Over the past few years, a handful of high-profile companies saw their market caps top $1 trillion. Many of those stocks -- including Microsoft, Nvidia, and Amazon -- were in the tech sector. Amazon, the top cloud infrastructure company, also became the first online retailer to join the 12-zero club.
Yet not a single brick-and-mortar retailer has joined that elite group. Could Costco Wholesale (COST 0.10%), with a market cap of $420 billion, cross that threshold in the near future?
Image source: Getty Images.
How fast has Costco grown since its public debut?
Costco, the world's largest warehouse club retailer, went public at a split-adjusted price of $1.67 per share on Dec. 5, 1985. Today, it trades at about $950 -- a $1,000 investment in its initial public offering (IPO) would be worth nearly $569,000 today and pay out more than $3,100 in annual dividends. That 56,786% gain over the past 40 years was driven by its constant construction of new warehouses, its rising number of cardholders, and its high renewal rates.
From fiscal 1985 (which ended in September 1985) to fiscal 2024, Costco's number of warehouses increased from 11 to 891 locations, its number of cardholders jumped from 1.3 million to 136.8 million, and its annual revenue grew at a compound annual growth rate (CAGR) of 15% from $1.1 billion to $254.4 billion.
How does Costco keep expanding?
Costco generates most of its profits from its high-margin membership fees, which allows it to sell a lot of its products at low, break-even, or even loss-leading margins. It also leverages its scale to negotiate favorable bulk rates with its suppliers, and it promotes its own Kirkland private-label products as a cheaper alternative to name-brand products.
Costco carries a narrower selection of products than superstores like Walmart, but it constantly rotates them to draw its shoppers back for return visits. Its gas stations, food court, vision center, and other ancillary services reinforce that strategy. So as long as Costco keeps growing its comparable store sales, opening new warehouses, gaining new cardholders, and locking them in with high renewal rates, its business will flourish. All of those core growth metrics headed in the right direction over the past few years -- even as the pandemic, inflation, rising interest rates, geopolitical conflicts, and other macro headwinds rattled the global economy.
|
Metric |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
FY 2025 |
|---|---|---|---|---|---|---|
|
Adjusted* comps growth |
9.2% |
13.4% |
10.6% |
5.2% |
5.9% |
7.6% |
|
Total warehouses |
795 |
815 |
838 |
861 |
890 |
914 |
|
Total cardholders (millions) |
105.5 |
116.1 |
118.9 |
127.9 |
136.8 |
-- ** |
|
Global renewal rate |
88% |
89% |
90% |
90.4% |
90.5% |
-- ** |
Data source: Costco. FY = fiscal year. *Excludes fuel sales and foreign exchange rates. **Not disclosed yet.
Costco weathered the pandemic because it remained a top destination for stocking up on household goods, while inflation drove more cost-conscious shoppers to its stores. It raised its membership fees for the first time in seven years last September to offset the inflationary pressure on its margins, but that price hike didn't impact its growth.
Costco hasn't reported its full-year earnings for fiscal 2025 yet, but it ended the third quarter with 142.8 million cardholders and a healthy global renewal rate of 90.2%. For the full year, analysts expect its revenue and earnings per share (EPS) to grow 8% and 9%, respectively.
Could Costco become a trillion-dollar company?
From fiscal 2024 to fiscal 2027, analysts expect Costco's revenue and earnings per share (EPS) to grow at a CAGR of 8% and 10%, respectively. That growth should be fueled by its ongoing overseas expansion, its rising e-commerce sales, and upgrades for its ancillary services.
We should take those estimates with a grain of salt, but Costco has a proven track record of expanding through bear and bull markets. But it isn't a bargain at 47 times next year's earnings -- presumably because too many investors bought it as a safe haven play in this choppy market. If Costco matches analysts' expectations, continues to grow its EPS at a CAGR of 10% over the following eight years, and trades at a more reasonable 30 times earnings, its stock could rise nearly 50% to $1,420 over the next 10 years.
That would be a decent gain, but it would only boost its market cap to $630 billion. It could also underperform the S&P 500, which has generated an average annual return of about 10% since its inception. So while Costco is still a stable investment, it's getting overheated and probably won't become a trillion-dollar retailer within the next decade.
