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Consistent growth for decades to come. Whether you are craving a $1.50 hot dog or wanting to save money on a diamond ring,welcome to the club. Costco’s unique business model is centered around no-frills, self-service warehouses, alimited selection of high-quality products at extreme value, and loyal members. This has stoodthe test of time and translated into consistent earnings power — mid-to-high single-digit top-line growth, high single- to low double-digit EBIT growth, and low double-digit EPS growth. What’s perhaps the most underappreciated factor is Costco’s potential international growthrunway. We estimate that Costco could operate 2,300+ stores (vs. just over 900 today) in 50markets globally (vs. 14 today). At the current rate of 25-30 new warehouses per year, thisimplies Costco has a significant growth runway of another ~50+ years. This potential international growth runway supports Costco’s membership fee income(MFI), which accounts for >50% of EBIT. As the US becomes more saturated, we expectinternational growth to support an MFI CAGR at ~7% over multiple decades. PORTFOLIO MANAGER'S SUMMARY Whether you are craving a $1.50 hot dog or wanting to save money on a diamond ring, welcometo the club. Costco’s business model has stood the test of time, making the company one of the mosthighly prized assets in retail. Its success formula rests on five key pillars: (1) no-frills, self-servicewarehouse facilities, (2) limited selection of high-quality products, (3) focus on value, with cappedgross margins (14-15%), (4) loyal fee-paying memberships, and (5) paying employees well. Thishas translated into consistent earnings power, with mid-to-high single-digit (M/HSD) top-linegrowth, HSD to low double-digit (LDD) EBIT growth, and LDD EPS growth over the past decade. What’s perhaps most underappreciated is Costco’s potential international growth runway. Itsbusiness model helps de-risk expansion. As each store serves as a warehouse, Costco doesn’trequire an extensive supply chain when entering a country. It can start slow, do proper duediligence, adapt to local preferences, build the right team, and then gradually expand its footprint.Leveraging our proprietary international expansion analysis, we estimate Costco could operate2,300+ stores (versus 914 FY25) in 50 markets (versus 14 today). At today’s rate of ~25-30 newwarehouses per year, this implies Costco has a significant growth runway of another ~50+ years. International growth should support Costco’s membership fee income (MFI) growth. The annuity-like MFI stream, worth >50% of EBIT, is key in Costco’s valuation premium. Although Costco hasdomestic growth opportunities, the US is saturated — we estimate that three in four US adultswith >$50k household income have at least one of three major club memberships. Opportunitiesabound abroad. We estimate that international clubs have 3.0x as many members per warehouse(~350k) versus the US and Canada at ~115k. This should help Costco sustain a ~7% MFI CAGR(FY25-FY30) if international clubs become >75% of store growth by FY30. If membership income growth slows to 5-6% before international growth picks up, we believeCostco has low-hanging growth opportunities in retail media that could make up for the shortfall.Despite being a latecomer, we see opportunities for Costco to grow its media revenue from afew hundred million dollars to over a billion dollars over the next five years, leveraging its scale,bargaining power with suppliers, and high-quality first-party data on members. Costco’s Kirkland Signature (KS) brand is core to its value proposition and reinforces members’loyalty. Our survey suggests that close to 90% of consumers have heard of the brand — despitemany not being Costco members — with ~30% of surveyed consumers purchasing it frequently.We estimate that KS has contributed ~2.4% to Costco’s net sales growth on average since 2003. How much to pay for a one-of-a-kind business in retail? It all comes down to the longevity ofCostco’s growth runway. Our 50-year DCF suggests another 20%+ upside. TABLE OF CONTENTS SIGNIFICANT RESEARCH CONCLUSIONS CONSISTENT GROWTH FOR DECADES TO COME17Supported by a unique model and an international growth runway GOING GLOBAL41Why has Costco been so successful at international expansion? HOW PENETRATED IS US CLUB MEMBERSHIP?And why Costco has room to run THE BATTLE FOR RETAIL MEDIA SUPREMACY69How is Costco positioned? COSTCO'S KIRKLAND83The "Signature" move FINANCIAL OVERVIEW SIGNIFICANT RESEARCH CONCLUSIONS WHAT MAKES COSTCO COSTCO? Costco’s unique business model has stood the test of time, making the company one of themost highly prized assets in retail. Its success formula relies on a few key pillars: (1) no-frills,self-service warehouse facilities, (2) a limited selection of high-quality products, (3) a focus ongreat value for customers by capping gross margin at 14-15%, (4) a loyal customer base andmembership fee model, with membership fees comprising