How COST (Costco Wholesale) Makes Money in 2025: A Deep-Dive With Income Statement

Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io

Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.

Understanding how a retail warehouse club giant like Costco Wholesale (COST) makes money is essential for investors and anyone interested in the business of retail. In this post, we break down Costco's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick Costco Overview

Costco Wholesale operates a global chain of membership-based warehouse clubs, offering a wide selection of merchandise at low prices. Revenue comes primarily from product sales in its warehouse clubs and a smaller but highly profitable stream from annual membership fees. The company’s business model relies on high sales volume, rapid inventory turnover, and membership loyalty, with operations spanning North America, Asia, and Europe.

Revenue Breakdown

• Total Revenue (Q3 2025): $86.2B (+8.1% YoY)
  • Warehouse Club Revenue: $84.4B (98.0% of total)
  • Membership Fee Revenue: $1.72B (2.0% of total)
  • Growth is powered by strong comparable sales, new warehouse openings, and robust membership renewal rates.

Gross Profit and Margins

• Gross Profit: $11.1B (12.9% gross margin)
  • Cost of Revenue: $75.0B (+7.8% YoY)
  • Costco maintains moderate margins due to its high-volume, low-markup business model, offset by efficient supply chain management and scale advantages.
• Most costs come from merchandise procurement, logistics, and warehouse operations.

Operating Income and Expenses

• Operating Income: $3.34B (+9.8% YoY, 3.9% margin)
• Operating Expenses: $7.78B (+10.1% YoY)
  • R&D: N/A (Costco does not report significant R&D expenses)
  • SG&A: $7.78B (+10.1% YoY, 9.0% of revenue) — Includes payroll, warehouse operating costs, marketing, and administrative expenses.
  • Costco continues to control costs while expanding operations and investing in technology and supply chain improvements.

Net Income

• Pre-Tax Income: $3.51B (+12.8% YoY, 4.1% margin)
• Income Tax: $900M (25.6% effective tax rate)
• Net Income: $2.61B (+10.9% YoY, 3.0% net margin)
• Costco converts a moderate portion of sales into profit due to its scale, efficient operations, and recurring membership revenue.

What Drives Costco's Money Machine?

• Warehouse Club Sales: 98%+ of revenue comes from merchandise sales in warehouse clubs, driven by high member traffic and strong value proposition.
• Membership Fees: $1.72B in Q3 2025, with renewal rates consistently above 90%, providing a stable, high-margin income stream.
• Investment in Supply Chain & Technology: Ongoing investments in logistics, automation, and digital capabilities to support growth and efficiency.
• Future Growth Areas: Expansion into new international markets and e-commerce, though these segments are not yet as profitable as core warehouse operations.

Most investors waste time on the wrong metrics. We've spent 10,000+ hours perfecting our value investing engine to find what actually matters.

Want to see what we'll uncover next - before everyone else does?

Find Hidden Gems First!

Visualizing Costco's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant costs, 3.0% of revenue drops to the bottom line.

Key Takeaways

• Costco's money comes overwhelmingly from warehouse club merchandise sales, with membership fees providing a crucial profit buffer.
• High gross and net margins illustrate the power of Costco's high-volume, low-markup business model and operational efficiency.
• Heavy investment in supply chain and technology, balanced by tight control of operating costs.
• Ongoing growth is driven by new warehouse openings, international expansion, and strong membership retention.

Explore More Investment Opportunities

For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:

📌 50 Undervalued Stocks (Best) overall value plays for 2025
📌 50 Undervalued Dividend Stocks (For income-focused investors)
📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)

🔍 Check out these stocks on the Value Sense platform for free!

FAQ About Costco's Income Statement

1. What is the main source of Costco's revenue in 2025?

Costco generates over 98% of its revenue from warehouse club merchandise sales. Membership fees contribute an additional 2%, providing a stable and high-margin income stream.

2. How profitable is Costco in Q3 2025?

Costco reported net income of $2.61B in Q3 2025, with a net margin of approximately 3.0%, reflecting moderate profitability driven by high sales volume and efficient operations.

3. What are the largest expense categories for Costco?

The biggest expenses on Costco's income statement are cost of revenue (merchandise procurement and logistics) and operating expenses, particularly Sales, General & Administrative (SG&A) costs. SG&A reached $7.78B in Q3 2025, as Costco prioritizes efficient warehouse operations and member services.

4. Why does international e-commerce operate at a loss?

International e-commerce, despite generating hundreds of millions in revenue, posted an operating loss in Q3 2025. This is because Costco aggressively invests in digital infrastructure and market expansion, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does Costco's effective tax rate compare to previous years?

Costco's effective tax rate in Q3 2025 was 25.6%, consistent with previous years. This moderate rate is primarily due to the company's U.S.-centric earnings and limited international tax benefits.