Costco (NASDAQ: COST) has long been a consistent winner on the stock market. The retailer has one of the most resilient business models in its industry, and the brand has long had a loyal customer base, made up of people who love the retailer’s quality goods at low prices, the treasure-hunt nature of the shopping experience, and bargain prices on products like rotisserie chickens.
As a business, Costco has found success with its membership model, as membership fees drive most of the company’s profit. It’s also been able to expand its store base at a time when many retailers are relying on e-commerce for growth, and Costco has also successfully incorporated e-commerce into its business model.
Shares of the warehouse retailer are expensive, trading at a price-to-earnings ratio of 52, but that shows that it’s earned a premium from investors.
But where will the stock be in three years? Let’s take a closer look at Costco’s plans for growth.
Despite weakening consumer sentiment and inflation, Costco is still delivering solid comparable-sales growth. In the fiscal second quarter, which ended in February, comparable sales excluding fuel prices and currency exchange rose 9.1%, showing strong demand for the company’s products. E-commerce sales were also up 22.2%, a sign of ample demand for shopping online at Costco.
The strong comparable-sales results should also support the company’s store growth. Costco finished the second quarter with 897 warehouses, and added 29 stores last year, growing its store base by roughly 3%.
Extrapolating that figure over the next three years, Costco would add about 93 warehouses, bringing its grand total to 990 and increasing its overall store base by 10%.
Assuming the company grows its comparable sales between 5% and 10% annually over the next three years, total comparable sales would grow between 16% and 33% during that period. Combining that with the impact of the store base increases, Costco’s net sales would increase between 26% and 43% over the next three years, meaning it would reach between $326.5 billion and $370.5 billion.
However, that’s not the only ingredient in Costco’s business model. Membership fees also make a modest but important contribution to revenue.
In fiscal 2024, the company brought in $4.8 billion in membership fees, and it recently raised its base membership fee to $65, which will flow through in the current fiscal year. Paid members have also grown by 7% annually over the last two years, meaning membership is on track to grow a total of 23% over the next three years if it maintains that rate.
