The most profitable thing Costco sells is not in any of its warehouses. You cannot put it in a trolley, and nobody queues for it on a Saturday morning. It is the small plastic card you show at the door.
The results
On Thursday 24 September, Costco reported its figures for the final quarter of its financial year, a sixteen-week stretch that ended on 30 August. Net sales rose 11.2 per cent to $93.9 billion. Profit came in at just under $3 billion, and earnings per share of $6.75 beat the $6.52 analysts had expected, according to Benzinga’s coverage of the results. Sales through its apps and website grew 19.5 per cent.
For the full year, sales reached $297.2 billion. The company now runs 939 warehouses worldwide, including 29 here in the UK.
The line that matters
Now look at this. In the same quarter, Costco collected $1.85 billion in membership fees. Set that beside a profit of roughly $3 billion, and you can see the shape of the business. Across the whole year, membership fees came to $5.9 billion, against a profit of $9.2 billion. The figures are all in Costco’s own results statement.
Costco keeps the mark-up on its shelves deliberately thin. The shopping, the tyres and the giant jars of olives bring people through the door and keep them loyal. The fee is where much of the dependable money comes from. It is paid upfront, it renews every year, and it arrives whether you buy one rotisserie chicken or twenty.
The psychology in the trolley
This is clever, and it is worth understanding from the shopper’s side too. Once you have paid for the card, every visit feels like getting value from money already spent. That feeling is powerful. It is why a trip for washing-up liquid can end with a paddling pool, a bumper pack of batteries and enough coffee to see out the decade.
Buying in bulk saves money only if you were going to use it all anyway. A bargain that goes off in the cupboard is not a bargain. It is a donation to the bin, with extra packaging.
What the market made of it
Here is the twist for investors. A good set of results moved the share price barely at all in after-hours trading, up about 0.2 per cent. Over the past year the stock has fallen by roughly 5 per cent while its peers rose by around a third. Great businesses and great share prices are not the same thing. When a company is loved, a lot of the good news is already in the price.
How I read it
I find myself admiring the model more than I want to chase the shares. A business that gets paid before you buy anything has built something rare: predictable income from loyal people. I like that shape in my own finances too: money that arrives on schedule, whatever the mood of the week.
As a shopper, I apply one rule to any membership, from warehouses to streaming. I add up what I actually used in the last year, not what I meant to use. With prices still rising faster than many of us would like, as I explored in Why Life Still Costs More When Inflation Falls, the difference between those two numbers is where a surprising amount of money quietly leaks away.
The takeaway
Costco sells almost everything, but what it really sells is a habit. The results show how well that works for the company. For the rest of us, the trick is making sure the habit works just as well for the person holding the card.
The Jacqueline Brand — knowledge builds confidence, and confidence builds wealth. This is editorial commentary for information and education only. It is not financial, investment or professional advice, and nothing here is a recommendation to buy or sell any investment. The Jacqueline Brand is not authorised or regulated by the Financial Conduct Authority. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Figures were correct at the time of publication. Always do your own research and consider speaking to a regulated adviser. Where cryptoassets are discussed, they are high risk and largely unregulated in the UK, and you could lose all the money you invest. The Collection
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