Costco runs a simple machine. Members pay an annual fee just to walk in the door. Then they buy groceries, electronics, tires, and gasoline at prices that are almost always lower than anywhere else. The fee income rolls in whether members shop a lot or a little. The merchandise keeps people coming back. Those two streams, predictable fee revenue and massive product volume, work together to create a business that earns money on thin margins but enormous scale. The diagram below traces where the money goes.

Five years of financial data tell a clear story. Revenue has climbed steadily every single year, from $195.9 billion in 2021 to $275.2 billion in 2025. That is not a spike driven by one lucky year. It is consistent, compounding growth across different economic conditions. Operating cash flow has also grown, reaching $13.3 billion in 2025 compared to $9.0 billion in 2021. Free cash flow, the money left after building new warehouses, rose from $5.4 billion to $7.8 billion over the same period.

The membership side of the business is equally steady. Membership fee revenue reached $5.323 billion in 2025, up 10% from the year before. Total paid members grew from 71.0 million in 2023 to 81.0 million in 2025. And in the U.S. and Canada, 92.3% of members renewed their memberships at the end of 2025. That renewal rate is the single most important number in the whole model. It tells you whether people keep paying the entry fee year after year, which is the foundation everything else rests on.

Gross margin has stayed remarkably thin and remarkably stable. It sat at 12.9% in 2021, dipped slightly in 2022 and 2023, and recovered to 12.8% by 2025. This is not a flaw. It is the design. Costco deliberately keeps markups low to make members feel the fee is worth paying. The company's own rules cap markups on regular merchandise at 14%. That pricing discipline is what draws members in and keeps renewal rates high. The trade-off is that there is very little cushion if costs rise unexpectedly.

Kirkland Signature products are one of the few places in Costco's model where margins are actually better than average. That makes the brand both a profit tool and a vulnerability. If customers ever lost confidence in Kirkland Signature quality, or if supply problems made those products hard to get, the impact on margins and member loyalty could be significant. The 10-K lists this explicitly as a high-severity risk.

The balance sheet is in strong shape. Net debt has been negative every year in the five-year window, meaning Costco holds more cash than it owes in debt. That figure reached negative $8.4 billion in 2025, the strongest position in the period. Cash and short-term investments stood at $15.284 billion at the end of fiscal 2025. The company is not scrambling for financing to grow. It funds new warehouses from its own operating cash flow.

Now for the risks. Geographic concentration is the first one to understand. The company gets 86% of its sales and 84% of its operating income from U.S. and Canadian operations alone. California by itself accounts for 26% of U.S. sales. A serious economic slowdown in those two countries, or anything specific that hits California hard, flows straight through to the bottom line. There is no diversified global mix to cushion the blow.

Growth through new warehouses faces its own ceiling. Costco opened 27 new warehouses in 2025 and plans up to 35 in 2026. But good sites are harder to find over time. Local regulations and community opposition can block or delay projects. And when a new store opens near an existing one, it can pull customers away from the older location rather than adding entirely new ones. The filing calls this cannibalization, and it is a real cost of expanding in mature markets.

Cybersecurity and IT failure round out the documented high-severity risks. Costco's systems handle enormous transaction volumes and track inventory across 914 warehouses. A serious cyberattack or system failure could disrupt operations, expose member data, damage trust, and trigger costly regulatory penalties. The company appointed a new Chief Information and Digital Officer in 2023, signaling that this is an area receiving active attention.

Tariffs add one more layer of uncertainty. The 10-K states directly that higher tariffs are more likely to hurt results than help them. Costco sells a lot of imported goods, and if tariff costs rise faster than the company can absorb or pass on to members, margins could compress. The company has said it works with suppliers to share cost increases and tries to source products closer to where they are sold, but it cannot fully control the political decisions that drive tariff levels.