What Does A Company Like Costco Do With All That Cash?

A few weeks ago, Angela and I had the privilege of attending a Rotary luncheon here in Georgia where the featured speaker was Richard Galanti, the longtime CFO of Costco (COST) who retired in 2024 after 38 years with the company.

If you follow financial media at all, you may have caught Jim Cramer’s tribute when Galanti stepped down: “There may never be another CFO like Galanti.”

High praise from a guy who has seen a lot of CFOs come and go. Sitting across from him over lunch, I could see why.

As an investor, I’ve always had a particular fascination with Costco. The stock has been one of the great long-term compounders of our era… a company that seems to almost defy gravity. So when Galanti opened the floor for questions, I raised my hand and asked something I’ve wondered about for years:

“How does a company like Costco think about making the best use of its profits for shareholders? Raise the regular dividend? Issue a special dividend? Buy back stock? What did those conversations look like behind closed doors?”

His answer was more interesting than I expected.

It’s Not Really About the Money

Galanti walked through Costco’s capital allocation priorities in order: first, grow the number of warehouse locations. Second, pay a regular dividend — and grow it consistently over time. Third, buy back stock. And fourth, issue a special dividend in years when cyclical earnings ran unusually high.

Clean. Disciplined. Exactly what you’d hope to hear.

But the spirit behind the answer was what stayed with me.

Galanti’s view (and the view that Jim Sinegal and the founding leadership instilled into the culture) was that if you take care of your customers and your employees, the shareholders will ultimately take care of themselves.

Not as a platitude. As an operating philosophy baked into every decision.

Galanti mentioned that roughly 90% of Costco’s workforce is hourly. And he said, with genuine conviction: “Our employees need more now from us than ever.”

That’s the kind of statement that can sound like a PR line. Coming from Galanti, it sounded like a business principle.

The Recession Test

Here’s where the capital allocation question gets really interesting.

During the 2008-2009 financial crisis — when most companies were slashing costs, freezing wages, and protecting margins at all costs — Costco was in a different position.

Because they had consistently prioritized building a large cash reserve, they had the financial strength to continue taking care of their employees through the downturn.

That, Galanti said, is the real argument for maintaining a strong balance sheet. Not to hoard cash for its own sake. But to have the flexibility to live your values when the economy makes it hard.

It’s a lesson I think about often in my own investing. Companies (and investors) that operate from a position of financial strength get to make choices. Companies (and investors) that operate on thin margins get forced into them.

The Munger Connection

One moment from lunch that I didn’t expect: Galanti mentioned that Charlie Munger once approached the Costco board with an offer to acquire the company. Munger was famously a Costco bull, but his offer was apparently too low to make a deal.

What DID come out of the relationship, though, was a 20+ year tenure for Munger as a Costco board member.

Think about that. Charlie Munger — one of the greatest investors of the 20th century — wanted a front-row seat to watch Costco operate for two decades. That tells you something.

What Leadership Actually Looks Like

Beyond the capital allocation discussion, Galanti shared his broader philosophy on running a business. A few things stood out:

Own your mistakes and deal with them head-on.

Operate like “the biggest small company in the world” — 350,000 employees, but with the agility and care of a family business.

Lead by example.

Negotiate with suppliers in a way he described as tough but fair. (I liked that phrase a lot.)

And above all, be “jerk free” — open door policy, no arrogance, no complacency, no managing by intimidation.

He called his noble priority simply this: honor your customers and your employees.

He was quick to add, with a smile, that you can only be so noble when business is going well. And Costco had the good fortune of a great model run by great people.

That last line was classic Galanti. Self-aware. Humble. Not taking too much credit.

A Refreshing Perspective

I walked out of that lunch thinking about how different this worldview is from the version of business that dominates the headlines today… The short-term earnings beats, the AI pivots, the stock buybacks timed to executive option grants.

Costco built one of the most valuable companies on the planet by keeping things almost stubbornly simple: take care of the people who work for you, deliver relentless value to your customers, maintain financial discipline, and let the shareholders benefit from what’s left over.

It’s not a complicated formula.

It’s just hard to execute with consistency over 40 years.

After spending an afternoon with Richard Galanti, I have a better sense of why Costco pulled it off.