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# Costco Wholesale Corporation (COST): Fiscal 2026 Narrative Costco's fiscal 2026 is the 52 weeks ended August 30, 2026. Its fiscal year is split into quarters of 12, 12, 12 and 16 weeks, so the fourth quarter is a third longer than each of the first three. A fourth-quarter figure is never directly comparable to a third-quarter one. Amounts are in US dollars as the company reports them. ## Business *From the fiscal 2026 Form 10-K, accession 0000909832-26-000093.* Costco runs membership warehouse clubs and e-commerce sites. It sells a deliberately narrow range of national-brand and private-label (Kirkland Signature) goods, often in case or multi-pack quantities, to paying members: households and businesses. Revenue comes from two streams. The first is net sales, $297.2 billion in fiscal 2026, which carries thin margins (an 11.09% gross margin). The second is annual membership fees, $5.91 billion, recognized ratably over each membership year. The model relies on volume and rapid inventory turnover to run at gross margins well below most retailers. Costco often sells inventory before it has to pay suppliers for it. Membership fees came to about half of the year's $11.69 billion operating income. **Footprint.** At August 30, 2026 Costco operated 939 warehouses: 647 in the U.S. and Puerto Rico, 115 in Canada, 43 in Mexico, 37 in Japan, 29 in the U.K., 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, three in France, two in Sweden, and one each in Iceland and New Zealand. A year earlier the count was 914. Costco owns the land and building at 755 of these sites. Of the 184 leased sites, 136 are land-only leases on which Costco owns the building. The average warehouse is about 148,000 square feet, with 138.7 million square feet of selling space in total. Costco also runs e-commerce sites in nine countries. Merchandise moves mostly through cross-docking depots, which cut handling and freight costs. A warehouse stocks fewer than 4,000 active SKUs, against 9,000 to 11,000 online. **What it sells.** Fiscal 2026 net sales of $297.2 billion split across four reported categories. E-commerce and business-center sales are allocated to the category they belong to: - **Foods and Sundries:** $116.8 billion, up 6.6% (dry grocery, candy, cooler, freezer, liquor, tobacco, sundries). - **Non-Foods:** $77.4 billion, up 8.7% (electronics, appliances, health and beauty, hardware, apparel, furniture, jewelry and more). - **Fresh Foods:** $41.7 billion, up 9.8% (meat, produce, deli, bakery). - **Warehouse Ancillary and Other Businesses:** $61.4 billion, up 19.9%. Warehouse ancillary covers gasoline, pharmacy, food court, optical, hearing aids and tire installation. Other businesses covers e-commerce, business centers and Costco Travel. Costco ran 774 gas stations at year-end, and gasoline was 11% of total net sales. Digitally-enabled sales (orders started on a digital device, plus Costco Travel) were also 11% of net sales. **Membership.** The base annual fee in the U.S. is $65 and includes a household card. Executive members pay an extra fee and earn a reward, generally 2% of qualifying purchases up to an annual cap. At the end of fiscal 2026 Costco had: - 84.1 million paid members, up from 81.0 million; - 150.4 million total cardholders, up from 145.2 million; - 42.3 million Executive members, up from 38.7 million. Executive members accounted for about 75.2% of worldwide net sales. The renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide. Management says the worldwide rate is held down by growth in newer international markets and by a rising share of memberships sold online through digital promotions, which renew at a slightly lower rate. The U.S. and Canadian fee increase took effect September 1, 2024. It accounted for about 30% of membership-fee growth in fiscal 2026, after about 40% in fiscal 2025. **Segments.** Costco reports three geographic segments with broadly the same operating model. Fiscal 2026 figures, with fiscal 2025 in brackets: - **United States:** total revenue $219.8 billion; operating income $7.65 billion ($6.88 billion). - **Canada:** total revenue $40.6 billion; operating income $2.11 billion ($1.85 billion). - **Other International:** total revenue $42.8 billion; operating income $1.93 billion ($1.66 billion). Some markets in this segment grow square footage faster, pay a lower share of sales in wages and benefits, face little or no direct club competition, or lack business delivery or Costco-run e-commerce. **People.** Costco employed 355,000 people at year-end: 232,000 in the U.S., 58,000 in Canada and 65,000 in Other International. About 5% are union-represented. In March 2026 Costco raised the top of its U.S. and Canadian wage scales by $1.00 an hour, bringing the average U.S. hourly rate to about $33.00. Retention of U.S. and Canadian employees with at least a year of service was about 94%. Management describes paying above the industry average as a deliberate choice, made even where it means absorbing costs other employers pass on. **Competition.** Costco names Walmart, Target, Kroger and Amazon as significant general-merchandise competitors in the U.S., along with other warehouse clubs, chiefly Walmart's Sam's Club and BJ's Wholesale Club. **Leadership.** Ron M. Vachris is President and CEO and Gary Millerchip is CFO. Several senior roles changed during the year: - Caton Frates became Senior Executive Vice President and COO, Warehouse Operations, U.S. and Mexico. - Sarah George became Executive Vice President and COO, Merchandising, succeeding Claudine Adamo, who moved to Executive Vice President, Administration. - Adam Self took over the Northern Division. - W. Richard Wilcox leads the Southwest Division. - A new Chief Information Security Officer joined in December 2025. ## Risk factors *From the fiscal 2026 Form 10-K, accession 0000909832-26-000093.* These are the risks most specific to Costco's model and its current position, condensed from Item 1A: - **Concentration in the U.S. and Canada, and in California.** The U.S. and Canada produced 86% of fiscal 2026 net sales and 83% of operating income. California alone was 26% of U.S. net sales and has a higher share of high-volume warehouses. Weak comparable sales, rising labor, healthcare or energy costs, or cannibalization from new openings in these markets would hit results directly. - **Membership loyalty and the Kirkland Signature brand.** Profitability depends on growing membership, increasing Executive penetration and keeping renewal rates high. All of these rest on member trust. Kirkland Signature products generally earn higher margins than national brands and make up a growing share of sales, so a loss of confidence in the brand would hurt both sales and gross margin. - **Tariffs, inflation and the economy.** Trade actions have already raised the cost of some merchandise, and higher tariffs could hurt results. How much depends on the goods, the rates, the timing, and how Costco prices in response. Gasoline and other commodity prices are volatile. Costco may be unable to raise prices enough to offset cost inflation without hurting demand. - **Competition, including AI-driven shopping.** Online and mobile channels make comparison shopping easier. Costco warns that AI shopping tools may change how consumers shop. Such tools might present inaccurate pricing or fail to reflect the value of membership. Some competitors are adopting AI faster and have stronger technology. - **Technology, cybersecurity and AI governance.** Costco processes a very high volume of transactions and is investing heavily in IT and digital resilience. A failure of critical systems would disrupt buying, distribution and selling. Costco also flags that autonomous third-party AI systems could bypass internal controls, leak data or produce inaccurate outputs. Attempts to breach the systems of Costco and its vendors are increasing in frequency and sophistication. Costco says it is not aware of any cybersecurity incident that has materially affected it. - **Payments.** Costco depends on third parties to process card and shop-card payments, pays interchange fees, and must comply with card-network rules. A breach could bring fines, card re-issuance costs and the loss of card acceptance. - **Product safety.** Food, drugs, children's and pet products carry the risk of illness or injury, recalls and litigation. Costco relies on suppliers to meet safety standards. - **Foreign exchange and international expansion.** International operations, including Canada, generated 27% of fiscal 2026 net sales and 35% of operating income. Costco had 292 warehouses outside the U.S. (31% of the total) and plans to keep expanding abroad, so translation losses and local political, tax and regulatory change are growing exposures. - **Growth execution.** Expansion depends on finding sites and negotiating leases and land purchases. Costco also needs long-term electricity and water contracts in regions where power demand and water stress are rising. Some jurisdictions restrict large retailers and warehouse clubs. New warehouses can cannibalize existing ones, and new markets may not become profitable when expected. - **Supply.** Costco buys in such volume, to such quality standards, that supply can be limited, particularly for certain foods. Suppliers face labor, climate, financial and compliance risks. A supplier failing Costco's quality or ethical standards could lead to recalls and reputational damage. - **Labor costs and succession.** Costco must attract and retain a large, growing workforce while controlling wage, benefit and healthcare costs, and must plan succession for senior management. - **Self-insurance.** Most employee healthcare, workers' compensation, general liability and property exposures are self-insured, with catastrophe coverage only for the largest losses. A sharp rise in claims or healthcare costs would flow straight into results. - **Catastrophic events.** Disasters, extreme weather or energy shortages in California or Washington state, where central systems and administrative staff are located, could disrupt the whole business. - **High market expectations.** Costco says its share price reflects high expectations for comparable sales, membership-fee growth, renewals, margins and earnings. Falling short of any of these could cause the stock to fall. - **Regulation, tax and ESG.** Costco faces expanding rules on food safety, privacy, AI, labor, imports and the environment. State extended-producer-responsibility laws will add fees. Fuel-economy and zero-emission vehicle policies could affect the gasoline business. Costco also faces scrutiny of its sustainability targets from both sides, along with internal-control and non-financial-reporting obligations and tax law changes. **Litigation.** Costco says it does not expect any pending matter, alone or together, to have a material adverse effect, though an unfavorable outcome could be material to a single quarter or year. The matters it details include: - **IEEPA tariff pass-through suits.** Four class actions filed in March 2026 seek refunds of IEEPA tariffs that were passed on to members through higher prices. The court in *Gower* (King County) denied Costco's motion to dismiss on July 17, 2026, and a request for discretionary appellate review is pending. - **Washington wage suits.** *Gray*, a Washington class action over restrictions on second jobs for lower-paid workers, was certified in December 2025 and is set for trial on March 1, 2027. Costco has agreed to resolve *Madera*, a Washington meal-and-rest-break class action, for an immaterial amount, subject to court approval. - **Kirkland Signature tequila.** *Salisbury* alleges the product is mislabeled "100% de Agave". Costco moved to dismiss in April 2026. - **Website pixel trackers.** The *Castillo* privacy litigation continues after a motion to dismiss was largely denied. - **Opioids.** Costco remains a defendant in the national opioid MDL and in related state cases. - **Marketing emails.** A new class action, *Jay*, was filed in July 2026, after the settlement of the earlier *Zydel* suit. ## Management's discussion: fiscal 2026 *From the fiscal 2026 Form 10-K, accession 0000909832-26-000093.* **Headline results.** Net sales rose 10% ($27.3 billion) to $297.2 billion and total revenue reached $303.2 billion. Operating income rose 12.5% to $11.69 billion. Net income rose 14% to $9.23 billion, or $20.76 per diluted share, up from $8.10 billion and $18.21. The effective tax rate fell to 24.7% from 25.1%, helped by discrete benefits of $83 million from research and development credits and $72 million from stock compensation. **Sales drivers.** Comparable sales, Costco's preferred measure of underlying growth, rose 8%: - **Mix of the gain.** Average ticket rose 5% and shopping frequency 3%. Excluding gasoline prices and foreign exchange, comparable sales rose 7% (U.S. 7%, Canada 7%, Other International 6%). The rest of the sales increase came from 25 net new warehouses. - **Gasoline.** Gasoline prices averaged 12% more per gallon, adding $3.50 billion (130 basis points) to sales growth. Gasoline volume rose 7%. - **Currency.** Foreign exchange added $1.33 billion. - **Digital.** Digitally-enabled comparable sales rose 21%. This metric was introduced in fiscal 2026 to replace the old e-commerce comparable. - **Categories.** Core merchandise sales grew 8% ($17.1 billion), with every category up. Warehouse ancillary and other businesses grew 20%, led by gasoline and pharmacy. **Membership.** Fee revenue rose 11% to $5.91 billion, driven by new sign-ups, the fee increase and upgrades to Executive membership. **Margins.** Reported gross margin slipped 3 basis points to 11.09%. Excluding the effect of gasoline price inflation on net sales, it rose 10 basis points to 11.22%: - Warehouse ancillary and other businesses contributed +19 basis points, while core merchandise subtracted 11. Most of both effects came from the shift in sales mix. - Within core, higher co-branded credit card reward costs tied to gasoline sales weighed on margin. - Measured against their own sales, core merchandise margins rose 15 basis points, with gains in every category. - IEEPA tariff refunds, net of the portion reinvested in lower prices, added 3 basis points. SG&A fell 10 basis points to 9.15% of net sales. Excluding gasoline price inflation it was 9.26%, up one basis point. It rose as a share of sales in Canada and Other International and was flat in the U.S. **Tariffs and the IEEPA refunds.** Costco paid about $500 million in tariffs imposed from February 2025 under the International Emergency Economic Powers Act. In February 2026 the U.S. Supreme Court ruled those tariffs unlawful, and the government set up a refund program. Costco recognizes recoveries only when it receives them. In fiscal 2026 it received $184 million: $174 million booked as a reduction to merchandise costs and $10 million as interest income. Part of this was used to cut prices for members. **Segments.** All three segments grew operating income faster than revenue: - U.S.: up 11.2% to $7.65 billion. - Canada: up 14.0% to $2.11 billion. - Other International: up 16.6% to $1.93 billion. **Cash flow and capital allocation.** - **Operating cash flow and capex.** Operating cash flow rose to $15.82 billion from $13.34 billion, helped by higher operating income and a lower net investment in inventory, which reflects faster turns and better supplier payment terms. Capital expenditures rose to $6.44 billion from $5.50 billion. Costco opened 28 warehouses, three of them relocations, for 25 net new: 18 in the U.S., five in Canada and two in Other International. The September 24, 2026 earnings release printed preliminary operating cash flow of $15.83 billion and investing outflows of $6.39 billion, marked subject to reclassification. The 10-K figures are $15.82 billion and $6.38 billion. - **Dividends.** Declared dividends totaled $2.46 billion, or $5.54 a share, up from $4.92. In April 2026 the quarterly rate rose 13%, from $1.30 to $1.47. - **Buybacks.** Costco repurchased 891,000 shares for $847 million, at an average of $950.90. That left $1.12 billion of the $4.0 billion authorization, which expires in January 2027. **Balance sheet and debt.** Cash, cash equivalents and short-term investments were $21.30 billion at year-end, up from $15.28 billion. Total long-term debt was $6.18 billion. Of that, $2.25 billion matures in fiscal 2027 and is now classified as current: the $1.0 billion 3.000% Senior Notes due May 2027 and the $1.25 billion 1.375% Senior Notes due June 2027. During the fourth quarter, Costco's Japan subsidiary issued three series of Guaranteed Senior Notes totaling about $500 million, at fixed rates of 2.620% to 3.680% and maturing between June 2031 and June 2041. The third-quarter 10-Q showed no long-term debt issued in the first 36 weeks. In August 2026 Costco renewed and enlarged its U.S. revolving credit facility from $400 million to $1.0 billion, maturing August 2027. Total bank borrowing capacity rose to $2.12 billion from $1.22 billion, and no short-term borrowings were outstanding at year-end. **Outlook.** Costco plans to spend about $7.5 billion on capital expenditures in fiscal 2027 and to open up to 33 new warehouses, including five relocations. Its fourth-quarter supplement estimates 967 warehouses at the end of fiscal 2027: 665 in the U.S., 120 in Canada and 182 in Other International. Management says that, as the warehouse base grows, square footage contributes comparatively less to growth, and that international markets grow square footage faster because they start from a smaller base. ## Current quarter ### Fourth quarter: 16 weeks ended August 30, 2026 *From the fourth-quarter earnings release and supplement furnished on Form 8-K, accession 0000909832-26-000084 (September 24, 2026). The quarter's income-statement figures also equal the fiscal 2026 10-K full year (accession 0000909832-26-000093) less the first 36 weeks reported in the third-quarter 10-Q (accession 0000909832-26-000051).* This is a 16-week quarter. Its dollar amounts are compared only with the 16-week fourth quarter of fiscal 2025. - **Results.** Net sales rose 11.2% to $93.9 billion from $84.4 billion. Operating income was $3.80 billion, against $3.34 billion. Net income rose 14.9% to $3.00 billion and diluted EPS rose 15.0% to $6.75 from $5.87. The quarter included a non-recurring benefit of $0.15 per diluted share from IEEPA tariff refunds received in the period, less partial reinvestment in member prices. Excluding that benefit, net income grew 12.3% and EPS 12.4%. - **Comparable sales.** Total comparable sales rose 9.4%, or 6.7% excluding gasoline prices and foreign exchange. By region, on the adjusted basis: U.S. 7.2%, Canada 4.6%, Other International 6.2%. Canada's adjusted growth was well below its 6.7% for the full year. Adjusted comparable traffic rose 3.3% and adjusted ticket 3.3%. Digitally-enabled comparable sales rose 19.5%, and e-commerce site and app traffic rose 30%. - **Margins.** Gross margin was 11.02%, down 11 basis points as reported but up 20 basis points excluding gasoline: - Core merchandise subtracted 9 basis points on that basis. - Other businesses added 32. - LIFO subtracted 12. - The net IEEPA refund effect added 9. - Core-on-core margin rose 18 basis points excluding the refunds. SG&A was 8.94% of sales, 27 basis points lower than a year earlier, and 2 basis points lower excluding gasoline. - **Membership.** Fee income rose 7.3% to $1.85 billion, or 7.7% excluding foreign exchange. That is slower than the 11% for the full year. - **Expansion.** Costco opened 11 net new warehouses in the quarter (10 in the U.S., one in Other International), against 14 in the first three quarters combined. ### Third quarter: 12 weeks ended May 10, 2026 *From the third-quarter Form 10-Q, accession 0000909832-26-000051. This is the latest 10-Q. It covers the first 36 weeks of fiscal 2026 and predates the 10-K.* The third quarter brought 12% sales growth and 15% net income growth. Reported margin rates fell, while rates excluding gasoline price inflation were roughly flat. - **Sales.** Net sales rose 12% to $69.15 billion. Comparable sales rose 10%, or 7% excluding gasoline and currency, with average ticket up about 7% and frequency up 2%. Gasoline prices averaged 20% more per gallon, adding $1.37 billion (221 basis points) to sales, and currency added $643 million. Warehouse ancillary and other businesses grew 29%, led by gasoline and pharmacy. Core merchandise grew 7%. - **Margins.** Reported gross margin fell 21 basis points to 11.04%. Excluding gasoline inflation it rose 1 basis point to 11.26%: - A smaller LIFO charge added 14 basis points, and ancillary businesses (mainly pharmacy and e-commerce) another 14. - Core categories subtracted 29, chiefly foods and sundries and fresh foods. SG&A fell 20 basis points to 8.96% of sales. - **Earnings.** Membership fees rose 11% to $1.37 billion. Net income rose to $2.19 billion, or $4.93 per diluted share, from $1.90 billion and $4.28. The tax rate fell to 25.4% from 26.2%. - **Segments.** Operating income was $1.87 billion in the U.S. (from $1.71 billion), $506 million in Canada (from $450 million) and $436 million in Other International (from $367 million). - **Membership and renewals.** Paid members reached 82.9 million at quarter-end. Renewal rates were 92.2% in the U.S. and Canada and 89.7% worldwide. - **Other.** Costco opened four warehouses in the quarter. In March 2026 the Japan subsidiary repaid $69 million of its Guaranteed Senior Notes. ## Subsequent events *From the fiscal 2026 Form 10-K, accession 0000909832-26-000093, filed October 7, 2026.* - **Further IEEPA tariff refunds.** After the fiscal year ended on August 30, 2026, Costco received $155 million in additional IEEPA refunds. It says it intends to invest the majority of refunds in greater value for members. Refunds on a small share of transactions may be delayed while the government corrects them. - **Executive retirement.** Jim C. Klauer, Executive Vice President and formerly COO of the Northern Division, will retire effective October 30, 2026. - **Performance awards.** In September 2026 the company determined whether executive officers had met their fiscal 2026 performance targets, covering 67,000 performance-based RSUs. Part of these awards vested at that time, for officers meeting accelerated-vesting provisions. The 10-K discloses no acquisition, divestiture or new borrowing after the year-end. The third-quarter 10-Q has no subsequent-events note.