# Costco Wholesale Corporation (COST) — Narrative, FY2026 Q3 Sources: Annual Report on Form 10-K for the fiscal year ended August 31, 2025 (accession 0000909832-25-000101, filed October 8, 2025); Quarterly Report on Form 10-Q for the 12 weeks ended May 10, 2026 (accession 0000909832-26-000051, filed June 3, 2026); and Current Reports on Form 8-K filed during fiscal 2026, including accession 0000909832-26-000060 (filed July 8, 2026). All dollar figures in millions unless noted. --- ## Business *From the FY2025 10-K, accession 0000909832-25-000101.* Costco began operations in 1983 in Seattle, Washington and operates membership warehouses in the U.S. and Puerto Rico, Canada, Mexico, Japan, the U.K., Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland and New Zealand. It operated **914 warehouses** at August 31, 2025 (890 at September 1, 2024; 861 at September 3, 2023). E-commerce sites run in the U.S., Canada, Mexico, the U.K., Korea, Taiwan, Japan and Australia. Fiscal year is 52/53 weeks ending the Sunday nearest August 31; the winter holiday season is the material seasonal event. **The model.** Offer low prices on a *limited* selection of nationally-branded and private-label products across a wide range of categories, producing high sales volumes and rapid inventory turnover. Combined with volume purchasing, cross-dock distribution through depots, and no-frills self-service warehouses, this lets Costco operate profitably at gross margins far below most retailers. Costco often sells inventory before it is required to pay for it, while still taking early-payment discounts — negative working capital is structural to the business. Specific operating levers management calls out: - **SKU discipline** — fewer than **4,000 active SKUs** per warehouse in the core business, far below other broadline retailers; 9,000–10,000 SKUs online. - **Format** — average warehouse ~**147,000 sq ft**; merchandise stored on racks above the sales floor and displayed on pallets, reducing labor. Shorter operating hours than most retailers. Controlled entrances/exits plus the membership format keep shrinkage well below typical retail. - **Distribution** — merchandise bought mostly direct from suppliers and routed through cross-docking depots or shipped directly to warehouses. No significant concentration in any one supplier. - **Returns** — generally accepts returns; 90-day policy on certain electronics with free technical support and an extended warranty. **Merchandise categories.** - *Core merchandise:* Foods and Sundries (sundries, dry grocery, candy, cooler, freezer, liquor, tobacco); Non-Foods (major appliances, small electronics, health and beauty, hardware, lawn and garden, sporting goods, tires, toys and seasonal, automotive, stamps, tickets, apparel, furniture, domestics, housewares, special order kiosk, jewelry); Fresh Foods (meat, produce, deli, bakery). - *Warehouse ancillary:* gasoline, pharmacy, optical, food court, hearing aids, tire installation. - *Other businesses:* e-commerce, business centers, travel, and other. FY2025 net sales by category: Foods and Sundries $109,564; Non-Foods $71,190; Fresh Foods $37,988; Warehouse Ancillary and Other Businesses $51,170; total **$269,912**. **Ancillary economics.** Costco operated **747 gas stations** at the end of 2025, and gasoline was approximately **10% of total net sales**. Gasoline carries a lower gross margin percentage and lower SG&A relative to the rest of the business, so a higher gasoline mix mechanically lowers reported gross margin percentage while lowering SG&A as a percentage of sales — the reason management reports results both with and without gasoline price effects. E-commerce was approximately **7% of net sales**; digitally-enabled sales (initiated on a digital device, however fulfilled, plus Costco Travel) were approximately **10%**. Business centers carry items tailored to food service, convenience stores and offices and are included in the total warehouse count. Costco Travel sells vacation packages, car rentals and cruises exclusively to members (U.S., Canada, Australia, U.K.). **Kirkland Signature.** The private-label brand is central to the strategy: management describes Kirkland Signature products as high quality at prices generally lower than national brands, which lowers costs, differentiates the offering, and **generally earns higher margins**. Management expects to continue increasing private-label sales penetration. ### Membership - **Gold Star** for individuals; **Business** for businesses (including individuals with a business license), which may add affiliate cardholders at the same annual fee. Annual fee is **$65 in the U.S.** and varies by country. Every paid membership includes a free household card. - **Executive** upgrade available to paid members (excluding affiliates) for an additional **$65** in the U.S., also offered in Canada, Mexico, the U.K., Japan, Korea, Taiwan and Australia at varying fees. Executive members earn a **2% reward** on qualified purchases, generally capped at **$1,250 per year**, redeemable at warehouses. Executive-member sales penetration was approximately **73.6% of worldwide net sales in 2025**. - Fees are deferred and recognized ratably over the one-year membership period. The U.S. and Canada fee increase took effect **September 1, 2024**. Membership counts (thousands, fiscal year-end): | | 2025 | 2024 | 2023 | |---|---|---|---| | Gold Star | 68,300 | 63,700 | 58,800 | | Business, including affiliates | 12,700 | 12,500 | 12,200 | | **Total paid members** | **81,000** | **76,200** | **71,000** | | Household cards | 64,200 | 60,600 | 56,900 | | **Total cardholders** | **145,200** | **136,800** | **127,900** | Executive members were 38,700, 35,400 and 32,300 of total paid members in 2025, 2024 and 2023 — roughly 48% of the paid base in 2025 and rising. Counts include memberships expired but not renewed within the prior 12 months (a small percentage, many of which subsequently renew). **Renewal rates at the end of FY2025: 92.3% U.S./Canada, 89.8% worldwide.** The rate excludes affiliates of Business members and is a trailing calculation capturing renewals seven to eighteen months prior to the reporting date. Management notes the worldwide rate is dragged down by growth in newer international markets and by a higher share of memberships sold online (including digital promotions), which renew at a slightly lower rate. ### Segments and geography Three reportable segments by geography — **United States, Canada, Other International**. FY2025: | Segment | Total revenue | Merchandise costs | SG&A | Operating income | |---|---|---|---|---| | United States | $200,046 | $174,021 | $19,147 | $6,878 | | Canada | $36,923 | $32,204 | $2,870 | $1,849 | | Other International | $38,266 | $33,661 | $2,949 | $1,656 | | **Total** | **$275,235** | **$239,886** | **$24,966** | **$10,383** | Operating models are broadly the same across segments; certain Other International operations have higher square-footage growth rates, lower wage and benefit costs as a percentage of sales, less or no direct membership-club competition, or lack e-commerce/business delivery. **Properties.** Of the 914 warehouses at August 31, 2025, Costco **owned land and building on 725** and leased land and/or building on 189 — and 141 of those 189 leases are land-only, meaning Costco owns the building. By segment: U.S. and Puerto Rico 629 (512 owned), Canada 110 (94 owned), Other International 175 (119 owned). Warehouse operating floor space totaled ~134.7 million sq ft (93.6M U.S., 15.9M Canada, 25.2M Other International), plus ~32.2 million sq ft of distribution and logistics facilities, and various processing, packaging and manufacturing facilities supporting private-label production. ### Human capital 341,000 employees worldwide at the end of 2025 (333,000 in 2024; 316,000 in 2023): 223,000 U.S., 55,000 Canada, 63,000 Other International. Approximately 95% work in warehouses and distribution; around 5% are union-represented. Target of at least 50% full-time employees. Retention for U.S. and Canada employees with at least one year of service was approximately 94% in 2025. In March 2025 the starting wage rose $0.50 to at least **$20.00/hour** in the U.S. and Canada, top-of-scale rose $1.00/hour, bringing the average U.S. hourly rate to approximately **$32.00**. Management is explicit that its philosophy is *not* to minimize wages and benefits, accepting costs other employers would push onto their workforce in exchange for lower turnover and higher productivity. ### Competition Competes worldwide with global, national and regional wholesalers and retailers — supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores. Named significant U.S. general merchandise competitors: **Walmart, Target, Kroger, Amazon**. Named club competitors: **Sam's Club (Walmart) and BJ's Wholesale Club**. Many U.S. metro areas and some international locations have multiple competing clubs. --- ## Risk factors *Condensed from Item 1A of the FY2025 10-K, accession 0000909832-25-000101. The FY2026 Q3 10-Q states there have been no material changes to these risk factors.* **Geographic concentration.** U.S. and Canadian operations were **86% of net sales and 84% of operating income in 2025**. Within the U.S., **California alone was 26% of U.S. net sales**, with a larger share of high-volume warehouses than other domestic markets. Any sustained slowdown there — from weak comparable sales, rising labor/healthcare/energy costs, missed warehouse-opening targets, cannibalization, or mix shift toward lower-margin products — would materially hurt results. **Growth execution.** Growth depends on acquiring property and building or leasing new warehouses and depots against competition for sites, local land-use restrictions, community opposition, and jurisdictions that have enacted or proposed laws restricting large retailers and warehouse clubs. Rising global electricity demand and regional water stress may make long-term utility contracts harder to secure or force onsite generation/storage costs. New warehouses in existing markets draw members away from existing locations. New markets bring unfamiliarity, unknown local preferences, and established incumbents. Supply-chain and delivery investments and acquisitions are less predictable than opening locations and may not earn their cost of capital. **Membership and brand.** Membership growth, Executive penetration and high renewal rates materially influence profitability; reputational damage would cut comparable sales, member trust and renewal rates simultaneously. Kirkland Signature is a specific dependency — it carries higher margins than national brands and is a growing share of sales, so a loss of member confidence in the brand hits both sales and gross margin. **Operations and supply.** Dependence on orderly depot receiving/distribution and on processing, packaging and manufacturing facilities for private-label items; e-commerce depends heavily on internal and external logistics providers. Misjudging demand produces either markdowns from excess inventory or lost sales from out-of-stocks. No assurance of continued supply, pricing, or access to new products as volumes grow; supplier failures on quality, packaging, legal, labor, human rights, environmental or animal welfare standards may not be caught before merchandise reaches members, leading to recalls and litigation. **IT and cybersecurity.** IT systems process very high transaction volumes and are vital to buying, manufacturing, moving and selling merchandise. Substantial investments in technology and IT projects are underway; failure or delay would be costly. Attempts to breach systems (Costco's and third parties') are increasing in frequency and sophistication and are **sometimes successful**; phishing and ransomware are called out specifically. Logging capabilities — Costco's and third parties' — are not always complete enough to fully investigate incidents. Consequences include reputational damage, litigation, enforcement actions, data corruption, remediation costs and, "critically in light of our business model," loss of member confidence. Insurance and third-party indemnities may be inadequate. Data handling is subject to GDPR, CCPA, HIPAA, China's PIPA, evolving AI rules and other regimes with significant penalties. *(Item 1C, Cybersecurity: Costco assesses its program against the NIST CSF, CIS 18 Critical Security Controls and PCI DSS with third-party maturity assessments, runs a security operations center and a Cybersecurity Materiality Committee, and reports to the Audit Committee. Notably, **the former CISO left the Company in June 2025** and the role was being filled on an interim basis by the Deputy CISO, with a search underway, as of the 10-K. Costco states it is not aware of any cybersecurity incident that has materially affected it.)* **Payment risk.** Accepts select credit/debit cards, cash, checks, co-brand cardholder rebates, Executive 2% reward certificates and a proprietary shop card. Exposure to interchange and processing fee increases, third-party processor dependence, evolving card-network and data-security rules, and liability for card re-issuance and fines if breached. **Product safety.** Food, prepared food, drugs, children's products, pet products and durable goods carry illness/injury risk from tampering, contamination, spoilage, foreign objects or faulty design. Suppliers are contractually required to comply with safety laws, but Costco depends on them. Even unsuccessful claims can produce long-lasting reputational damage. **Labor.** Success depends on attracting, training and retaining a large and growing workforce while controlling labor cost, which is subject to regulatory changes, prevailing wage rates, union relations and healthcare/insurance costs. Senior-management succession is called out explicitly. **Self-insurance.** Employee health care, workers' compensation, general liability, property damage, D&O, vehicle liability and inventory loss are funded **predominantly through self-insurance**, with coverage bought only to cap very large losses. Costco bears a significant portion of catastrophic property loss, inventory spoilage and business-interruption risk. **Competition.** Highly competitive retail on price, selection, availability, service, location, convenience, hours and digital ease of use. Some competitors have greater financial resources and technology capability — including **faster adoption of artificial intelligence** — better merchandise access and greater market penetration. **Macro, tariffs and commodities.** Energy and gasoline costs, inflation, unemployment, healthcare costs, consumer debt, FX, housing weakness, consumer confidence, and government fiscal/monetary/tax policy — including **duties and tariffs** — can hurt demand, force mix changes or raise inventory cost. Trade-related actions in various countries have already affected merchandise costs; exposure depends on goods type, rates and timing, and the net effect depends on Costco's merchandising and pricing response. **Higher tariffs are more likely to hurt than help results.** Gasoline and consumable commodity prices are historically volatile. **Foreign exchange.** International operations including Canada generated **27% of net sales and 34% of operating income in 2025**, and international is a growing share of the warehouse base. Financial statements are translated at current rates, so adverse moves flow straight through. Separately, some purchased product is paid for in a currency other than the local selling currency, which can raise merchandise cost without a corresponding price increase. **Catastrophe.** Natural disasters, extreme weather, terrorism, violence and energy shortages — particularly in **California or Washington state, where centralized operating systems and administrative personnel are located** — could damage properties or inventory, close facilities, disrupt IT and supply, and reduce member visits. Pandemics and health crises carry a similar, separately disclosed set of exposures. **Valuation risk (stated by management).** "We believe that the price of our stock currently reflects high market expectations for our future operating results." Any failure or delay in meeting expectations on comparable sales, membership fee revenue, sign-ups, renewal rates, gross margin, earnings, EPS, warehouse openings, or dividend/repurchase policy could cause the stock to decline. **Legal and regulatory.** Growing federal, state, local and international rules on product and food safety, marketing, information security and privacy, labor and employment, imports and customs, transportation, IP, anti-corruption and environmental/social matters. At the end of 2025 Costco operated **285 warehouses outside the U.S. (31% of all locations)** with country-specific political, economic, regulatory, currency and tax exposure. Accounting judgments — notably self-insurance liabilities — are complex and subjective. Changes in tax rates and mix of earnings by jurisdiction can move the tax provision. ESG goals depend on factors outside Costco's control (including extended-producer-responsibility laws in multiple states that will add fees), and both failure to meet goals and criticism for pursuing them are cited as reputational risks. Environmental, health and safety compliance covers wastewater, stormwater, food-processing waste, refrigeration systems and mechanized processing. Costco is involved in numerous legal proceedings and audits, including grand jury and government investigations. --- ## Management's discussion — fiscal 2025 *From Item 7 of the FY2025 10-K, accession 0000909832-25-000101.* **How management frames the business.** The most important driver of profitability is increasing net sales, particularly comparable sales — defined as sales from warehouses open more than one year (including remodels, relocations and expansions) plus e-commerce sites operating more than a year. Comparable sales growth comes from shopping frequency and average ticket. Higher comparable sales excluding FX and gasoline let Costco leverage SG&A down as a percentage of sales. The 2% Executive reward *reduces* net sales and is allocated to the category that generated it. Management explicitly does not seek to maximize short-term prices, instead defending a member perception of "**pricing authority**." Responses to cost increases include sharing absorption with suppliers, buying earlier and in greater volume, sourcing in the countries where items are sold, and — last — passing costs on. Investments in price (cutting prices to drive sales or holding prices despite cost increases) deliberately depress near-term gross margin. E-commerce carries a lower gross-margin percentage than warehouses. On cost control: "our philosophy is not to seek to minimize their wages and benefits," accepting costs other employers would pass to their workforce, in exchange for lower turnover, higher productivity and employee satisfaction. Because the business runs on very low margins, **modest changes in merchandise costs or SG&A have substantial impacts on net income**. **FY2025 highlights (52 weeks ended August 31, 2025 vs. 52 weeks ended September 1, 2024):** - Opened **27 new warehouses including three relocations — 24 net new** (15 U.S., two Canada, seven Other International), versus 30 new warehouses including one relocation in 2024. - **Net sales +8% to $269,912.** Comparable sales +6% ($14,788), driven by **+5% shopping frequency and ~+1% average ticket**; the rest from the 24 net new warehouses. Core merchandise sales +$19,086 or +10%, up in all categories; warehouse ancillary and other businesses +$1,201 or +2%. - Lower gasoline prices **cut** net sales by $2,329 (93 bp) on an 8% decline in average price per gallon; gasoline volume +2% added $440 (18 bp). FX cut net sales by ~$1,943 (78 bp). - Comparable sales excluding FX and gasoline: total company **+8%** (U.S. +7%, Canada +8%, Other International +8%). E-commerce comparable sales **+16%**. - **Membership fee revenue +10% to $5,323**, driven by new sign-ups and the fee increase, which accounted for approximately **40% of membership income growth** in 2025. Renewal rates 92.3% U.S./Canada, 89.8% worldwide. - **Gross margin $30,026, 11.12% of net sales, +20 bp**; +11 bp to 11.03% excluding gasoline price deflation. Core merchandise contributed +19 bp (fresh foods and the co-branded credit card program); a **LIFO charge cost 7 bp** and ancillary/other cost 1 bp. FX reduced gross margin by ~$224. - **SG&A $24,966, 9.25% of net sales, +11 bp**; +3 bp to 9.17% excluding gasoline deflation, with 3 bp of pressure from warehouse operations and other businesses. FX reduced SG&A by ~$127. - Interest expense $154 (down from $169 on the May 2024 repayment of the 2.750% Senior Notes). Interest income and other, net $589 (vs. $624) — interest income fell to $469 on lower rates despite higher cash balances. - **Effective tax rate 25.1%** vs. 24.4%, helped by $100 of discrete stock-compensation benefits. The OECD Pillar 2 global 15% minimum tax was effective for fiscal 2025 and was not material. - **Net income +10% to $8,099, or $18.21 per diluted share** (2024: $7,367 / $16.56). FX cost net income $97, or $0.22 per diluted share. - In April 2025 the Board raised the quarterly dividend 12%, from $1.16 to $1.30 per share. **Liquidity, FY2025.** Operating cash flow **$13,335** (2024: $11,339); investing **-$5,311**; financing **-$3,775** (versus -$10,764 in 2024, which included the $15/share special dividend of ~$6,655). Cash, cash equivalents and short-term investments **$15,284** at August 31, 2025 (vs. $11,144), of which ~$2,670 was unsettled card receivables that settle within about four days. Capital expenditures **$5,498** in 2025, with **$6,000–$6,500 planned for fiscal 2026** and up to 35 new warehouses including five relocations planned for 2026. Long-term debt repayments $103 in 2025 (vs. $1,077 in 2024, including the $1,000 2.750% Senior Notes); no long-term debt proceeds in 2025. Fixed-rate long-term debt was $5,805 at fiscal year end. Dividends declared $2,183, or $4.92/share (2024: $8,589 / $19.36 including the special dividend). Repurchased 943,000 shares at an average $957.66, ~$903 (2024: 1,004,000 at $695.29, ~$698), leaving $1,962 of the $4,000 January 2023 authorization, which expires January 2027. Bank credit facility capacity $1,220 with immaterial borrowings outstanding. No off-balance-sheet arrangements. **Critical accounting estimate.** Insurance/self-insurance liabilities — employee health care, workers' compensation, general liability, property damage, D&O, vehicle liability and inventory loss are funded predominantly through self-insurance, using a wholly-owned captive insurance subsidiary and a reinsurance program. Liabilities are undiscounted and estimated from historical claims experience, demographic and severity factors and actuarial assumptions. Historically, adjustments to estimates have been immaterial. --- ## Current quarter — FY2026 Q3 (12 weeks ended May 10, 2026) *From the 10-Q, accession 0000909832-26-000051.* At May 10, 2026 Costco operated **928 warehouses**: 637 in the U.S. (47 states, Washington D.C. and Puerto Rico), 115 Canada, 42 Mexico, 37 Japan, 29 U.K., 20 Korea, 15 Australia, 14 Taiwan, seven China, five Spain, three France, two Sweden, and one each in Iceland and New Zealand. Fiscal 2026 is a 52-week year ending August 30, 2026. **Quarter highlights vs. Q3 FY2025:** - Opened **four new warehouses** (three U.S., one Canada), against nine (including one relocation) a year ago. **23 net new warehouses** since the end of Q3 FY2025. - **Net sales +12% to $69,154** (+$7,189). Comparable sales **+10%** (+$6,055), from **+7% average ticket and +2% shopping frequency**. - **Gasoline and FX did most of the incremental work this quarter.** Higher gasoline *prices* added $1,367 (221 bp) on a **20% increase in average price per gallon**; gasoline *volume* +10% added $662 (107 bp); FX added ~$643 (104 bp). Stripping FX and gasoline, comparable sales were **+7%** (U.S. +7%, Canada +6%, Other International +6%) — versus +8% in the year-ago quarter. Reported comparable sales by segment were U.S. +9%, Canada +11%, Other International +11%. - **Digitally-enabled comparable sales +21%** (+21% ex-FX). - Core merchandise sales +$3,721 or **+7%**, up in all categories. Warehouse ancillary and other businesses +$3,468 or **+29%**, led by gasoline and pharmacy. - **Membership fee revenue +11% to $1,373.** **Total paid members 82,900 thousand** (from 79,600) and **total cardholders 148,500 thousand** (from 142,800). **Renewal rates 92.2% U.S./Canada and 89.7% worldwide** — both down about a tenth of a point from fiscal year-end 2025, which management attributes to a higher share of memberships sold online, including digital promotions, entering the calculation. The September 2024 fee increase accounted for only ~**25%** of membership income growth in the quarter (35% year to date), i.e. the fee-increase tailwind is fading and growth is now mostly volume and Executive upgrades. - **Gross margin $7,635; 11.04% of net sales, down 21 bp reported** — but **11.26% excluding gasoline price inflation, up 1 bp**. Ancillary and other (pharmacy, e-commerce) added 14 bp; a smaller LIFO charge added 14 bp; absence of a prior-year one-time increased-employee-vacation charge added 2 bp. **Core merchandise cost 29 bp**, primarily foods and sundries and fresh foods, partly offset by the co-brand credit card program and non-foods. FX added ~$69 to gross margin. Core merchandise margin measured against core merchandise sales fell 9 bp. Segment gross margin (ex-gasoline) **decreased in the U.S.**, increased in Canada and Other International. - **SG&A $6,193; 8.96% of net sales, down 20 bp reported; 9.14% ex-gasoline inflation, down 2 bp.** Absence of the vacation charge added 5 bp and central operating costs 1 bp; warehouse operations and other businesses cost 3 bp; stock compensation cost 1 bp. FX raised SG&A by ~$48. SG&A ratio was lower in the U.S., higher in Canada and Other International. - Interest expense $32 (vs. $35). Interest income and other, net $155 (vs. $85), with interest income $130 (vs. $95) on higher cash balances partly offset by lower rates. - **Effective tax rate 25.4%** vs. 26.2%. - **Net income $2,192, $4.93 per diluted share**, vs. $1,903 and $4.28. **Segment results, Q3 FY2026 (vs. Q3 FY2025):** | Segment | Total revenue | Operating income | |---|---|---| | United States | $51,434 (vs. $46,318) | $1,873 (vs. $1,713) | | Canada | $9,410 (vs. $8,321) | $506 (vs. $450) | | Other International | $9,683 (vs. $8,566) | $436 (vs. $367) | | **Total** | **$70,527 (vs. $63,205)** | **$2,815 (vs. $2,530)** | Income before income taxes was $2,938 (vs. $2,580). Note the mix: U.S. operating income grew ~9% while Canada grew ~12% and Other International ~19%, both helped by currency. Net sales by category for the quarter: Foods and Sundries $26,533; Non-Foods $17,529; Fresh Foods $9,673; Warehouse Ancillary and Other Businesses $15,419. **Year to date (36 weeks ended May 10, 2026):** net sales **$203,374, +10%**; comparable sales +8% (+5% average ticket, +3% frequency); ex-FX-and-gasoline comparable sales +7%; digitally-enabled comparable sales +22%. Membership fees **$4,057, +13%**. Gross margin $22,626, 11.13% of net sales (11.18% ex-gasoline, +6 bp). SG&A $18,799, 9.24% (9.29% ex-gasoline, +2 bp — pressured 2 bp by self-insured general liability claims expense and 1 bp each by a prior-year tax assessment charge and warehouse operations). Effective tax rate 24.4% vs. 24.9%, with $72 of discrete stock-compensation benefits (vs. $100). **Net income $6,228** vs. $5,489. Segment operating income: U.S. $5,124, Canada $1,416, Other International $1,344; total $7,884 vs. $7,042. **Balance sheet and liquidity at May 10, 2026.** Cash, cash equivalents and short-term investments **$19,996** (vs. $15,284 at August 31, 2025), of which ~$3,078 was unsettled card receivables. Total assets $86,430 (vs. $77,099); property and equipment, net $34,293 (vs. $31,909). Short-term investments $1,050 (cost basis $1,053), consisting of $818 government and agency securities (available-for-sale) and $232 certificates of deposit (held-to-maturity). **Long-term debt $5,684 gross** (vs. $5,805): 3.000% Senior Notes due May 2027 $1,000; 1.375% Senior Notes due June 2027 $1,250; 1.600% Senior Notes due April 2030 $1,750; 1.750% Senior Notes due April 2032 $1,000; other long-term debt $684 (Guaranteed Senior Notes of the Japan subsidiary). No current portion at quarter end. **Fair value ~$5,259 against $5,684 carrying** — the debt was issued at very low coupons and is worth less than face in the current rate environment, an underappreciated liability-side asset. In March 2026 the Japan subsidiary repaid $69 of its Guaranteed Senior Notes. **Cash flows, 36 weeks.** Operating **$11,133** (vs. $9,468) — the increase from higher operating income plus a **reduced net investment in merchandise inventories, from faster inventory turns and improved supplier payment terms**. Investing **-$4,160** (vs. -$3,343). Financing **-$2,175** (vs. -$2,182), including proceeds from short-term borrowings; long-term debt repayments $69. **Capital plan.** $4,228 of capital expenditures in the first 36 weeks; **current intention is to spend approximately $6,500 in fiscal 2026** on new warehouse openings, remodels, depot network expansion and digitally-enabled businesses, funded from operations and existing cash and investments. **16 new warehouses opened (including two relocations) in the first 36 weeks, with 13 additional new warehouses including one relocation planned for the remainder of fiscal 2026** — a step down from the "up to 35 including five relocations" indicated in the 10-K a year earlier. **Capital returns.** Quarterly dividend of **$1.47/share declared April 15, 2026 and paid May 15, 2026** (Q3 FY2025: $1.30). Repurchases: 184,000 shares at an average $997.47 (~$183) in the quarter; 638,000 shares at an average $945.46 (~$603) year to date, versus 658,000 at $946.64 (~$623) in the prior-year period. **$1,359 remained** under the $4,000 authorization, which **expires January 2027**. At the current pace the authorization will not be exhausted before expiry; a new authorization would be required to continue. **Borrowing capacity.** $1,531 under bank credit facilities at May 10, 2026 ($1,028 held by Canadian and Other International operations, $338 of which is Company-guaranteed). Short-term borrowings outstanding were **$96** at quarter end (immaterial at the end of fiscal 2025). Letter of credit facilities total $242 with $205 of outstanding commitments, mostly standby letters of credit. **Stock-based compensation.** $119 for the quarter and $771 year to date (vs. $106 and $720). 2,035,000 RSUs outstanding at May 10, 2026 at a weighted-average grant-date fair value of $727.45; $1,092 of unrecognized cost over a weighted-average 1.6 years. Weighted average diluted shares 444,430 thousand — essentially flat year over year, so buybacks are roughly offsetting dilution rather than shrinking the share count meaningfully. **Risk factors.** The 10-Q states there have been **no material changes** to the risk factors disclosed in the FY2025 10-K. ### Legal proceedings of note (Note 8 to the Q3 FY2026 financial statements) Costco has recorded an immaterial accrual with respect to some of these matters, and states it does not believe any pending claim, alone or in aggregate, will have a material adverse effect on financial position, results or cash flows — while acknowledging an unfavorable outcome could be material to an individual quarter or year. - **Wage-and-hour class and PAGA actions.** *Martin Reyes v. Costco* (Sacramento County Superior Court No. 23cv011351, removed to E.D. Cal. No. 2:24-cv-00300) — California minimum wage, overtime, meal/rest break, wage statement, expense reimbursement and sick pay claims; a related PAGA action was stayed December 18, 2024. *Nader v. Costco* (Stanislaus County No. CV-24-006198) — PAGA penalties; stayed November 13, 2025. Two new Washington employee class actions: *Madera v. Costco* (King County No. 26-2-02879-6, filed January 2026) and *Howell v. Costco* (King County No. 26-2-09459-5, filed March 2026), alleging meal-period and rest-break failures, wage theft and inaccurate wage statements; Costco has denied the material allegations. - **Opioid MDL** (*In re National Prescription Opiate Litigation*, MDL No. 2804, N.D. Ohio). Many county, city, hospital, third-party-payor and insurance-cost cases have been resolved or dismissed. Remaining in the MDL: an Ohio third-party payor claim and actions on behalf of infants born with opioid-related conditions in 40 states. Also pending: a Georgia county federal case outside the MDL, New York city/county state-court claims, and Pennsylvania county district attorney claims. Claims in New Jersey, Oklahoma, Utah, Arizona state courts and Georgia and Florida federal courts have been dismissed. - **Pixel-tracker privacy class actions** over Costco.com (consolidated as *Castillo v. Costco*, W.D. Wash. No. 2:34-cv-01548). The consolidated complaint seeks damages, equitable relief and fees under the Washington Consumer Protection Act, Washington Privacy Act, Washington Uniform Health Care Information Act, Electronic Communications Privacy Act, California Invasion of Privacy Act and California Confidentiality of Medical Information Act, plus implied-contract, invasion of privacy, conversion and unjust enrichment claims. **The motion to dismiss was denied in substantial part in November 2024**, so this one is proceeding. Costco also received civil investigative demands from the **Washington Attorney General** (January and August 2024) and a pre-litigation letter from the **Los Angeles County Counsel** (January 2024). *Birdwell* was dismissed with prejudice in March 2026. - **Kirkland Signature tequila labeling.** Two class actions filed October–November 2025 alleging the tequila is labeled "100% de Agave" but contains alcohol from non-agave sugars, seeking damages, statutory penalties, punitive and treble damages and disgorgement. *Glazer* (S.D. Fla. No. 1:25-cv-25057) was dismissed without prejudice; *Salisbury* (W.D. Wash. No. 2:25-cv-02277) was amended March 9, 2026 to add Glazer as a named plaintiff, and Costco moved to dismiss in April 2026. This one touches the private-label brand directly. - **Tariff pass-through class actions — new this quarter.** In **March 2026**, four class actions were filed seeking a refund of tariffs Costco paid under the **International Emergency Economic Powers Act (IEEPA)** that were passed on to members through higher prices, alleging violations of state consumer protection laws and equitable doctrines: *Stockov* (N.D. Ill. No. 26-cv-02734), *Gower* (King County No. 26-2-08898-5SEA), *Ortiz* (D.P.R. No. 3:26-cv-01164-CVR) and *Briggs* (W.D. Wash. No. 2:26-cv-01064). Costco has moved to dismiss in *Stockov* and *Gower*. --- ## Subsequent events The Q3 FY2026 Form 10-Q (accession 0000909832-26-000051) contains **no subsequent-events note** — its financial statement notes end at Note 9, Segment Reporting, and no post-period acquisition, divestiture, financing, litigation settlement or fee action is disclosed. The FY2025 Form 10-K likewise contains no subsequent-events note. There are therefore **no disclosed post-period acquisitions, divestitures or financings** for this company as of the latest filing. The one material post-quarter corporate action is a capital-return event disclosed by Current Report on Form 8-K, accession 0000909832-26-000060, filed July 8, 2026: - **Quarterly cash dividend of $1.47 per share declared July 7, 2026**, payable **August 7, 2026** to shareholders of record at the close of business on **July 24, 2026**. This holds the rate set in April 2026 rather than raising it; Costco's pattern has been to raise the dividend once a year in April. For context on the fiscal 2026 dividend path, also disclosed by Form 8-K during the year: - **January 15, 2026** — quarterly dividend of **$1.30** per share declared, paid February 13, 2026 to holders of record January 30, 2026. - **April 15, 2026** — quarterly dividend **increased from $1.30 to $1.47** per share, **$5.88 annualized** (a 13% increase), paid May 15, 2026 to holders of record May 1, 2026.