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Shares of Costco Wholesale Corporation COST have shown a remarkable run on the bourses, surging 28.7% over the past year. This impressive uptick in the stock price has left investors contemplating whether this momentum can continue or if the stock is due for a pause.
Consistent same-store sales growth, robust membership renewals and continued strength in high-frequency consumer categories are the reasons behind Costco’s rally. The company’s value-driven model and loyal customer base have made it a standout among big-box retailers, even in difficult economic terrain.
Closing at $916.48 yesterday, Costco has outpaced the industry, which has risen 9.7%, and the broader S&P 500 index, which has declined 2% in the said period.
Costco has even outperformed its peers, such as Dollar General Corporation DG, Target Corporation TGT and Dollar Tree, Inc. DLTR. Shares of Dollar General, Target and Dollar Tree have declined 40.9%, 43.6% and 47.3%, respectively, in the past year.
COST Stock Past-Year Performance
Image Source: Zacks Investment Research
With its market dominance and resilient business model, Costco has long been a favorite among investors seeking stable growth. But with the stock’s hefty gain, is it still a compelling buy, or has it become too expensive? Let's dive into the fundamental drivers that are keeping Costco’s stock in the spotlight.
Costco’s Strong Membership Base: A Key Driver
Costco’s resilient business model, centered around a membership-based structure, continues to be a major growth driver. The company’s high membership renewal rates, coupled with its efficient supply chain management and bulk purchasing power, ensure competitive pricing. The renewal rate remained extremely strong at 93% in the United States and Canada and 90.5% worldwide. This robust model has allowed Costco to thrive, even during economic downturns.
The warehouse operator ended the second quarter of fiscal 2025 with 78.4 million paid household members, up 6.8% from the prior year. Executive memberships, a more profitable category for Costco, grew by 9.1% year over year to reach 36.9 million, now accounting for 47.1% of all paid members and driving 73.8% of worldwide sales. Membership fee income rose 7.4% year over year. The recent membership fee increase contributed about 3% to membership fee income in the quarter, with most benefits expected to materialize in the final quarter of the current fiscal and the first quarter of the next fiscal year.
E-commerce continues to shine, with comp sales up 20.9%, or 22.2% adjusted for FX in the second quarter. This reflects Costco’s successful digital transformation strategy, as it improves online product assortment and fulfillment efficiencies. With more customers opting for omnichannel experiences, Costco’s online strength supports overall traffic and sales momentum.
Costco’s physical footprint continues to expand. With only one warehouse opened in the second quarter, the company is accelerating expansion through the remainder of fiscal 2025, aiming for 28 new openings, including 25 new warehouses and three relocations.
With cash and cash equivalents (including short-term investments of $802 million) of $13,158 million at the end of the second quarter, Costco looks quite comfortable from the liquidity point of view. Management allocated $1.14 billion to capital expenditures in the second quarter and has outlined a substantial $5 billion expenditure plan for fiscal 2025. These strategic investments underscore Costco's commitment to long-term growth.