Costco Wholesale Corporation (COST): history, ownership, mission, how it works & makes money

A Brief History of Costco Wholesale Corporation

Founding and Early Years

Costco Wholesale Corporation, founded in 1983, began as a membership-only warehouse club in San Diego, California. The first Costco location opened its doors on July 12, 1983. By 1993, Costco had grown to 206 locations across the United States and was publicly traded on the NASDAQ under the ticker symbol COST.

Expansion and Growth

Throughout the 1990s and early 2000s, Costco expanded aggressively, both domestically and internationally. In 1993, Costco merged with Price Club, significantly increasing its market reach. By the end of fiscal year 2024, Costco operated 1,091 warehouses worldwide, including 586 in the U.S., 105 in Canada, and 400 in other international locations.

Financial Performance

Costco's financial performance has consistently demonstrated strong growth. For the fiscal year ending September 1, 2024, Costco reported:

• Net Sales: $249.625 billion, up 5% from $237.710 billion in 2023.
• Net Income: $7.367 billion, a 17% increase from $6.292 billion in 2023.
• Earnings per Share (EPS): $16.56 per diluted share, compared to $14.16 in 2023.

Membership Fees

Membership fees are a critical component of Costco's revenue model. In 2024, membership fee revenue reached $4.828 billion, reflecting a 5% increase from $4.580 billion in 2023. The renewal rates for memberships stood at 92.9% in the U.S. and Canada, and 90.5% globally.

Dividend Policy

Costco has a robust dividend policy, declaring a total of $8.589 billion in cash dividends in 2024, equating to $19.36 per share. This included a special cash dividend of $15 per share paid in January 2024. The quarterly dividend was increased from $1.02 to $1.16 per share in April 2024.

Stock Repurchase Program

As of September 1, 2024, Costco had repurchased a total of 1,004,000 shares at an average price of $695.29 per share, for a total cost of approximately $698 million. The remaining authorization under the stock repurchase program was $2.865 billion.

Recent Developments

In 2024, Costco opened 30 new warehouses, including one relocation, with plans to open up to 29 additional locations in 2025. The company has also focused on enhancing its e-commerce capabilities, which saw a 16% increase in sales during 2024.

Market Position

Costco remains a leader in the wholesale retail sector, leveraging its membership model to drive sales and customer loyalty. The company's effective tax rate for 2024 was 24.4%, benefiting from discrete tax benefits related to stock compensation and other adjustments.

A Who Owns Costco Wholesale Corporation (COST)

Overview of Ownership Structure

Costco Wholesale Corporation (COST) is publicly traded on the NASDAQ. As of October 1, 2024, there were approximately 10,471 stockholders of record.

Major Shareholders

Costco's ownership is distributed among institutional investors, mutual funds, and individual shareholders. The largest shareholders include:

• The Vanguard Group, Inc.: 8.3% ownership
• BlackRock, Inc.: 7.1% ownership
• State Street Corporation: 4.2% ownership
• Wellington Management Group LLP: 3.3% ownership
• FMR LLC (Fidelity Investments): 2.8% ownership

Insider Ownership

As of 2024, insiders hold approximately 0.5% of the total shares. Notable insiders include:

• Craig Jelinek (CEO)
• Richard Galanti (CFO)

Stock Performance and Dividends

Costco's stock has shown robust performance. The company declared a special cash dividend of $15 per share in January 2024 and increased its quarterly dividend from $1.02 to $1.16 per share in April 2024.

Share Repurchase Program

Costco has an active share repurchase program authorized for $4,000 million, expiring in January 2027. As of the end of 2024, approximately $2,865 million remained available for repurchases.

Table of Major Shareholders

Recent Financial Highlights

Costco reported net sales of $249,625 million for the fiscal year ending September 1, 2024, an increase of 5% from the previous year. The net income for the same period was $7,367 million, representing a 17% increase compared to $6,292 million in 2023.

Membership Revenue

Membership fees increased to $4,828 million in 2024, up 5% from $4,580 million in 2023. The member renewal rate was 92.9% in the U.S. and Canada, and 90.5% worldwide.

Future Prospects

Costco plans to open up to 29 new warehouses, including relocations, in 2025. The company is focused on expanding its warehouse operations and enhancing e-commerce capabilities.

Costco Wholesale Corporation (COST) Mission Statement

Mission Statement Overview

The mission statement of Costco Wholesale Corporation emphasizes its commitment to providing members with quality goods and services at the lowest possible prices. The company aims to offer a wide selection of merchandise while maintaining a focus on customer satisfaction and employee welfare.

Core Principles

• Member Satisfaction: Costco prioritizes member satisfaction by ensuring high-quality products and exceptional service.
• Low Prices: The company strives to keep prices low for its members through efficient operations and bulk purchasing.
• Employee Welfare: Costco is dedicated to taking care of its employees, believing that happy employees lead to happy members.

Financial Performance Indicators

As of 2024, Costco has demonstrated robust financial performance, which aligns with its mission of providing value to members. Key financial metrics include:

Membership and Growth

Costco's membership model is central to its business strategy. As of 2024, the company had:

Renewal Rates

Costco's member renewal rates are indicative of its success in maintaining customer loyalty:

Strategic Initiatives

Costco continues to pursue various strategic initiatives to enhance its mission, including:

• Expansion of Warehouses: Opened 30 new warehouses in 2024, with plans for up to 29 additional in 2025.
• Investment in Technology: Enhancing e-commerce capabilities to provide greater convenience for members.
• Employee Development Programs: Ongoing training and career development to ensure employee retention and satisfaction.

Conclusion

Costco Wholesale Corporation remains committed to its mission of providing value to members while ensuring employee welfare and satisfaction. The company's strong financial performance and loyal membership base underscore its effective execution of this mission.

How Costco Wholesale Corporation (COST) Works

Business Model

Costco operates on a membership-based warehouse retail model, offering a wide range of products at low prices. The company generates revenue from both merchandise sales and membership fees.

Financial Performance

For the fiscal year ending September 1, 2024, Costco reported:

• Net Sales: $249,625 million
• Net Income: $7,367 million
• Earnings per Share (EPS): $16.56 (diluted)
• Gross Margin: $27,267 million
• Gross Margin Percentage: 10.92%

Membership Model

Costco's membership model is essential for its revenue. As of September 1, 2024:

• Total Paid Members: 76,200,000
• Household Cards: 60,600,000
• Renewal Rate: 92.9% in the U.S. and Canada, 90.5% worldwide

Operational Highlights

In 2024, Costco opened 30 new warehouses, contributing to its growth strategy:

• 23 new warehouses in the U.S.
• 1 new warehouse in Canada
• 5 new warehouses in other international markets

Cash Flow Analysis

Costco's cash flow from operations for 2024 was as follows:

• Net Cash Provided by Operating Activities: $11,339 million
• Net Cash Used in Investing Activities: $4,409 million
• Net Cash Used in Financing Activities: $10,764 million

Cost Management

Costco maintains low operating margins through effective cost management:

• SG&A Expenses: $22,810 million (9.14% of net sales)
• Interest Expense: $169 million
• Effective Tax Rate: 24.4%

Employee Statistics

As of 2024, Costco employed 333,000 individuals globally:

• United States: 219,000
• Canada: 53,000
• Other International: 61,000

Future Outlook

Costco plans to continue expanding its warehouse footprint, with up to 29 additional new warehouses anticipated in 2025.

How Costco Wholesale Corporation (COST) Makes Money

Revenue Streams

Costco Wholesale Corporation generates revenue primarily through two channels: merchandise sales and membership fees.

Merchandise Sales

In fiscal year 2024, Costco reported net sales of $249.625 billion, an increase of 5% from $237.710 billion in 2023. This growth was driven by a combination of new warehouse openings and increases in comparable sales.

Membership Fees

Costco's membership fee revenue for 2024 was $4.828 billion, reflecting a 5% increase from $4.580 billion in 2023. This increase was attributed to new member sign-ups and upgrades to Executive memberships.

Membership Structure

Costco's membership model includes Gold Star and Executive memberships. The annual fee for these memberships was increased effective September 1, 2024, to $65 for Gold Star and Business memberships, while Executive memberships rose from $120 to $130.

Gross Margin

Costco's gross margin for 2024 was $27.267 billion, with a gross margin percentage of 10.92%, up from 10.57% in 2023.

Operating Expenses

Costco's selling, general, and administrative (SG&A) expenses totaled $22.810 billion in 2024, reflecting an increase from $21.590 billion in 2023. SG&A as a percentage of net sales was 9.14%.

Net Income

Costco's net income for 2024 was $7.367 billion, which represents a 17% increase from $6.292 billion in 2023. The diluted earnings per share for 2024 was $16.56, compared to $14.16 in 2023.

Cash Flow

Costco's net cash provided by operating activities in 2024 was $11.339 billion, compared to $11.068 billion in 2023.

Future Growth Strategies

Costco plans to continue expanding its warehouse footprint, with 30 new warehouses opened in 2024 and plans for up to 29 additional warehouses in 2025.

Conclusion

Costco's business model focuses on low prices, high sales volumes, and membership loyalty, which collectively drive its financial performance.