Costco’s (COST) Membership Model Powers Ouperformance as Headwinds Persist

TipRanks

Fri, Jun 6, 2025, 12:36 PM 5 min read

Costco’s (COST) fiscal Q3 2025 results show the retail giant remains largely insulated from broader economic pressures, thanks to the loyalty of its massive member base. Revenue grew 8% year-over-year, outpacing competitors such as Target (TGT) and Walmart (WMT), despite challenges including inflation and tariffs.

• Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions

• Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter

The key driver? It has 76.2 million paid members worldwide, delivering a consistent and reliable income. While the stock trades at a premium and macro headwinds persist across the retail sector, Costco’s strong financial performance supports a continued bullish outlook.

Last week, Costco surpassed earnings expectations, reporting $4.28 per share versus the anticipated $4.24. Along with an 8% rise in sales, net income jumped 13.1% year-over-year to $1.9 billion. This impressive net income growth is driven mainly by membership fees, which accounted for nearly two-thirds of Costco’s net operating income. Importantly, this high-margin revenue stream allows Costco to operate with the profitability and stability often associated with software companies.

The appeal of Costco memberships is clear, especially in times of higher inflation. By buying in bulk, members can theoretically save money, making the membership a valuable proposition. Even after raising membership fees in September 2024—for example, the “Gold Star” membership increased from $60 to $65—renewal rates have stayed impressively above 90%.

This recent price hike was the first in seven years and came at a sensitive time for consumers grappling with inflation, making those high renewal rates all the more remarkable. It shows members still see strong value despite the higher fees. For Costco, even a modest fee increase translates into hundreds of millions of dollars in additional annual operating income.

Beyond the financials, memberships have a powerful psychological effect on shoppers. They encourage more frequent visits and foster customer loyalty, creating a flywheel effect where members pay for high-margin subscriptions while buying low-margin groceries in large volumes. Every business dreams of a recurring, predictable revenue stream—and for retailers like Costco, memberships are the perfect way to achieve it.

Costco’s resilience is nothing new. During the 2008–2009 financial crisis, while overall retail sales fell by 8%, warehouse clubs like Costco actually saw sales grow by 2%, with membership numbers holding steady. Fast forward to the COVID-19 pandemic, and Costco once again proved its strength, posting 16% revenue growth in fiscal 2021, largely driven by a surge in online sales.