first external Chief Information and Digital Officer, bringing in someone who previously led technology at Procter and Gamble, Coca-Cola, and Mondelez. This signals that Costco is treating its technology upgrade as a serious strategic priority. The company plans to spend $6.0 to $6.5 billion on capital expenditures in fiscal 2026, a step up from the $5.5 billion spent in 2025, with information systems listed as a primary use of that capital.
Technology is the third documented risk. Costco processes an enormous volume of transactions daily and depends on its IT systems to run nearly every part of the business. The company is in the middle of major technology investments. Delays or failures in those projects could hurt its ability to compete, particularly as e-commerce grows. E-commerce represented 7% of total net sales in 2025, growing at 16% per year, and a technology stumble could slow that momentum at exactly the wrong time.
Costco's gasoline business served 747 stations at the end of 2025 and represented about 10% of total net sales. Because gasoline carries a lower gross margin than merchandise, a shift in the mix toward more gasoline sales mechanically compresses the overall gross margin percentage, even if the business is otherwise healthy. Lower gasoline prices in 2025 reduced net sales by $2.3 billion.
The international dimension adds another layer of complexity. Canada and other international markets generated 27% of sales and 34% of operating income in 2025. Currency swings are not theoretical. Foreign exchange movements reduced net sales by approximately $1.9 billion and reduced gross margin by approximately $224 million in 2025 alone. As Costco expands further into Europe, Asia, and Australasia, this currency exposure only grows.
$1.9B
Estimated negative impact of foreign currency movements on Costco's 2025 net sales
Why warehouse count matters for growth
Costco's revenue model depends heavily on physical warehouses. Each new warehouse brings new members and new transaction volume. But good locations are finite. As the most attractive sites get used up, finding new high-quality locations becomes harder and more expensive. This is why Costco describes available and desirable sites as becoming more difficult to secure as the warehouse base grows.
Costco plans to open up to 35 new warehouses in fiscal 2026, up from 27 opened in 2025. That acceleration requires both capital and good locations. The company has said clearly that as its warehouse base grows, square footage growth becomes a less substantial component of overall growth. At 914 warehouses today, the easy markets are mostly filled. Future growth increasingly depends on international expansion into markets that are less familiar, more currency-sensitive, and more politically variable.
The Bet
Costco's membership renewal rate stays near 92% in its core markets and continues rising in newer international markets, even as those newer members were often acquired through digital promotions that historically renew at slightly lower rates. If renewal rates soften meaningfully, the membership fee stream that funds almost all of Costco's profit stops growing, and the low-margin merchandise model cannot compensate because the markup ceiling is fixed by design. The entire financial architecture assumes that once someone becomes a Costco member, they almost never leave.
Open question
Costco has grown revenue from $195.9 billion to $275.2 billion in five years, carries more cash than debt, and renews 92.3% of its U.S. and Canada members every year. The membership fee machine is real and it works. But the company is now in the middle of a major technology overhaul, accelerating international expansion into currency-volatile markets, and facing a future where the best warehouse locations are already taken. Can Costco keep its renewal rates high enough, in enough new markets, to sustain membership fee growth as a reliable profit engine, while simultaneously managing the technology and geographic complexity that comes with being a $275 billion business still trying to grow?
Compiled · 10-K · FY2025
Geographic and Operational Concentration
The company depends heavily on U.S. and Canadian operations, which made up 86% and 84% of sales and operating income in 2025. Within the U.S., California alone accounted for 26% of sales. A major slowdown or decline in these regions, especially California, could seriously harm the entire business.
Kirkland Signature Brand Dependence
The company sells many products under its Kirkland Signature private label brand, which has higher profit margins than national brands and represents a growing share of sales. If customers lose trust in this brand or stop buying these products, the company's sales and profits could decline significantly.
IT Systems and Cybersecurity
The company processes enormous volumes of transactions through its IT systems and relies on them to run almost every part of the business. A serious cyberattack, data breach, or system failure could disrupt operations, damage customer trust, and require expensive fixes. The company is making major investments in technology, and delays or failures in these projects could hurt its competitive position.
Supply Chain and Merchandise Distribution
The company depends on depots and manufacturing facilities to receive and distribute merchandise, and disruptions from weather, labor issues, or other problems could delay deliveries to warehouses and hurt sales. The company also relies on external shipping providers for its online business, and service failures would directly harm customers.
International Operations and Currency Risk
International operations, including Canada, generated 27% of sales and 34% of operating income in 2025. The company plans to keep expanding overseas, but currency fluctuations, foreign regulations, and political instability in other countries could hurt financial performance and increase the complexity of running the business.
10-K Item 1A · Risk Factors
