Did memberships generate all Costco's operating profit in 2024?

The claim is that Costco's memberships generate all its operating profit, leaving merchandise sales to cover costs. Costco's fiscal 2024 Form 10-K, covering the year ended September 1, 2024, makes a narrower claim: its membership format reinforces loyalty and provides continuing fee revenue. Those are not equivalent statements.

The record shows $4.828 billion in membership revenue against $9.285 billion in operating income. Even treating every membership dollar as profit leaves $4.457 billion unexplained by the membership-only account.

What did Costco actually report?

Costco's consolidated statements of income separate net sales from membership fees. For fiscal 2024, net sales were $249.625 billion. Membership fees added $4.828 billion, bringing total revenue to $254.453 billion.

Against that revenue, Costco recorded $222.358 billion in merchandise costs and $22.810 billion in selling, general and administrative expenses. Subtracting both expense lines produced $9.285 billion in operating income. Costco's September 26, 2024, earnings announcement reports the same figures.

Membership fees therefore equaled approximately 52% of operating income. That comparison already gives the membership-only argument its most favorable treatment: it deducts no expense from membership revenue.

The distinction is basic but decisive. As the SEC's guide to financial statements explains, revenue sits above the expenses deducted to calculate profit. An annual fee attached to a membership card enters Costco's accounts as revenue. Calling that amount profit does not make its associated costs disappear.

What remains without membership fees?

Start with fiscal 2024 net sales of $249.625 billion. Subtract $222.358 billion in merchandise costs. That leaves $27.267 billion before selling, general and administrative expenses.

Now subtract the entire $22.810 billion of those expenses, not merely an estimate of the portion attributable to selling merchandise. The remainder is $4.457 billion.

This is a reconstruction of the reported income statement, not a forecast of Costco operating without memberships. It shows that recorded net sales exceeded both reported operating expense lines combined. Membership revenue then supplied the difference between that remainder and the reported $9.285 billion in operating income.

The preceding year's figures tell the same story. Costco's fiscal 2023 earnings announcement reported $4.580 billion in membership fees and $8.114 billion in operating income. Fees equaled approximately 56.4% of operating income that year, also well short of all of it.

The membership-only claim fails in both reported years. Fiscal 2024 does not require a disputed cost allocation to establish that failure.

Which membership costs are missing?

Missing from a separate membership calculation does not mean missing from Costco's accounts.

The fiscal 2024 filing describes selling, general and administrative expenses as including salaries, benefits, payment-processing fees, warehouse operating expenses, depreciation, stock-based compensation, and other corporate expenses. It does not divide that total between membership operations and merchandise operations.

There is no separate membership income statement showing the expense of enrolling members, handling renewals, producing membership cards, or administering accounts. Nor does Costco assign membership operations a disclosed share of payroll, technology, facilities, and corporate overhead.

Costco's membership conditions describe an administered service, including membership eligibility, cards, household access, renewals, and cancellation rights. Those conditions establish what Costco undertakes to provide. They do not price the work for an outside reader.

Consequently, the $4.457 billion remainder is not a disclosed merchandise-segment profit, and $4.828 billion is not a disclosed membership profit. The accounts establish the consolidated result without supplying the allocation needed to calculate either business on a standalone basis.

Do membership benefits stay in membership revenue?

Not entirely. Executive rewards make the boundary particularly important.

Costco's Executive membership program offers a 2% reward on qualifying purchases, subject to its terms. In Note 1 of the fiscal 2024 financial statements, Costco explains that Executive rewards are accounted for as a reduction in sales.

That places a membership-related benefit in the calculation of net sales, rather than presenting it as an expense deducted from the membership-fee line. A reader who labels all membership fees profit is not reading a self-contained account of the membership program.

Costco also recognizes membership fees net of refunds over the membership period. Its published membership conditions promise cancellation and a refund when a member is dissatisfied. The filing's fee figure is therefore not simply every dollar collected at a membership counter during the fiscal year.

The accounting follows different parts of the transaction into different lines. Fees appear as membership revenue. Executive rewards reduce sales. Shared operating expenses remain within the consolidated expense totals.

Did the fee increase change the answer?

Costco announced its membership-fee increase on July 10, 2024. Effective September 1, 2024, the annual U.S. and Canadian Gold Star and Business fee increased from $60 to $65. Executive membership increased from $120 to $130.

September 1 was also the final day of Costco's fiscal 2024 reporting period. The increase cannot explain a year's membership revenue as though the higher prices applied throughout that year.

More importantly, Costco's accounting policy recognizes membership revenue ratably over a membership's one-year term. Cash received for future membership service is deferred rather than immediately recognized in full as revenue.

Costco's membership enrollment page distinguishes the basic membership from the Executive tier. Those published prices describe what a membership costs. They do not establish the margin Costco earns from providing it. A higher renewal payment and a higher recognized operating profit are separate accounting events.

Why does the distinction matter?

Costco describes its business as providing members with low prices on a limited selection of merchandise. Its company overview likewise puts membership access and merchandise value within the same retail proposition.

That supports an argument about an integrated business model. Memberships can matter to the economics of merchandise sales without membership fees being the sole source of reported operating income.

The SEC's income-statement rule, Regulation S-X 5-03, distinguishes revenue, related costs, and selling, general and administrative expenses. A statement organized that way does not automatically provide a profit calculation for every revenue stream.

Costco's filing supplies enough detail to test the numerical slogan. It does not supply evidence that removing the membership requirement would leave customer purchases, pricing, or expenses unchanged. The company reports the results of a membership retailer, not a controlled comparison with a membership-free version.

Does the claim survive?

No. Costco's fiscal 2024 filing does not support the claim that memberships generated all operating profit. Membership fees equaled approximately 52% of operating income before assigning any expenses to memberships. Net sales exceeded all reported operating expenses by $4.457 billion. Memberships are part of Costco's business model, but membership revenue is neither a disclosed membership profit figure nor the whole of the company's operating profit.