Costco took in $5.3 billion in membership fees last fiscal year. That is not a rounding item on the income statement. It equals about two-thirds of the company's entire net income.
Most shoppers think Costco makes its money selling bulk paper towels and rotisserie chickens. It does not. The merchandise mostly covers its own costs. The profit that reaches shareholders comes from the cards at the door.
The Fees Are the Business
Costco reported $269.9 billion in net sales for the fiscal year that ended in August 2025, up 8.1%. On all that volume, net income was $8.1 billion, or $18.21 per share.
Membership fees brought in $5.3 billion of that total, a 10% jump from the year before. Those fees carry almost no cost. There is no inventory to buy, no shipping, no spoilage. Nearly every dollar drops to the bottom line.
Strip the fees out and Costco's actual retail operation earns a thin profit on an enormous amount of sales. The model works exactly as designed. The store is the hook. The card is the product.
The fee line also behaves like a subscription. It is recurring, predictable, and it grows a little every year as the member base expands. Investors pay up for revenue that shows up whether or not a shopper buys anything on a given trip.
Selling at Cost, On Purpose
Costco caps the markup on most items at around 14%, and its Kirkland house brand at roughly 20%. A normal supermarket marks the same goods up 25% or more. The $4.99 rotisserie chicken and the $1.50 hot dog combo have barely moved in price for years, even as costs climbed.
That is deliberate. Low prices pull shoppers through the door and keep them loyal. Costco would rather win the renewal than squeeze an extra dollar at the register.
The result is a gross margin near 12%, far below most retailers. Costco runs the leanest markup in big-box retail and makes it back on the annual fee.
More Than a Store
The warehouse is only part of the trip. Costco runs its own gas stations, pharmacies, optical shops, and travel service. Its fuel is often priced below nearby stations, another loss leader that pulls members into the parking lot.
None of these lines earns a fat margin either. They exist to raise the number of reasons a household visits. More visits mean a stickier member, and a stickier member renews. Everything in the building points back to that annual card.
The Number That Matters Most
Every retailer wants repeat customers. Costco has something stronger: a paid subscription that members renew at a 92.1% rate across the US and Canada.
That rate barely moved even after the company raised prices on the cards. Costco ended fiscal 2025 with 82.1 million paid household members, up nearly 5% in a single year.
The most valuable slice is Executive members, who pay $130 a year for 2% cash back on their purchases. They now number 38.7 million, almost half the base, and account for roughly 74% of worldwide sales. These are the households that treat Costco as their default grocery run.
Pricing Power Hiding in Plain Sight
In September 2024 Costco raised its annual fee for the first time in seven years. The basic card went from $60 to $65. The Executive card went from $120 to $130.
An increase like that flows almost entirely to profit, and the renewal rate held anyway. Members absorbed it without walking away. Few retailers hold that kind of pricing power over their own customers.
Because fees are billed once a year, the full benefit of the increase phases in slowly as older cards come up for renewal. The fee line should keep climbing through 2026 even before a single new member signs up.
What Investors Are Paying For
The catch is that the market already knows all of this. COST trades around $965, near 53 times trailing earnings. That is a premium usually reserved for fast-growing tech, not a warehouse retailer growing sales in the high single digits.
The dividend is small, yielding about half a percent, though the company has a long habit of paying large one-time special dividends, most recently $15 a share in early 2024.
Smaller rivals run the same playbook for a fraction of the price. BJ's Wholesale carries an $11 billion market value against Costco's $428 billion, and Walmart, a $900 billion retailer, charges annual fees through its Sam's Club arm. Neither matches Costco's renewal rate or its Executive-member loyalty.
The question for anyone buying today is not whether the model works. It clearly does. It is whether a membership machine growing sales at 8% a year is worth 53 times earnings. The fees will keep coming. What investors should pay for them is the part still open to argument.
