Valued at a market capitalization of roughly $440 billion, Costco (COST) is among the largest retailers in the world. And that size hasn't kept the retail giant from delivering outstanding growth to long-term shareholders. In the last 10 years, Costco stock has returned close to 600%. If we zoom out further, cumulative returns for COST stock are much higher at 1,940% over the past two decades. 

While the company delivered stellar results the first quarter of its fiscal 2025 (ended in November), it is wrestling with labor negotiations, which might hamper its performance in the near term. According to multiple reports, Costco declined roughly 98% of the Teamsters union's proposals, with the negotiation deadline expected to end on Jan. 31. The labor union has also raised concerns over specific practices, which include union communication restrictions. 

There are 18,000 workers negotiating seniority rights, paid leave benefits, and workplace monitoring policies who are preparing for a strike if an agreement isn’t reached before the deadline. 

Wall Street will closely follow the situation as work stoppage would drive Costco’s revenue and earnings lower in fiscal 2025. 

Costco Reports a Strong Quarter in Fiscal Q1

Last week, Costco announced its fiscal Q1 2025 results, reporting revenue of $62.15 billion and adjusted earnings per share of $4.04, above estimates of $62.08 billion and $3.79 per share, respectively. 

Its net sales rose by 7.5% year over year, driven by comparable sales growth of 5.2%. E-commerce sales grew by 13%, and membership fee income stood at $1.16 billion, up almost 8% compared to the year-ago period. 

Costco delivered another strong quarter, with growth across all key metrics and record-breaking performances in specific segments. The company continues to expand its warehouse footprint while maintaining strong membership growth and demonstrating pricing power.

Here are some of Costco’s notable achievements in Q1:

• Highest-ever opening day sales ($2.9 million) for a U.S. warehouse in Pleasanton, California
• Record bakery sales with 4.2 million pies sold in three days before Thanksgiving
• Halloween record of 274,000 whole pizzas sold (+21%)
• Pharmacy prescription growth exceeding 19%
• Nearly 1 million Costco logistics deliveries completed in Q1

Costco Membership a Key Driver of Profit Margins

Costco’s membership fees are a key driver of the bottom line as it creates a recurring revenue stream for the company, regardless of shopping frequency. A renewal rate of over 92% in the U.S. and Canada indicates strong customer loyalty, while its growth in paid memberships provides an expanding revenue base. 

The fees for executive members recently increased to $130 per year and account for almost 50% of paid members. However, these higher-paying members drive 73% of sales. Basically, higher-value customers are subsidizing lower-spending members. 

Costco’s membership revenue allows the retailer to operate on razor-thin margins, enabling it to sell products at a lower price than competitors, resulting in higher loyalty and retention rates. 

This membership model has proven highly successful because it aligns customer incentives (bulk savings) with Costco's profitability goals while providing a stable revenue foundation that supports competitive pricing and expansion. With 77.4 million paid household members and 138.8 million cardholders, membership fees are a metric closely followed by analysts and investors. 

What Is Next for Costco Stock?

Here are a few key details regarding Costco’s expansion plans. 

• Opened seven new warehouses in Q1
• Projecting 29 openings in fiscal 2025
• 10 new international locations planned
• Capital expenditure of $1.26 billion in Q1
• Estimated $5 billion in capital expenditure for the full year

Analysts tracking COST stock expect adjusted earnings to expand from $16.12 per share in fiscal 2024 to $20 per share in 2026. So, priced at 50x forward earnings, COST stock is quite expensive and trades at a premium. 

Out of the 33 analysts covering COST stock, 18 recommend “Strong Buy,” three recommend “Moderate Buy,” and 12 recommend “Hold.” The average target price for COST stock is $989.32, which is similar to its current trading price. 

The Bottom Line

Costco continues demonstrating its retail dominance with impressive comparable sales growth and expansion plans. It is effectively executing its core business model while expanding into new opportunities. The combination of strong membership metrics, successful warehouse expansion, and digital growth suggests the company is well-positioned for continued success. While the retail media business is still in its early stages, it represents a promising future revenue stream.