Costco's Membership Moat: Why It's the Long-Term Winner Over Macy's

Quick Take

Costco Wholesale (COST) is being highlighted as a superior long-term investment compared to Macy's, and the numbers back it up. With membership renewal rates hovering around 90% and a steady stream of new warehouse openings, Costco's growth engine remains well-oiled.

We see this as a reaffirmation of Costco's defensive quality in a choppy consumer environment. The stock's premium valuation is justified by its consistent comps and member loyalty.

The Catalyst: Costco vs. Macy's

A recent analysis pits Costco against Macy's, and the conclusion is clear: Costco's membership-based model wins for long-term investors. While Macy's stock has gained 15.2% this year through Aug. 10—beating the S&P 500's 13.3%—that's a short-term sprint, not a marathon.

Costco's moat is its membership ecosystem. With 82.9 million paid members (up from 82.1 million in February), the company keeps growing its base. And those members are sticky: renewal rates around 90% mean recurring revenue that Macy's can't match.

Our Data: What the Numbers Say

Our proprietary estimates model shows Costco's comps (same-store sales) rose 6.6% in the fiscal third quarter, excluding gasoline and FX. That's a solid print, especially with inflation-weary shoppers trading down to value.

Operating income jumped 11% year over year to $2.8 billion in Q3. That's margin expansion at scale—a sign that Costco's pricing power and operational efficiency are intact.

Membership growth is the key leading indicator. The 800,000 net new members added since February imply continued momentum. We track this as a forward signal for revenue and earnings.

Expansion: The Growth Engine

Costco historically opens at least 20 new warehouses per year. This fiscal year, they've already opened 16 in the first nine months, with 13 more projected by year-end—that's a total of 29 new locations, well above the historical pace.

Each new warehouse adds ~$100M+ in annual revenue potential. This expansion is a direct line to future comps and market share gains, especially in underpenetrated regions.

Valuation: Premium but Justified

Costco trades at a premium to the broader market—around 38x forward earnings, versus the S&P 500's ~21x. That's a big multiple, but it's backed by a track record of consistent growth and a fortress balance sheet.

Our valuation model suggests the stock is fairly valued if you assume mid-single-digit comps and continued membership fee increases. The risk is if growth stalls—but the data doesn't show that.

Technicals: Momentum Intact

Technically, COST is in a strong uptrend, trading above its 50-day and 200-day moving averages. The RSI sits around 62, showing bullish momentum without being overbought.

Support is at the $800 level, with resistance near $900. A breakout above that could signal further upside.

Bottom Line

Costco's membership model is a compounding machine—high renewal rates, steady member growth, and aggressive expansion. The comparison to Macy's underscores the structural advantage: Costco sells membership, not just merchandise.

We see COST as a core long-term holding. The premium valuation is a price you pay for quality, and the data supports it.