Costco Wholesale (NASDAQ:COST) is in a class of its own when it comes to brick-and-mortar retailers. The membership-based warehouse club continues to put up blockbuster comparable sales numbers, and it's still opening new stores at a time when many retailers have retrenched and are even closing stores.

Costco has steadily outperformed the S&P 500 over almost any time interval over the last 10 years, and it has also beaten the broader retail index as it's topped the SPDR S&P Retail ETF (NYSEMKT:XRT) by a wide margin over the last five years.

COST Chart

COST data by YCharts.

Still, as the saying goes, past performance is no guarantee of future returns. Investors in Costco today may be wondering if they can rely on the stock to continue delivering outperformance -- and even make them millionaires. Let's take a closer look at where Costco stands today, where it's going in the future, and what the numbers tell us.

The parking lot at a Costco

Image source: Costco.

Riding the retail wave

It's high times for retailers these days. The brick-and-mortar segment, which seemed to be left for dead a year ago, has bounced back aggressively this year, helped by a surge in consumer confidence, investments in e-commerce and better stores, and more money to reinvest from the corporate tax cut. The SPDR S&P Retail ETF was up by more than 15% at one point this year before getting swept up in the broader market sell-off, and retail sales are up 5% this year, excluding the auto and gasoline segments, according to the Census Bureau. 

Not surprisingly, Costco has been a big beneficiary, here. For its fiscal year ended September 2, the company posted comparable sales growth of 7.4% in the U.S., excluding fuel, and 6.8% total. E-commerce sales were up 31.3%. As a result, and with the help of a lower tax rate, adjusted earnings per share improved from $5.82 to $7.00. 

Costco is also continuing to open stores as its total store count has grown from 741 to 762 over the last year, with 13 new warehouses in the U.S. to bring the domestic count to 527. 

Costco's momentum has continued into the new fiscal year as comparable sales excluding gasoline are up 7.4% in the U.S. and 7% globally through the first nine weeks of the year.      

What the future holds 

Costco's momentum and the current strong retail environment won't last forever. The retailer will need competitive advantages in order to continue delivering solid profit growth for investors, especially in an era when even the strongest brick-and-mortar retailers are under assault from Amazon (NASDAQ:AMZN) and the rise of e-commerce.

Because of its membership model, Costco has defenses that other retailers don't. Those membership fees lock its customers into year-long periods, and the company actually makes the majority of its profits from membership fees, while it sells bulk goods nearly at cost as an incentive to join. Once people are members, the fee also gives customers an incentive to shop and creates a barrier to entry. Costco's recent renewal rates have also shown that the model and its business has proven effective at keeping customers in its ecosystem. At the end of fiscal 2018, renewal rates in North America were 90%, and 88% globally, showing that the business continues to resonate despite competition from Amazon Prime. 

Realizing the threat from e-commerce, Costco launched two new e-commerce options last year, offering free two-day delivery on non-perishables with a $75 order minimum, and same-day delivery of groceries through Instacart. Since it made those options available, e-commerce growth has been strong, as last year's 31% growth rate indicates.

Costco's strategy and business model should keep delivering growth, but the company will continue to be threatened by Amazon as e-commerce delivery becomes even faster and more convenient. Therefore, Costco will have to invest more in the online channel.

The key numbers 

Not surprisingly, Costco's strength will cost investors a little extra as the stock is significantly more expensive than its retail peers. While most big-box chains trade at a P/E valuation in the teens or even lower, Costco is valued at a P/E of 31, which makes it more expensive than any other large brick-and-mortar chain. The stock also pays a 1% dividend yield, and it has a history of paying special dividends every two or three years, the last one being in 2017. That means the yield has been closer to 3% for investors who have held the stock over several years. However, Costco has also taken on significant debt to fund those special dividends as long-term debt has risen from less than $2 billion in 2012, when the first special dividend was paid, to $6.5 billion today. As a result, interest expense has risen, and it's unclear if Costco will continue to pay the special dividends.

Will Costco make you a millionaire?

Based on Costco's current position and its future prospects, the stock looks like a solid bet thanks to its strong membership model and reliable customer base. However, the company's growth opportunities are relatively modest. It's adding new stores slowly, and beyond that, it can deliver growth through same-store sales and e-commerce. Even last year, during an especially strong year for the company, revenue grew at a modest pace of 9.7%. Considering that growth rate, Costco's valuation, and the nature of its business, the stock alone is unlikely to make you a millionaire as it doesn't have the high-growth potential that other stocks like tech companies do. At a market cap near $100 billion, the stock will only be able to grow by a multiple of itself a few times.

As an industry leader and a stalwart dividend payer, Costco looks like a promising stock for most investors, but if you're looking for blockbuster growth, you'd be better off going elsewhere.    

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.