Costco (COST): Can Its Membership Model Travel Further Overseas?

Costco Wholesale Corporation (NASDAQ:COST), featured among the 10 Best Stocks to Buy According to Billionaire Richard Chilton, operates 292 of its 939 warehouses outside the United States and Puerto Rico. Bulk discounts appeal to cost-conscious households. Overseas expansion creates value when those shoppers become regular customers who cover local operating costs and investment.

Costco Wholesale Corporation has an indicative forward P/E of 38x, against 46x trailing GAAP earnings. Consensus adjusted EPS approaches $25 for fiscal 2028, compared with fiscal 2026 reported EPS of $20.76. Growing warehouse sales and membership income support higher expected earnings. The forecast uses adjusted earnings; the historical result included a $0.15 tariff-refund benefit, illustrating why temporary earnings gains deserve separate treatment. The available valuation looks demanding.

Walmart Inc. (NASDAQ:WMT) carries a forward P/E of 34x and BJ’s Wholesale Club Holdings, Inc. 20x. Consensus adjusted EPS growth is approximately 12% and 7% for their years ending January 2028, versus 10% for the company’s August 2028 year, each against the preceding year. That seven-month gap limits direct comparison. The smaller warehouse-club operator is the closer business comparison; advertising and marketplace income diversify the larger retailer’s earnings. Strong renewals and funding support some premium over the smaller club operator, but new warehouses must earn satisfactory returns.

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Building a Local Shopping Habit

Costco Wholesale Corporation concentrates purchases into fewer than 4,000 warehouse products, strengthening buying power and inventory turnover. Local assortment must deliver enough household savings to justify membership. Competition from convenient delivery raises the hurdle for attracting bulk-shopping trips.

Other International, excluding Canada, delivered comparable-sales growth of 6.5% in fiscal 2026 and 7.7% in September, excluding gasoline-price and currency changes. That supports the expansion thesis without relying on exchange-rate gains.

Costco Wholesale Corporation ended fiscal 2026 with renewal rates of 92.3% in the United States and Canada and 89.8% worldwide. Management says Asian warehouses often have more members per location but fewer visits and lower spending per member than U.S. locations. Increasing frequency would spread warehouse costs across more purchases.

For Costco Wholesale Corporation, loyalty has a cost. Executive rewards encourage spending but reduce merchandise revenue. Fiscal 2026 membership fees reached $5.9 billion, yet investors must assess how much recurring revenue is returned to customers alongside operating profit. With Q4 ending, the growth contribution from the 2024 U.S. and Canadian fee increase, member additions, upgrades, and retention become more important.

More Warehouses Must Produce Adequate Returns

Costco Wholesale Corporation increased Other International operating income approximately 17% to $1.93 billion in fiscal 2026. Established markets demonstrate the format’s potential, while new locations need time to build sales.

Across the global network, fiscal 2026 openings generated average annualized first-year sales of $187 million, versus $306 million for warehouses opened in 2017 or earlier. Younger locations need repeat shopping to spread labor and occupancy costs across a larger sales base.

Costco Wholesale Corporation plans four European openings, five in Canada and one in Mexico in fiscal 2027. Total capital spending is planned to rise from $6.4 billion to $7.5 billion. Returns depend partly on whether a denser local network improves utilization: fuller depots and shorter routes can lower distribution costs, while underused capacity delays profits.

Funding supports Costco Wholesale Corporation. Fiscal 2026 operating cash flow of $15.8 billion left $9.4 billion after capital expenditure, by calculation. Faster inventory turnover and better supplier terms also helped cash generation, allowing cash to grow faster than earnings. Cash and short-term investments of $21.3 billion exceeded $6.2 billion of borrowings, excluding leases, limiting the need for additional debt.

Conclusion

Costco Wholesale Corporation can extend its membership model overseas, but its forward valuation looks demanding on the available estimates. Strong retention and funding support expansion; roughly double-digit earnings growth needs rising spending per member and improving warehouse productivity. Weaker renewals or poor returns on higher investment would erode that support.

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This article is originally published at Insider Monkey.