Costco
COST · NasdaqMembership fees equal half of operating income
Fees of $5.9B are 1.9% of revenue yet equal 50.6% of operating income, so the membership base, more than merchandise markup, underpins profit.
FY2026, the fiscal year to Aug 30, 2026 · 10-K filed Oct 7, 2026
- Operating margin
- 3.9%
- Net income
- $9.2B
- Free cash flow
- $9.4B
Largest source of revenue: Food and Sundries, 38.5% of the total.
Where Costco's money goes
- 01
Membership fees equal half of operating income
Fees of $5.9B are 1.9% of revenue yet equal 50.6% of operating income, so the membership base, more than merchandise markup, underpins profit.
Why it matters
Membership fees were $5.9B of $303.2B total revenue, 1.9%. Operating income was $11.7B, so fees equal 50.6% of it, against 51.3% the year before ($5.3B of $10.4B). The rest of the business, net sales of $297.2B, ran with merchandise costs at 88.9% of net sales and SG&A at 9.1%. The filing calls the membership format "integral to our business and profitability."1
The fee base is loyal and weighted to the heaviest shoppers. The renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide, and Executive members, who pay a higher fee for a reward on qualified purchases, accounted for about 75.2% of worldwide net sales. The filing names new sign-ups, fee increases and Executive upgrades as the drivers of the 11.0% rise in fee revenue.1
AnalysisAnalysis: the share slipped from 51.3% to 50.6% because operating income grew 12.5% while fees grew 11.0%, so the rest of operating income grew faster than the fee this year. Fees are not a margin: they are set against operating income here only to show how much of the profit they could account for.
- 02
Canada earns the most profit per dollar of sales
Canada brings 13.4% of revenue but 18.0% of operating income, a 5.2% operating margin against 3.5% for the U.S. segment.
Why it matters
Segment revenue: United States $219.8B (72.5% of the total), Canada $40.6B (13.4%), Other International $42.8B (14.1%). Segment operating income: United States $7.6B (65.4%), Canada $2.1B (18.0%), Other International $1.9B (16.5%). Dividing each segment's operating income by its revenue gives 3.5% for the U.S., 5.2% for Canada and 4.5% for Other International, against 3.85% for the company.1
The filing does not explain why Canada runs at a higher margin. It does say that certain Other International operations have lower wage and benefit costs as a percentage of sales and less or no direct membership warehouse competition, and that SG&A as a share of net sales rose this year in the Canadian and Other International segments while staying flat in the U.S.1
AnalysisAnalysis: the U.S. is the volume engine and Canada the most profitable per dollar, so where sales grow shapes the company margin. A dollar of sales in Canada carried more operating income this year than one in the U.S. Segment revenue includes membership fees, so differences in fee levels or renewal patterns by country may also play a part.
- 03
Cash outruns profit, even after heavier building
Operating cash flow of $15.8B was 1.71 times net income, so $6.4B of capital spending still left $9.4B of free cash flow.
Why it matters
Net cash from operations was $15.8B against $13.3B the year before, and net income $9.2B against $8.1B. Capital spending rose to $6.4B from $5.5B, taking 40.7% of operating cash flow. Free cash flow of $9.4B was above net income, against $7.8B the year before.1
The filing gives the mechanism: "We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts." It credits this year's increase to higher operating income and a smaller net investment in merchandise inventories, the result of "faster inventory turns and improved payment terms with suppliers."1
AnalysisAnalysis: in this model growth tends to release working capital rather than absorb it, and the filing expects capital spending to be financed from operating cash, cash and short-term investments. Part of this year's gain came from better supplier terms and faster turns, which need not repeat, so the gap between cash flow and net income can narrow in a year without them.
- 04
Gasoline and pharmacy growth reshape the reported margins
Warehouse ancillary and other sales grew 19.9%, to 20.2% of revenue; the filing says this mix held down gross margin while core categories improved.
Why it matters
Warehouse ancillary and other businesses, led by gasoline and pharmacy, grew 19.9% to $61.4B, while Food and Sundries grew 6.6%, Non-Foods 8.7% and Fresh Foods 9.8%. Their share of revenue rose 1.65 points to 20.2%. Gross profit, total revenue less merchandise costs, held at 12.8% of revenue, down 0.02 points.1
The filing explains the offset: gasoline and pharmacy carry a lower gross margin percentage, so their faster growth pulled the overall rate down, while the gross margin of core merchandise categories, measured on their own sales, rose in every category. Higher gasoline prices also inflated net sales, which the filing says lowers gross margin as a percentage and reduces SG&A as a percentage of net sales.1
Excluding gasoline price inflation, the filing says SG&A as a share of net sales edged up. So the fall to 9.1% of net sales from 9.25% reflects the gasoline price effect the filing names, not lower warehouse costs.1
AnalysisAnalysis: the reported ratios move with fuel prices. If gasoline prices fell, the gross margin rate would tend to rise and the SG&A ratio to climb, with no change in how the warehouses perform. The filing describes this inverse effect itself.
Sources
- 1.Costco 10-K for the period to 2026-08-30 (the filing), Oct 7, 2026, read Nov 1, 2026
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Growth, profit and margin
Revenue went from $72.5B in FY2008 to $303.2B in FY2026, the operating margin from 2.7% to 3.9%, over 18 years.
- Revenue$303.2B
- Operating income$11.7B
- Operating margin3.9%
- Period
- FY2026
- Revenue
- $303.2B
- Operating income
- $11.7B
- Operating margin
- 3.9%
- Net income
- $9.2B
- Free cash flow
- $9.4B
Does the profit turn into cash?
FY2026: free cash flow of $9.4B against net income of $9.2B.
- Operating cash flow$15.8B
- Capital expenditure$6.4B
- Free cash flow$9.4B
- Net income$9.2B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Consolidated Statements Of Income. The filing restates this breakdown for 3 periods.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Net sales | $297.2B | 98.1% |
| Membership fees | $5.9B | 1.9% |
Product categories
| Food and Sundries | $116.8B | 38.5% |
| Non-Foods | $77.4B | 25.5% |
| Warehouse ancillary and other businesses | $61.4B | 20.2% |
| Fresh Foods | $41.7B | 13.8% |
These items do not sum to total revenue; the filing states them beside it. Source10-K, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-K filed 2026-10-07
Segments
| United States | $219.8B | 72.5% |
| Other International | $42.8B | 14.1% |
| Canada | $40.6B | 13.4% |
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | FY2026 | Of revenue | Source |
|---|---|---|---|
| Merchandise costs | $264.3B | 87.2% | Source10-K, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-K filed 2026-10-07 |
| Operating income | $11.7B | 3.9% | Source10-K, us-gaap:OperatingIncomeLoss, as reported in the 10-K filed 2026-10-07 |
Operating income by segment
Where the operating profit is earned, as the filing reports it.
Segments
| United States | $7.6B | 65.4% |
| Canada | $2.1B | 18.0% |
| Other International | $1.9B | 16.5% |
Shares of operating income. Source10-K, us-gaap:OperatingIncomeLoss, as reported in the 10-K filed 2026-10-07
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Comparable sales were positively impacted by increases of 5% in average ticket and 3% in shopping frequency.
View source
Digitally-enabled comparable sales increased 21% during 2026, both as reported and excluding the impact of changes in foreign currencies.
View source
At the end of 2026, we employed 355,000 employees worldwide.
View source
The penetration of sales to Executive members represented approximately 75.2% of worldwide net sales in 2026.
View source
We operated 774 gas stations at the end of 2026.
View source
Our member renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide at the end of 2026.
View source
Our member renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide at the end of 2026.
View source
We opened 28 new warehouses, including three relocations, for a total of 25 net new warehouses
View source
Comparable sales were positively impacted by increases of 5% in average ticket and 3% in shopping frequency.
View source
Costco operated 939, 914, and 890 warehouses worldwide at August 30, 2026, August 31, 2025, and September 1, 2024.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement15 lines, as presented in the 10-K
Cash flow statement31 lines, as presented in the 10-K
Balance sheet28 lines, as presented in the 10-K
About this data
- Source
- Costco 10-K, accession 0000909832-26-000093, filed Oct 7, 2026, read on Nov 1, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-01
What holds Costco's model up, and what could bend it
Competitive edge
A fee base that renews at 92.3%
Renewal of 92.3% in the U.S. and Canada, with Executive members at 75.2% of net sales, keeps fee revenue recurring and loyal.
The detail
The renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide. Fees are recognized ratably over the one-year membership, so fee revenue follows the size of the member base rather than each month's shopping. The Executive tier returns a reward on qualified purchases, redeemable only at Costco, which ties the heaviest shoppers' spending to the warehouse.1
AnalysisAnalysis: a member who has paid the fee has a reason to concentrate spending at Costco to get value from it, and an Executive member has a second reason in the reward. That is why loyalty here shows up in fee revenue and merchandise sales at the same time.
A cost structure built to run on thin margins
With SG&A at 9.1% of net sales, Costco can price goods close to cost and still earn a 3.85% operating margin on revenue.
The detail
The filing describes the format: a limited selection of fast-selling items, volume purchasing, cross-docking depots that cut handling, no-frills self-service warehouses with stock on racks above pallets, and shorter operating hours. It says this lets the company "operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers," and that it believes shrinkage is well below typical retail.1
This year merchandise costs took 88.9% of net sales and SG&A took 9.1%. SG&A grew 8.9% against net sales growth of 10.1%. The filing notes that because the business operates on very low margins, "modest changes" in merchandise costs and SG&A "can have substantial impacts on net income."1
AnalysisAnalysis: the edge is the combination, not any one practice. Low prices drive volume, volume wins supplier terms and spreads fixed costs, and the fee lets the company keep prices low without depending on merchandise markup for its profit.
Kirkland Signature earns more inside a low-price promise
The private label sells below national-brand prices yet generally earns higher margins, the filing says, and its share of sales is growing.
The detail
The filing says Kirkland Signature products are high quality, offered at prices generally lower than national brands, and "generally earn higher margins." The company expects to keep increasing the sales penetration of private-label items, and names private label among the ways it adapts pricing and merchandise mix to cost pressure.1
AnalysisAnalysis: a private label lets the company hold prices below brands while keeping a larger share of each sale, which helps core categories offset the lower-margin growth in gasoline and pharmacy. The filing does not say how much of this year's improvement in core-category margins came from private label.
What to watch
Most profit rests on the U.S. and Canada
The U.S. segment alone earns 65.4% of operating income, and the filing flags California, its higher-volume market, as a particular dependence.
The detail
The filing says the company is highly dependent on its U.S. and Canadian operations and, within the U.S., on California, where it has a larger share of higher-volume warehouses. The U.S. segment earned $7.6B of the $11.7B operating income, 65.4%, and Canada $2.1B, 18.0%.1
It lists what could weaken those operations: slower comparable sales, rising labor, healthcare and energy costs, missed opening targets, new warehouses drawing sales from existing ones, a shift toward lower-margin products and weaker local economies.1
AnalysisAnalysis: international expansion spreads this exposure over time, but Other International was 14.1% of revenue and 16.5% of operating income this year, so the two core markets still set the result.
Newer members renew less, and fees carry half the profit
Worldwide renewal of 89.8% trails 92.3% in the U.S. and Canada; the filing says online and some international sign-ups renew slightly less.
The detail
The filing says growth in members, Executive penetration and high renewal rates "materially influences our profitability," and that its worldwide renewal rate is held back by membership growth in certain international markets and a higher share of memberships sold online, including digital promotions, which renew at a slightly lower rate on average.1
It also says damage to the brand, the culture or member trust could reduce comparable sales, renewals and membership fee revenue together, and that AI shopping tools could "fail to capture the full value of our membership offering" by putting immediate price comparison ahead of member loyalty.1
AnalysisAnalysis: with fees equal to 50.6% of operating income, a drift in renewals would reach profit faster than the same change in merchandise sales. The gap between the U.S. and Canada rate and the worldwide rate is where such a drift would show first.
Thin margins leave little room for cost shocks
Net income is 3.0% of revenue, and the filing warns that modest changes in merchandise costs or SG&A can move it substantially.
The detail
The filing names tariffs, inflation and volatile commodity prices, gasoline included, as pressures that can raise merchandise costs, and says the company may not be able to raise prices enough to offset them without hurting demand. It adds that some significant costs, particularly health care and utilities, are partly outside its control, and that it does not seek to minimize wages and benefits.1
The pressure is visible this year: merchandise costs grew 10.2%, slightly faster than net sales at 10.1%. The company began receiving refunds of tariffs the Supreme Court ruled unlawful, booked them as lower merchandise costs, and invested part of them in lower prices for members.1
AnalysisAnalysis: the company's stated choice is to protect its "pricing authority" by absorbing some cost increases rather than passing them all on. That supports member loyalty, but it means cost shocks tend to show in margins before they show in prices.
Sources
- 1.Costco 10-K for the period to 2026-08-30 (the filing), Oct 7, 2026, read Nov 1, 2026
Costco, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Costco's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the profit engine depends on from here
Which member numbers move operating income most, how the renewal gap between regions could develop, and how fuel prices distort the ratios worth watching.
- Where growth earns the most: the U.S., Canada or abroad
How segment margins differ, what new warehouses cost before they mature, and why the mix of where sales grow shapes the company margin.
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Have a question about Costco?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How would a lower renewal rate change Costco's operating income, given membership fees equal 50.6% of it?
- Why does Costco's Canada segment earn a 5.2% operating margin when the U.S. segment earns 3.5%?
- How much of Costco's lower SG&A ratio came from higher gasoline prices rather than the warehouses themselves?
Business Lens describes Costco from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.