Q4 2026 Costco Wholesale Corp Earnings Call

September 24, 2026

Speaker #1: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Q4 2026 conference call.

Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Q4 fiscal year 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Mr. Gary Millerchip, Chief Financial Officer. You may begin.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, followed by the number 1, on your telephone keypad.

Speaker #1: If you would like to withdraw your question, please press star 1 again. Thank you. And I would now like to turn the conference over to Mr. Gary Millerchip, Chief Financial Officer.

Speaker #1: You may begin.

Speaker #2: Good afternoon, everyone, and thank you for joining us for Costco's Q4 2026 earnings call. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Gary Millerchip: Good afternoon, everyone, and thank you for joining us for Costco's Q4 2026 earnings call. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law.

Speaker #2: These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC.

Speaker #2: Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law.

Speaker #2: Comparable sales, and comparable sales excluding impacts from changes in gasoline prices and foreign exchange, are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP.

Gary Millerchip: Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Joining me for today's call is our CEO, Ron Vachris. Before we dive into our financial results, I'll hand over to Ron for some opening comments.

Speaker #2: Joining me for today's call is our CEO, Ron Vachris. Before we dive into our financial results, I'll hand over to Ron for some opening comments.

Speaker #3: Thank you, Gary. And good afternoon, everyone. Thank you for joining us today. As we wrap up fiscal year 2026, I'll share a few highlights from the year before turning the call back over to Gary.

Ron Vachris: Thank you, Gary, and good afternoon, everyone. Thank you for joining us today. As we wrap up fiscal year 2026, I'll share a few highlights from the year before turning the call back over to Gary. In Q4, we opened 12 warehouses, including a relocation in Taiwan, 10 new US buildings, and our 43rd warehouse in Mexico. For the fiscal year, we opened 28 new warehouses, including three relocations, for a total of 25 net new buildings. This brings our warehouse count to 939 worldwide. Our current plan is to open another 33 warehouses in fiscal year 2027, of which five are relocations as we build towards our goal of opening 30 net new warehouses per year.

Speaker #3: In Q4, we opened 12 warehouses, including a relocation in Taiwan, 10 new U.S. buildings, and our 43rd warehouse in Mexico. For the fiscal year, we opened 28 new warehouses, including 3 relocations, for a total of 25 net new buildings.

Speaker #3: This brings our warehouse count to 939 worldwide. Our current plan is to open another 33 warehouses in fiscal year 2027, of which 5 are relocations.

Speaker #3: As we build toward our goal of opening 30 net new warehouses per year, we continue to see significant opportunities for warehouse growth, including new U.S. locations.

Ron Vachris: We continue to see significant opportunities for new warehouses growth, including new US markets such as Buffalo, New York and Lawrence, Kansas, infills in our more mature US markets, as well as international markets in which we operate. We are confident in the return on investment in all the buildings that we open with new markets bringing more new members and infills driving many fewer new signups, but a much quicker maturity curve for sales and profitability. For fiscal year 2027, we are planning to open 4 buildings in Europe, 5 in Canada and 1 in Mexico and have a strong pipeline of new warehouses planned for Asia, Australia and other international markets in fiscal year 2028. Our business performed exceptionally well across all operating channels this year, including our warehouses, ancillary businesses and digital platforms.

Speaker #3: Markets such as Buffalo, New York, and Lawrence, Kansas, as well as infills in our more mature U.S. markets, and international markets in which we operate.

Speaker #3: We're confident in the return on investment, and all the buildings that we open—with new markets bringing more new members, and infills driving many fewer new sign-ups, but a much quicker maturity curve for sales and profitability.

Speaker #3: For fiscal year 2027, we are planning to open four buildings in Europe, five in Canada, and one in Mexico, and have a strong pipeline of new warehouses planned for Asia, Australia, and other international markets in fiscal year 2028.

Speaker #3: Our business performed exceptionally well across all operating channels this year, including our warehouses, ancillary businesses, and digital platforms. We delivered top-line sales growth of over 10%, and expanded our market share by deepening member loyalty and capturing a larger share of wallet.

Ron Vachris: We delivered top-line sales growth of over 10% and expanded our market share by deepening member loyalty and capturing a larger share of wallet. This success was anchored by our agile item-driven model. Our buyers stayed ahead of member trends, quickly adjusting our assortment to offer high-quality, relevant products at the lowest prices. This strong performance was spread across a wide range of departments, including meat, bakery, majors electronics, and health and beauty aids. Our ancillary businesses also performed very well across the board, with gas, pharmacy, and travel leading the way, all growing at a faster pace than our overall growth rate. Our gas business has had a record year, driven by members seeking value in Costco's top-tier gasoline in the face of rising prices. In fiscal year 2026, we saw the penetration of US member households that purchase gas reach an all-time high.

Speaker #3: This success was anchored by our agile, item-driven model: our buyers stayed ahead of member trends, quickly adjusting our assortment to offer high-quality, relevant products at the lowest prices.

Speaker #3: This strong performance was spread across a wide range of departments, including meat, bakery, major electronics, and health and beauty aides. Our ancillary businesses also performed very well across the board, with gas, pharmacy, and travel leading the way.

Speaker #3: All growing at a faster pace than our overall growth rate. Our gas business has had a record year, driven by members seeking value in Costco's top-tier gasoline in the face of rising prices.

Speaker #3: In fiscal year 2026, we saw the penetration of U.S. member households that purchased gas reach an all-time high. During the fiscal year, we estimate we saved our members over $3.2 billion versus the average price at the pump in markets where we operate.

Ron Vachris: During the fiscal year, we estimate we saved our members over $3.2 billion versus the average price at the pump in markets where we operate. We also expanded 26 existing US gas stations during this year at our highest volume locations to increase throughput and improve the overall member experience. In pharmacy, sales grew nearly 20% as we continue to expanding our digital capabilities. We increased member value and convenience through our GLP-1 and fertility programs, as well as digital options like RX mobile pay ahead and pickup lockers. Many US buildings are now achieving RX pay ahead penetrations of more than one-third of prescriptions, saving both members and our employees valuable time. These programs led to double-digit script growth for the year and that are more than offset the headwinds from lower prices as a result of Medicare Maximum Fair Price changes.

Speaker #3: We also expanded 26 existing U.S. gas stations during this year at our highest-volume locations to increase throughput and improve the overall member experience.

Speaker #3: In pharmacy, sales grew nearly 20% as we continue to expand our digital capabilities. We increased member value and convenience through our GLP-1 and fertility programs, as well as digital options like Rx Mobile Pay Ahead and pickup lockers.

Speaker #3: Many U.S. buildings are now achieving Rx Pay Ahead penetrations of more than one-third of prescriptions, saving both members and our employees valuable time. These programs led to double-digit script growth for the year, and more than offset the headwinds from lower prices as a result of Medicare maximum fair price changes.

Speaker #3: This quarter, we are excited to announce a new partnership with ScanHealth Systems to develop Medicare Advantage benefits that will help members get more value from their healthcare.

Ron Vachris: This quarter, we are excited to announce a new partnership with SCAN Health Systems to develop Medicare Advantage benefits that will help members get more value for their healthcare. Our Costco Travel business continues to add exciting new packages and worldwide destinations. Vacation packages, cruises, and car rentals all grew double digits during the year as our great values continue to resonate with our members. During fiscal year 2026, Costco sent over 750,000 members on cruises, an increase of 16%. One of those members booked a 154-night cruise on Regent Seven Seas at a cost of over $218,000. This member will receive an $8,800 shop card as they conclude their cruise. We continue to make progress on digital in fiscal year 2026. Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%.

Speaker #3: Our Costco Travel business continues to add exciting new packages and worldwide destinations. Vacation packages, cruises, and car rentals all grew double digits during the year, as our great values continue to resonate with our members.

Speaker #3: During fiscal year 2026, Costco sent over 750,000 members on cruises, an increase of 16%. One of those members booked a 154-night cruise on Regent Seven Seas at a cost of over $218,000.

Speaker #3: This member will receive an $8,800 shop card as they conclude their cruise. We continue to make progress on digital and fiscal year 2026. Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%.

Speaker #3: Over the last few weeks, we further expanded the ways in which our members can engage with us online, with the announcement that our Uber Eats partnership is growing from 17 states to the entire U.S., as well as the expansion of our DoorDash partnership to include the U.S.

Ron Vachris: Over the last few weeks, we have further expanded the ways in which our members can engage with us online with the announcement that our Uber Eats partnership is growing from 17 states to the entire US, as well as expansion of DoorDash partnership to include the US. These partnerships will complement the successful long-term partnership that we have had with Instacart in the US and Canada. Members using these new marketplaces are significantly younger than our overall member base. Average delivery times across all three platforms are under an hour, bringing increased convenience in addition to our great values. We have observed that these sales through these channels are mostly incremental, with limited impact on our core warehouse grocery business. Our membership continues to be the most important item we sell, and the additional benefits we introduced for executive members last year continue to resonate well.

Speaker #3: These partnerships will complement the successful long-term partnership that we've had with Instacart in the U.S. and Canada. Members using these new marketplaces are significantly younger than our overall member base.

Speaker #3: Average delivery times across all three platforms are under an hour, bringing increased convenience in addition to our great values. We've observed that sales through these channels are mostly incremental, with limited impact on our core warehouse grocery business.

Speaker #3: Our membership continues to be the most important item we sell, and the additional benefits we introduced for Executive Members last year continue to resonate well.

Speaker #3: Executive member penetration reached an all-time high in fiscal year 2026. Renewal rates showed improvements again this quarter, with the increasing executive penetration likely to help improve those rates in the future.

Ron Vachris: Executive member penetration reached an all-time high in fiscal year 2026. Renewal rates showed improvements again this quarter, with the increasing executive penetration likely to help improve those rates in the future. Growth in new member sign-ups through digital channels and younger members also continued. Looking over a longer time horizon, our member base under 40 has grown nearly 60% since COVID, increasing our total penetration of members under 40 to more than a quarter of our total base. While these younger members start out spending a little less with us, over time, they grow into higher spending members. Finally, I will touch briefly on tariff refunds, and Gary will share more details later in the call. As shared in our earnings release, we received some initial tariff refunds in the Q4, and we reinvested some of these dollars to give value back to our members.

Speaker #3: Growth in new member sign-ups through digital channels, as well as among younger members, also continued. Looking over a longer time horizon, our member base under 40 has grown nearly 60% since COVID.

Speaker #3: Increasing our total penetration of members under 40 to more than a quarter of our total base. While these younger members start out spending a little less with us, over time, they grow into higher-spending members.

Speaker #3: Finally, I'll touch briefly on tariff refunds, and Gary will share more details later in the call. As shared in our earnings release, we received some initial tariff refunds in the fourth quarter, and we reinvested some of these dollars to give value back to our members.

Speaker #3: This was predominantly through price reductions on a number of items in the second half of the quarter, including everyday items and produce, meat and beverages, and some non-food items such as home furnishings and hardware.

Ron Vachris: This was predominantly through price reductions on a number of items in the second half of the quarter, including everyday items in produce, meat, and beverages, and some non-food items such as home furnishings and hardware. Reflecting back on the year, I want to thank all of our employees worldwide and congratulate them on another great year. As a management team, we continue to be incredibly proud of our 355,000 employees worldwide and the culture that they help foster. Their dedication to following our code of ethics, doing what is right, and taking care of our members are the driving force for the consistency of our financial results. With that, I will turn it back over to Gary to discuss the financial results for the quarter, and I will jump back on for Q&A and field some questions.

Speaker #3: Reflecting back on the year, I want to thank all of our employees worldwide and congratulate them on another great year. As a management team, we continue to be incredibly proud of our 355,000 employees worldwide and the culture that they help foster.

Speaker #3: Their dedication to following our code of ethics, doing what's right, and taking care of our members is the driving force behind the consistency of our financial results.

Speaker #3: With that, I'll turn it back over to Gary to discuss the financial results for the quarter, and I'll jump back on for Q&A when we field some questions.

Speaker #1: Thanks, Ron. In today's press release, we reported operating results for the fourth quarter of fiscal year 2026, the 16 weeks ended August 30th. As usual, we published a slide deck under Events and Presentations on our investor website with supplemental information to support today's press release.

Gary Millerchip: Thanks, Ron. In today's press release, we reported operating results for the Q4 of fiscal year 2026, the 16 weeks ended 30 August. As usual, we published a slide deck under events and presentations on our investor website with supplemental information to support today's press release. Net income for the Q4 came in at $2.998 billion, or $6.75 per diluted share. This year's results include a non-recurring benefit of $0.15 per diluted share from IEEPA tariff refunds received in the quarter, less partial reinvestment of those refunds in increased member values. Excluding this non-recurring benefit, net income and EPS were up 12.3% and 12.4% respectively, from $2.61 billion or $5.87 per diluted share last year. On the topic of tariff refunds, we received $184 million in the Q4, which was made up of $174 million in refunds and $10 million in interest.

Speaker #1: Net income for the fourth quarter came in at $2.998 billion, or $6.75 per diluted share. This year's results include a non-recurring benefit of $15 per diluted share from IEPA tariff refunds received in the quarter, less partial reinvestment of those refunds in increased member values.

Speaker #1: Excluding this non-recurring benefit, net income and EPS were up 12.3% and 12.4%, respectively, from $2.61 billion, or $5.87 per diluted share, last year. On the topic of tariff refunds, we received $184 million in the fourth quarter, which was made up of $174 million in refunds and $10 million in interest.

Speaker #1: This amount represents a little more than one-third of the total refunds expected. In the first quarter of fiscal year 2027, we have already received a similar amount of refunds as we did in Q4.

Gary Millerchip: This amount represents a little more than one-third of the total refunds expected. In Q1 of fiscal year 2027, we have already received a similar amount of refunds as we did in Q4, and we intend to continue reinvesting the majority of the dollars we receive in increased member values. As tariff refunds and tariff refund reinvestments are non-recurring items that will continue to impact our financial results in fiscal year 2027, we plan to provide a similar level of information about the net impact on future quarterly earnings calls. Net sales for Q4 were $93.87 billion, an increase of 11.2% from $84.43 billion in Q4 2025. Comparable sales were up 9.4% and 6.7% adjusted for gas price inflation and FX. Excluding gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were also up 6.7%.

Speaker #1: And we intend to continue reinvesting the majority of the dollars we receive in increased member value. As tariff refunds and tariff refund reinvestments are non-recurring items that will continue to impact our financial results in fiscal year 2027, we plan to provide a similar level of information about the net impact on future quarterly earnings calls.

Speaker #1: Net sales for the fourth quarter were $93.87 billion, an increase of 11.2% from $84.43 billion in Q4 2025. Comparable sales were up 9.4%, and $6.7% adjusted for gas price inflation and FX.

Speaker #1: Excluding gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were also up 6.7%. Digitally enabled comparable sales were up 19.5%, and 19.8% adjusted for FX.

Gary Millerchip: Digitally enabled comparable sales were up 19.5% and 19.8% adjusted for FX. Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. In terms of Q4 comp sales metrics, FX negatively impacted sales by approximately 0.3%, while gas price inflation positively impacted sales by approximately 3%. Traffic or shopping frequency increased 3.3% worldwide. Our average transaction or ticket was up 5.9% worldwide and 3.3% excluding gas price inflation and changes in FX. Moving down the income statement to membership fee income, we reported membership fee income of $1.849 billion, an increase of $125 million or 7.3% year over year. Adjusting for FX, the increase was 7.7%. The September 2024 US and Canada membership fee increase accounted for less than 1% of fee growth.

Speaker #1: Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. In terms of Q4 comp sales metrics, FX negatively impacted sales by approximately 0.3%, while gas price inflation positively impacted sales by approximately 3%.

Speaker #1: Traffic or shopping frequency increased 3.3% worldwide. Our average transaction, or ticket, was up 5.9% worldwide, and 3.3% excluding gas price inflation and changes in FX.

Speaker #1: Moving down the income statement to membership fee income. We reported membership fee income of $1.849 billion, an increase of $125 million, or 7.3% year over year.

Speaker #1: Adjusting for FX, the increase was 7.7%. The September 2024 U.S. and Canada membership fee increase accounted for less than 1% of fee growth. And as a reminder, Q4 marks the last quarter in which we will see a year-over-year benefit from the membership fee increase.

Gary Millerchip: As a reminder, Q4 marks the last quarter in which we will see a year-over-year benefit from the membership fee increase. Excluding the membership fee increase in FX, membership income grew 6.8% year over year. This was driven by higher executive membership penetration and base membership growth. At Q4 end, we had 42.3 million paid executive members, up 9.4% versus last year. We ended the quarter with 84.1 million total paid members, up 3.8% versus last year, and 150.4 million cardholders up 3.6% year over year. In terms of renewal rates at Q4 end, our US and Canada renewal rate was 92.3%, up 10 basis points from last quarter, and the worldwide rate came in at 89.8%, also up 10 basis points. It was pleasing to see the improvement in overall renewal rates this quarter as we continue to make progress with our targeted digital communications and retention strategies.

Speaker #1: Excluding the membership fee increase and FX, membership income grew 6.8% year over year. This was driven by higher Executive Membership penetration and base membership growth.

Speaker #1: At Q4 end, we had 42.3 million paid Executive Members, up 9.4% versus last year. We ended the quarter with 84.1 million total paid members, up 3.8% versus last year, and 150.4 million cardholders, up 3.6% year over year.

Speaker #1: In terms of renewal rates, at Q4 end, our U.S. and Canada renewal rate was 92.3%, up 10 basis points from last quarter. The worldwide rate came in at 89.8%, also up 10 basis points.

Speaker #1: It was pleasing to see the improvement in overall renewal rates this quarter, as we continue to make progress with our targeted digital communications and retention strategies.

Speaker #1: As Ron mentioned earlier, in the longer term, we would also expect higher Executive membership penetration to lead to a further improvement in renewal rates, as Executive members generally renew at a higher rate than Gold Star members.

Gary Millerchip: As Ron mentioned earlier, in the longer term, we would also expect higher executive membership penetration to lead to a further improvement in renewal rates as executive members generally renew at a higher rate than Gold Star members. Turning now to gross margin. Our reported gross margin rate was lower year over year by 11 basis points, coming in at 11.02% compared to 11.13% last year. Excluding gas inflation, the gross margin rate was higher by 20 basis points. Core on core was lower by 32 basis points and lower by 9 basis points excluding gas inflation. In terms of core margins on their own sales, our core-on-core margins were higher by 18 basis points, excluding the impact of tariff refunds and tariff refund reinvestments. The increase in core-on-core margins was broad-based with fresh, non-foods, and food and sundries all higher year over year.

Speaker #1: Turning now to gross margin, our reported gross margin rate was lower year over year by 11 basis points, coming in at 11.02% compared to 11.13% last year.

Speaker #1: Excluding gas inflation, the gross margin rate was higher by 20 basis points. Core-on-core was lower by 32 basis points, and lower by 9 basis points, excluding gas inflation.

Speaker #1: In terms of core margins on their own sales, our core-on-core margins were higher by 18 basis points, excluding the impact of tariff refunds and tariff refund reinvestments.

Speaker #1: The increase in core-on-core margins was broad-based, with fresh, non-foods, and food and sundries all higher year-over-year. Supply chain efficiencies drove margin improvement across all categories.

Gary Millerchip: Supply chain efficiencies drove margin improvement across all categories. Fresh also benefited from higher labor productivity in meat, bakery, and deli. Non-foods benefited from strong sell-through rates and a shift in sales mix as higher margin departments outperformed in the quarter. The difference between reported core margins and core-on-core margins was primarily due to mix changes as we saw gas, e-commerce, and pharmacy sales grow at a faster rate than core merchandise sales. Ancillary and other businesses gross margin was higher by 23 basis points and 32 basis points excluding gas inflation. This was driven by the higher sales penetration in e-commerce, pharmacy, and gas that I referenced a moment ago. LIFO negatively impacted the rate by 11 basis points and 12 basis points without gas inflation. We had a $152 million LIFO charge in Q4 this year compared to a $43 million charge in Q4 last year.

Speaker #1: Fresh also benefited from higher labor productivity in meat, bakery, and deli. Non-foods benefited from strong sell-through rates and a shift in sales mix, as higher-margin departments outperformed in the quarter.

Speaker #1: The difference between reported core margins and core-on-core margins was primarily due to mixed changes, as we saw gas, e-commerce, and pharmacy sales grow at a faster rate than core merchandise sales.

Speaker #1: Ancillary and other businesses' gross margin was higher by 23 basis points, and 32 basis points excluding gas inflation. This was driven by the higher sales penetration in e-commerce, pharmacy, and gas that I referenced a moment ago.

Speaker #1: LIFO negatively impacted the rate by 11 basis points, and by 12 basis points without gas inflation. We had a $152 million LIFO charge in Q4 this year, compared to a $43 million charge in Q4 last year.

Speaker #1: Higher memory costs in consumer electronics, and inflation on items directly affected by the ongoing conflict in the Middle East—such as gas, motor oil, and resins—were the biggest drivers.

Gary Millerchip: Higher memory costs in consumer electronics and inflation on items directly affected by the ongoing conflict in the Middle East, such as gas, motor oil, and resins, were the biggest drivers. As a reminder, LIFO is calculated by comparing the cost of inventory on hand at the beginning of the fiscal year to the cost of inventory on hand at the end of the year. The magnitude of the LIFO charge in the quarter was much larger than the inflation rate in the quarter as a result of the need to true-up LIFO for the full fiscal year in our fourth quarter. Lastly, as the IEEPA tariff refunds and the partial reinvestment of those refunds is a non-recurring item, we have shown the net impact separately within the other line of our gross margin matrix. This net benefit was nine basis points, both with and without gas inflation.

Speaker #1: As a reminder, LIFO is calculated by comparing the cost of inventory on hand at the beginning of the fiscal year to the cost of inventory on hand at the end of the year.

Speaker #1: The magnitude of the LIFO charge in the quarter was much larger than the inflation rate in the quarter, as a result of the need to true up LIFO for the full fiscal year in our fourth quarter.

Speaker #1: Lastly, as the IE for tariff refunds and the partial reinvestment of those refunds is a non-recurring item, we have shown the net impact separately within the 'Other' line of our gross margin matrix.

Speaker #1: This net benefit was 9 basis points, both with and without gas inflation. As this was a non-recurring item, this impact is excluded from the core gross margin results.

Gary Millerchip: As this was a non-recurring item, this impact is excluded from the core gross margin results. Moving on to SG&A. Our reported SG&A rate was lower or better year over year by 27 basis points, coming in at 8.94% compared to last year's 9.21%. Excluding gas inflation, SG&A was lower or better by two basis points. The operations component of SG&A was lower or better by 22 basis points and flat excluding the impact of gas inflation. Central was lower or better by five basis points and lower by two basis points excluding the impact of gas inflation. Below the operating income line, interest expense was $44 million versus $45 million last year. Interest income was $209 million versus $169 million last year, driven by higher cash balances and $10 million of interest received related to tariff refunds.

Speaker #1: Moving on to SG&A. Our reported SG&A rate was lower year over year by 27 basis points, coming in at 8.94% compared to last year's 9.21%.

Speaker #1: Excluding gas inflation, SG&A was better by 2 basis points. The operations component of SG&A was better by 22 basis points, and flat excluding the impact of gas inflation.

Speaker #1: Central was lower or better by 5 basis points, and lower by 2 basis points excluding the impact of gas inflation. Below the operating income line, interest expense was $44 million versus $45 million last year.

Speaker #1: Interest income was $209 million versus $169 million last year, driven by higher cash balances and $10 million of interest received related to tariff refunds.

Speaker #1: And FX and other was a $44 million benefit versus a $46 million benefit last year. In terms of income taxes, our tax rate in Q4 was 25.2% compared to 25.6% in Q4 last year.

Gary Millerchip: FX and other was a $44 million benefit versus a $46 million benefit last year. In terms of income taxes, our tax rate in Q4 was 25.2% compared to 25.6% in Q4 last year. Turning now to some key items of note in the quarter. Capital expenditure was $2.21 billion in Q4 and $6.4 billion for the full year. For fiscal year 2027, we are planning approximately $7.5 billion in capital expenditure. This increase is predominantly due to a growth in the pipeline of new warehouses as we target a run rate of 30 net new openings a year, and the continuation of outside spend on our supply chain, which will set us up to efficiently support future warehouse and e-commerce sales growth.

Speaker #1: Turning now to some key items of note in the quarter. Capital expenditure was $2.21 billion in Q4, and $6.4 billion for the full year.

Speaker #1: For fiscal year 2027, we are planning approximately $7.5 billion in capital expenditures. This increase is predominantly due to growth in the pipeline of new warehouses as we target a run rate of 30 net new openings a year, and the continuation of outside spend on our supply chain, which will set us up to efficiently support future warehouse and e-commerce sales growth.

Speaker #1: Beyond fiscal year 2027, we would expect to see a slowing in the rate of capital expenditure growth, following three years of outsized growth that began in fiscal year 2025.

Gary Millerchip: Beyond fiscal year 2027, we would expect to see a slowing in the rate of capital expenditure growth following 3 years of outsized growth that began in fiscal year 2025. Turning now to some merchandising highlights. Through a relentless focus on value, quality, and newness, we delivered consistently strong comparable sales growth in Q4. Non-foods comp sales were up mid to high single digits. Top performing departments were gold and jewelry, home furnishings, housewares, small electrics, and health and beauty. Our success in health and beauty is a great example of our buyers identifying global trends and sourcing new items that resonate strongly with our members. Some of the best performing items this quarter included K-beauty products such as collagen face masks and lotions from a number of top Korean vendors. Fresh comparable sales were up mid-single digits, led by bakery and meat.

Speaker #1: Turning now to some merchandising highlights. Through a relentless focus on value, quality, and newness, we delivered consistently strong comparable sales growth in Q4. Non-foods comp sales were up mid to high single digits.

Speaker #1: Top-performing departments were gold and jewelry, home furnishings, housewares, small electrics, and health and beauty. Our success in health and beauty is a great example of our buyers identifying global trends and sourcing new items that resonate strongly with our members.

Speaker #1: Some of the best performing items this quarter included K-beauty products, such as collagen face masks and lotions from a number of top Korean vendors.

Speaker #1: Fresh comparable sales were up mid-single digits, led by bakery and meat. Growth in bakery reflects our success in adding new and indulgent items at great value for our members.

Gary Millerchip: Growth in bakery reflects our success in adding new and indulgent items at great value for our members. An example of this is our in-house pastries, which grew by over 100% in the quarter. In meat, our commitment to great quality and value fueled continued growth in both lower cost proteins such as poultry and ground beef, as well as premium items such as USDA Prime beef and Wagyu. Now before moving on from the fresh departments, I did want to address the speculation that has been blowing up our social media feeds and confirm that the rumors are true. For a limited time, the food court churro will be returning to all our US locations starting this month. Food and sundries comp sales grew low to mid-single digits, led by packaged foods, sundries, and frozen foods.

Speaker #1: An example of this is our in-house pastries, which grew by over 100% in the quarter. In meat, our commitment to great quality and value fueled continued growth in both lower-cost proteins such as poultry and ground beef, as well as premium items such as USDA Prime beef and Wagyu.

Speaker #1: Now, before moving on from the fresh departments, I do want to address the speculation that's been blowing up our social media feeds and confirm that the rumors are true.

Speaker #1: For a limited time, the food court churro will be returning to all our U.S. locations starting this month. Food and sundries comp sales grew low to mid-single digits, led by packaged foods, sundries, and frozen foods.

Speaker #1: We continue to see a shift in member shopping habits towards healthier packaged foods. Protein items such as meat snacks, sardines, canned tuna, and chicken, as well as high-fibre options such as edamame and granola snacks, all experienced strong growth.

Gary Millerchip: We continue to see a shift in member shopping habits towards healthier packaged foods and protein items such as meat snacks, sardines, canned tuna and chicken, as well as high fiber options such as edamame and granola snacks all experienced strong growth. Kirkland Signature items play an important role in how we deliver greater value for our members, offering savings of at least 15% to 20% compared to the national brand equivalent with equal or better quality. Q4 launches included our KS Japanese matcha green tea powder, KS 1 ounce silver bars, KS pretzel sandwiches, and KS ultra-filtered 2% milk. Our goal is to be the first to lower prices where we see opportunities to do so, and the following are examples of price reductions that we implemented during the quarter.

Speaker #1: Kirkland Signature items play an important role in how we deliver greater value for our members, offering savings of at least 15 to 20 percent compared to the national brand equivalent, with equal or better quality.

Speaker #1: Q4 launches included our KS Japanese matcha green tea powder, KS one-ounce silver bars, KS pretzel sandwiches, and KS ultra-filtered 2% milk. Our goal is to be the first to lower prices where we see opportunities to do so, and the following are examples of price reductions that we implemented during the quarter.

Speaker #1: KS Walnuts from $13.79 to $9.99, KS Colombian Whole Bean Coffee from $21.99 to $19.99, KS Dried Facial Towel from $19.99 to $18.99, and KS Coarse Black Pepper from $6.99 to $5.99.

Gary Millerchip: KS walnuts from $13.79 to $9.99, KS Colombian whole bean coffee from $21.99 to $19.99, KS dry facial towel from $19.99 to $18.99, and KS coarse black pepper from $6.99 to $5.99. In ancillary businesses, comp sales continue to be extremely strong, up high twenties during the quarter. As Ron shared earlier, gas, pharmacy, and travel led the way and are all great examples of how we grow share of wallet and deliver increased value from a Costco membership. Gas comps were positive mid-thirties, driven by the price per gallon increase year over year and record gas volumes. Turning to inflation. Overall, inflation during Q4 remained in the low single digits. As I mentioned when discussing LIFO earlier, we did see an increase in non-foods inflation during the quarter, predominantly due to memory costs in consumer electronics, gas, and petroleum-based items.

Speaker #1: In ancillary businesses, comp sales continue to be extremely strong, up in the high 20s during the quarter. As Ron shared earlier, gas, pharmacy, and travel led the way, and are all great examples of how we grow share of wallet and deliver increased value from a Costco membership.

Speaker #1: Gas comps were positive, mid-30s, driven by the price per gallon increase year over year and record gas volumes. Turning to inflation, overall inflation during Q4 remained in the low single digits.

Speaker #1: As I mentioned when discussing LIFO earlier, we did see an increase in non-foods inflation during the quarter, predominantly due to memory costs in consumer electronics, gas, and petroleum-based items.

Speaker #1: Inflation in food, sundries, and fresh was largely consistent with prior quarters, as inflation in meat was offset by deflation in eggs and dairy.

Gary Millerchip: Inflation in food and sundries and fresh was largely consistent with prior quarters as inflation in meat was offset by deflation in eggs and dairy. In the supply chain, while our traffic teams are working through some minor shipping disruptions due to recent typhoons in Asia and Panama Canal delays due to El Niño, product is flowing relatively smoothly, and our merchants feel good about our inventory position. We continue to watch freight costs closely due to higher fuel prices. So far, the impact has been manageable as incremental fuel surcharges have been largely offset by lower contracted shipping rates. In digital, total site and app traffic was up 30%. Breaking down our digitally enabled sales results, pharmacy, home furnishings, small electrics, hardware, housewares, domestics, and health and beauty were all top performers.

Speaker #1: In the supply chain, while our traffic teams are working through some minor shipping disruptions due to recent typhoons in Asia and Panama Canal delays due to El Niño, product is flowing relatively smoothly, and our merchants feel good about our inventory position.

Speaker #1: We continue to monitor freight costs closely, due to higher fuel prices. So far, the impact has been manageable, as incremental fuel surcharges have been largely offset by lower contracted shipping rates.

Speaker #1: In digital, total size and app traffic was up 30%. Breaking down our digitally enabled sales results: pharmacy, home furnishings, small electrics, hardware, housewares, domestics, and health and beauty were all top performers.

Speaker #1: Some of you may have noticed that we recently made the decision to discontinue our extended marketplace offering, Costco Next. As our digital capabilities mature, we believe that integrating the most popular items and brands from Costco Next more seamlessly into the Costco app and website provides a better member experience and will increase sales.

Gary Millerchip: Some of you may have noticed that we recently made the decision to discontinue our extended marketplace offering, Costco Next. As our digital capabilities mature, we believe that integrating the most popular items and brands from Costco Next more seamlessly into the Costco app and website provides a better member experience and will increase sales. This change is not material to our results. During the quarter, we continued to accelerate personalization, including enhanced product placements and email communications. Our approach is resonating well with members, leading to triple-digit growth in sales from personalized initiatives in Q4, and 10% of all Costco.com orders now include a personalized item. While starting from a low base relative to other channels, AI continues to grow in its influence on how our members are searching for products.

Speaker #1: This change is not material to our results. During the quarter, we continued to accelerate personalization, including enhanced product placements and email communications. Our approach is resonating well with members, leading to triple-digit growth in sales from personalized initiatives in Q4.

Speaker #1: And 10% of all Costco.com orders now include a personalized item. While starting from a low base relative to other channels, AI continues to grow in its influence on how our members are searching for products.

Speaker #1: Traffic to our site from AI search grew triple digits for the second consecutive quarter, and continues to show the highest conversion rate of all site traffic.

Gary Millerchip: Traffic to our site from AI search grew triple digits for the second consecutive quarter and continues to show the highest conversion rate of all site traffic. Similar to e-commerce sales overall, sales originated from AI search are led by appliances and consumer electronics. Interestingly, the Costco membership is also among the top items originated from AI searches, indicating that there is a strong positive sentiment around the value of our membership coming from these sources. In closing, we are incredibly proud of our team and the great results they delivered in fiscal year 2026. As in the past, during times of wider market uncertainty, we believe our commitment to taking care of our members and delivering highly relevant products and services at the lowest price present opportunities for Costco to continue to grow our top-line sales and market share in fiscal year 2027. That concludes our prepared remarks.

Speaker #1: Similar to e-commerce sales overall, sales originated from AI search are led by appliances and consumer electronics. Interestingly, the Costco membership is also among the top items originated from AI searches.

Speaker #1: Indicating that there is a strong positive sentiment around the value of our membership coming from these sources. In closing, we are incredibly proud of our team and the great results they delivered in fiscal year 2026.

Speaker #1: As in the past, during times of wider market uncertainty, we believe our commitment to taking care of our members and delivering highly relevant products and services at the lowest price presents opportunities for Costco to continue to grow our top-line sales and market share in fiscal year 2027.

Speaker #1: That concludes our prepared remarks. In terms of upcoming releases, we will announce our September sales results for the five weeks ending Sunday, October 4th, on Wednesday, October 7th, after market close.

Gary Millerchip: In terms of upcoming releases, we will announce our September sales results for the five weeks ending Sunday, 4 October on Wednesday, 7 October after market close. We will now open the line up for questions.

Speaker #1: We'll now open the line up for questions.

Speaker #2: Thank you. We'll now begin the question-and-answer session. If you dialed in and would like to ask a question, please press star one (*) on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to 1 question. Again, it is star 1 to join the queue. Our first question comes from the line of Michael Lasser with UBS. Your line is open.

Speaker #2: If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker #2: To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is star one (*) to join the queue.

Speaker #2: And our first question comes from the line of Michael Lasser with UBS. Your line is open.

Speaker #3: Good evening. Thank you so much for taking my question. So it sounds like, given the tariff refund, you have invested about $100 million into price to reinforce Costco's value proposition, yet we really haven't seen a meaningful change in the trajectory of the monthly sales as of yet.

Michael Lasser: Good evening. Thank you so much for taking my question. It sounds like given the tariff refund, you have invested about $100 million into price to reinforce Costco's value proposition, yet we really have not seen a meaningful change in the trajectory of the monthly sales as of yet. If anything, it has moderated a touch. How are you evaluating the return on those investments? If price is not moving the needle as significantly as maybe it has in the past, should we calibrate our expectations that this year is just going to be a more return to historic levels of same-store sales growth for Costco? Thank you very much.

Speaker #3: And if anything, it has moderated a touch. So, how are you evaluating the return on those investments? And if price is not moving the needle as significantly as it has in the past, should we calibrate our expectations that this year is just going to be a return to historic levels of same-store sales growth for Costco?

Speaker #3: Thank you very much.

Speaker #4: Hi Michael, good afternoon. I think there are a couple of different questions in there. I guess I would break it out—between, as we think about the member and how they're thinking about value. I would say we're seeing very similar trends to what we've talked about in prior quarters.

Gary Millerchip: Hi, Michael. Good afternoon. I think there are a couple of different questions in there. I guess I would break it out. I think as we think about the member and how they are thinking about value, I would say we are seeing very similar trends to what we have talked about in prior quarters. Our members continue to show resilience in their spending, and they show a willingness to spend in discretionary areas where they are seeing exciting new items at great value. As we talked about the quarter, while gas was definitely a major impact on top-line sales as members resonated with the value that we offer through our gas stations as they saw prices higher overall at the pump. When we look at our sales excluding gas, they remain very robust.

Speaker #4: Our members continue to show resilience in their spending, and they show a willingness to spend in discretionary areas where they're seeing exciting new items at great value.

Speaker #4: As we talked about the quarter, while gas was definitely a major impact on top line sales, as members resonated with the value that we offer through our gas stations as they saw prices higher overall at the pump, when we look at our sales excluding gas, they remain very robust.

Speaker #4: We had comp-adjusted sales, when you take out gas and FX, within that sort of 6% to 7% for a year now. But I would say what really stood out for us during the quarter was, as you heard me say—maybe in some of the prepared comments—is that non-food sales was the highest-performing category overall. That shows that we are seeing members respond to the quality and value items that we're offering, and the value they present.

Gary Millerchip: We had comp-adjusted sales when you take out gas and FX within that 6% to 7% range as they have been pretty much consistently for a year now. I would say what really stood out for us during the quarter was, as you heard me say in maybe some of the prepared comments, that non-food sales was the highest performing category overall. That shows that we are seeing members respond to the quality and the value items that we are offering and the value they present. We also saw, as Ron mentioned in his comments, strong growth in travel as well, which I think is a good indicator of where there is great value. Our members are really embracing that proposition that we are offering.

Speaker #4: We also saw, as Ron mentioned in his comments, strong growth in travel as well, which I think is a good indicator of where there's great value, and members are really embracing the proposition that we're offering.

Speaker #4: So, we believe that we continue to offer a very compelling proposition for our members, and we're seeing continuation of the trends that we've seen really throughout the year.

Gary Millerchip: So we believe that we continue to offer a very compelling proposition for our members, and we are seeing continuation of the trends that we have seen really throughout the year. On the pricing reinvestments, to your point, really, we view that as very much a giving value back to our members for the tariff refunds that we received. Our goal was to make sure that we spread those as we could to items that would have the most impact for members. As Ron mentioned, quite a few everyday items were impacted. We did also invest some dollars into a number of non-food areas where tariffs would have had an impact on those items in particular when the IEEPA tariffs were originally introduced.

Speaker #4: On the pricing reinvestments, to your point, really we view that as very much giving value back to our members for the tariff refunds that we received.

Speaker #4: And our goal was to make sure that we spread those as we could to items that would have the most impact for members.

Speaker #4: So, as Ron mentioned, quite a few everyday items were impacted. We did also invest some dollars into a number of non-food areas where tariffs would have had an impact on those items, in particular when the IEPA tariffs were originally introduced.

Speaker #4: So, overall, we view that very much as giving value back to our members for the tariffs that we pay, but we still feel very good about the comparable sales trajectory that we've seen in our performance, and how our members are showing up and spending.

Gary Millerchip: Overall, we view that very much as giving a value back to our members for the tariffs that we pay, but we still feel very good about the comparable sales trajectory that we see in our performance and how our members are showing up and spending.

Speaker #3: Thank you very much.

Michael Lasser: Thank you very much.

Speaker #2: And our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Speaker #5: Hi, guys. Thanks for taking my question. My question is on membership. So the spread between membership growth and unit growth is now, or not MSI, but membership growth.

Simeon Gutman: Hi, guys. Thanks for taking my questions. My question is on membership. The spread between membership growth and the unit growth is narrowing, not MFI, but membership growth. How do you look at that? How should we look at it? I am sure it is a growth driver in some way, but can you make the case that as long as existing member spend continues to climb, then the narrowing spread is just noise? Thank you.

Speaker #5: How do you look at that? How should we look at it? I'm sure it's a growth driver in some way. But can you make a case that, as long as existing member spend continues to climb, the narrowing spread is just noise?

Speaker #5: Thank you.

Speaker #4: Joel, thanks. Simeon, yeah, the way we look at our membership growth, to your point, is we look at all the drivers of membership growth.

Gary Millerchip: Sure. Thanks, Simeon. The way we look at our membership growth, to your point, is we look at all the drivers of membership growth. Overall, when we think about the components of that, we were pleased with the year where we saw new member signups grew during fiscal year 2026, and that was at a time when we were cycling a strong growth in new member signups from fiscal year 2025, and it was also without having any major outsized new openings in Asia that would typically cause a spike in new member signups. So solid underlying performance in membership signups, a healthy level of signups.

Speaker #4: And overall, when we think about the components of that, we were pleased with the year, where we saw new member sign-ups grow during fiscal year 2026. That was at a time when we were cycling a strong growth in new member sign-ups from fiscal year 2025.

Speaker #4: And it was also without having any major, outsized new openings in Asia that would typically cause a spike in new member sign-ups. So, solid underlying performance in membership sign-ups—a healthy level of sign-ups.

Speaker #4: And as Ron also mentioned in some of the earlier comments, what we've also been pleased with in that membership growth is seeing a younger member base and sort of seeing that penetration go through, with over a quarter now of all members being under 40. We think that is a really positive sign, to your point, about continued growth in spend per member.

Gary Millerchip: As Ron also mentioned in some of the earlier comments, what we have also been pleased with in that membership growth is seeing a younger member and seeing that penetration go through over a quarter now of all members being under 40, we think is a really positive sign to your point about continued growth in spend per member. We also saw a record level of executive membership penetration, both in new signups and within the base, which again, similar to the theme you were sharing earlier, generally executive members spend at a higher level than our Gold Star members. So another lead indicator that we feel is a good measure of quality around our member loyalty and member spend overall.

Speaker #4: We also saw a record level of Executive membership penetration, both in new sign-ups and within the base, which, again, similar to the theme you were sharing earlier, generally Executive members spend at a higher level than our Gold Star members.

Speaker #4: So, another sort of lead indicator that we feel is a good measure of quality around our member loyalty and member spend overall. And then I think the final point on the membership sort of underlying metrics, with the renewal rate absolute level being at a strong data point, but also ticking up slightly during the quarter.

Gary Millerchip: I think the final point on the membership underlying metrics with the renewal rate absolute level being at a strong data point, but also ticked up slightly during the quarter. Overall, we feel good about the membership metrics. But I think to your point, which is a really important one, is one of the things I think we are most excited about is when we look at the insights around membership is how we think about the quality of our membership base. What I mean by that is we exit fiscal year 2026 with a record high executive penetration, as I mentioned, record high gas engagement, record high digital engagement.

Speaker #4: So overall, we feel good about the membership metrics. But I think to your point, which is a really important one, is one of the things I think we're most excited about is when we look at the insights around membership, is how we think about the quality of our membership base and what I mean by that is we exit fiscal year 2026 with a record high executive penetration, as I mentioned, record high gas engagement, record high digital engagement.

Speaker #4: And when you look at the things that we think about as the strongest indicators of loyalty, and the likelihood of members continuing to spend the biggest share of wallet and spend more top-line sales with us, we do believe that really bodes well.

Gary Millerchip: When you look at the things that we think about that are the strongest indicators of loyalty and likelihood of members continuing to spend the biggest share of wallet and spend more top line sales with us, then we do believe that really bodes well. When you combine that with the underlying growth in membership, we think the combination of the two is a good indicator of the opportunity to keep growing top line sales.

Speaker #4: And when you combine that with the underlying growth in membership, we think the combination of those two is a good indicator of the opportunity to keep growing top-line sales.

Simeon Gutman: Thanks, Gary.

Speaker #5: Thanks, Gary.

Speaker #2: And our next question comes from the line of Chuck Graham with Gordon Haskett. Your line is open.

Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open.

Speaker #6: Hey, thanks very much. A year ago, the tariff backdrop forced you to remove a bunch of items from the store and add other SKUs.

Chuck Grom: Hey, thanks very much. A year ago, the tariff backdrop forced you to remove a bunch of items from the store and add other SKUs. Can you remind us how long that lasted and impacted the business, and I guess, how are you feeling about the assortment today as we move into the holiday season?

Speaker #6: Can you remind us how long that lasted and impacted the business? And I guess, how are you feeling about the assortment today as we move into the holiday season?

Speaker #7: Great question. It really was most impactful in the first and second quarters, died off a little bit in the third quarter, then we got back to a little bit more normalcy.

Ron Vachris: Great question. It really was most impactful the first, Q2, died off a little bit in Q3 that we got back to a little bit more normalcy. Feel very good about the holidays, feel very good about the buying lineup that our folks have. As Gary said, the strong non-food sales we saw in this quarter was the precursor for us back in this business again, and we feel good about the quality goods we have coming, and the members are responding very well. Primarily first, Q2 were the biggest impacts.

Speaker #7: We feel very good about the holidays. We feel very good about the buying lineup that our folks have. And as Gary said, the strong non-food sales we saw in this quarter were the precursor for us being back in this business again, and we feel good about the quality goods we have coming.

Speaker #7: And the members are responding very well. So, primarily, the first and second quarters were the biggest impacts.

Speaker #6: Great. Thanks.

Chuck Grom: Great. Thanks.

Speaker #2: And our next question comes from the line of Scott Ciccarelli with Truist. Your line is open.

Operator: Our next question comes from the line of Scot Ciccarelli with Truist. Your line is open.

Speaker #8: Thanks, guys, for the time. I do have a follow-up on the membership. And Gary, I know you just went through a lot of this, but I guess the question is, with kind of the eight quarters in a row where the membership growth has slowed, what do you think it will take to reverse that declining trend?

Gary Millerchip: Thanks, guys, for the time. I do have a follow-up on the membership. Gary, I know you just went through a lot of this, but I guess the question is with 8 quarters in a row where the membership growth has slowed, what do you think it will take to reverse that declining trend? Would you care to speculate when we might be able to see that? Thanks for the question, Scot. I think from our perspective, we look at the, you have heard me talk through the underlying metrics. We are seeing continued growth in new member signups. We are seeing a normalization now, I would say, as the maturity of those younger digitally engaged members are flowing through the membership renewal rate or the membership base.

Scot Ciccarelli: Thanks, guys, for the time. I do have a follow-up on the membership. Gary, I know you just went through a lot of this, but I guess the question is with 8 quarters in a row where the membership growth has slowed, what do you think it will take to reverse that declining trend? Would you care to speculate when we might be able to see that?

Speaker #8: And would you care to speculate when we might be able to see that?

Speaker #4: Yeah, thanks for the question, Scott. I think from our perspective—and we look at the, you've heard me talk through the underlying metrics—we're seeing continued growth in new member sign-ups.

Gary Millerchip: Thanks for the question, Scot. I think from our perspective, we look at the, you have heard me talk through the underlying metrics. We are seeing continued growth in new member signups. We are seeing a normalization now, I would say, as the maturity of those younger digitally engaged members are flowing through the membership renewal rate or the membership base.

Speaker #4: We're seeing a normalization now, I'd say, as the maturity of those younger, digitally engaged members is flowing through the membership renewal rate or the membership base.

Speaker #4: So we're seeing more of a normalization in that growth, and the sort of overall renewal rate that we publish each quarter. I think if you look at the outlook for this year—obviously, we don't give guidance as we think about particular metrics.

Gary Millerchip: We are seeing more of a normalization in that growth, and the overall renewal rate that we publish each quarter. I think if you look at the outlook for this year, obviously we do not give guidance as we think about particular metrics, but I think the growth rate that we have seen in recent quarters is probably more typical of what we would expect to see based on where we are today with the growth in new members that we are seeing and the normalization of the renewal rate. I think for us, as we look at sustained growth in the top line sales, as I mentioned in response to Simeon's question, we look at it more of a balance between continued growth in the membership base as we are seeing today and a continued growth in spend of those members.

Speaker #4: But I think the sort of growth rate that we've seen in recent quarters is probably more typical of what we'd expect to see based on where we are today, with the growth in new members that we're seeing and the sort of normalization of the renewal rate.

Speaker #4: I think for us, as we look at sustained growth in top-line sales—as I mentioned in response to Simeon's question—we look at it more as a balance between continued growth in the membership base, as we're seeing today, and continued growth in the spend of those members.

Speaker #4: I think over time, as you think about the longer-term benefit of executive membership penetration growing, that would certainly be a tailwind in renewal rate that could be an accelerator to total membership growth.

Gary Millerchip: I think over time, as you think about the longer-term benefit of executive membership penetration growing, that would certainly be a tailwind in renewal rate that could be an accelerator to total membership growth. As Ron mentioned in some of his opening comments, as we enter some of the Asian markets with some outsized growth in new membership in the future, that could certainly be a catalyst for higher headline membership growth. But I think for us, when we look at the balance of the business, we feel good around where the membership growth rate is today, particularly with those quality metrics that I mentioned about the opportunity to see higher spend per member alongside that growth.

Speaker #4: And as Ron mentioned in some of his opening comments, as we enter some of the Asian markets with some outsized growth in new membership in the future, that could certainly be a catalyst for higher headline membership growth.

Speaker #4: But I think for us, when we look at the balance of the business, we feel good about where the membership growth rate is today, particularly with those quality metrics that I mentioned, and the opportunity to see higher spend per member alongside that growth.

Speaker #8: Appreciate it. Have a good night.

Scot Ciccarelli: Appreciate it. Have a good night.

Speaker #4: Thanks.

Ron Vachris: Bye.

Speaker #7: Thank you.

Ron Vachris: Thank you.

Speaker #2: And our next question comes from the line of John Heimbachel with Guggenheim. Your line is open.

Operator: Our next question comes from the line of John Heinbockel with Guggenheim. Your line is open.

Speaker #9: And so guys, what visibility

John Heinbockel: What visibility do you have on vendor price increases coming over the next several months? You probably get at least a 90-day or maybe a 90-day look. What is the visibility on that? You have the advantage of substitutability. Maybe talk about attacking it that way and then your thought, the role that KS will play? Is maybe we get a step up in those increases.

Speaker #7: Do you have any information on vendor price increases coming over the next several months? You probably get at least a 90-day, or maybe a 90-day look.

Speaker #7: What's the visibility on that? You have the advantage of substitutability, right? So maybe talk about attacking it that way. And then, your thought on the role that KS will play, right, is maybe we get a step up in those increases.

Speaker #7: Yeah, it is quite dynamic when you think about the different commodities we deal in, and some have a lot more foresight than others. So we’ll see up to 90 days on some items, and other things could have more urgency if they're more impacted by freight or resin prices, or those kind of things.

Ron Vachris: Yeah. It is quite dynamic when you think about the different commodities we deal in, and some have a lot more foresight than others. We will see up to 90 days on some items, and other things could have some more urgency if they are more impacted by freight or resin prices or those kind of things. Some, it is anywhere from 30 days to 90 days plus. I think all the tool things you talked about have a great asset in there, and we continue to see the Kirkland Signature brand broaden, and we continue to see some great Kirkland items that we are introducing out in the marketplace that are really very good tools for us to continue to fight back on lower pricing. We work collaboratively with our vendors in dealing with these commodity increases and try and keep prices down the best we can.

Speaker #7: So, it's not—it’s anywhere from 30 days to 90 days plus. And I think all the things you talked about have a great asset in there.

Speaker #7: And we continue to see the Kirkland Signature brand broaden, and we continue to see some great Kirkland items that we're introducing out in the marketplace that are really very good tools for us to continue to fight back on lower pricing.

Speaker #7: So we work collaboratively with our vendors, dealing with these commodity increases and trying to keep prices down the best we can. It is a continual focus for all of our buyers, looking at how to reduce pricing.

Ron Vachris: It is a continual focus for all of our buyers in looking at how to reduce pricing.

Speaker #7: Thank you.

John Heinbockel: Thank you.

Speaker #2: And our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Speaker #10: Good afternoon, and thanks for taking my question. So, on the giant e-commerce front—which is clearly an evolving backdrop—how do you feel Costco's position continues to evolve overall as the backdrop changes?

Rupesh Parikh: Good afternoon, and thanks for taking my question. On the agentic commerce front, clearly an evolving backdrop, just overall, just how do you feel Costco's positioned as the backdrop continues to evolve?

Speaker #4: Yeah, thanks for the question, Rupesh. I think, as we talked about a little bit earlier on the call, we are excited about the opportunity with AI. Particularly, I don’t know if I would say agentic commerce at the moment.

Ron Vachris: Well, thanks for the question, Rupesh. I think as we talked about a little bit earlier on the call, we are excited about the opportunity with AI particularly. I do not know if I would say agentic commerce at the moment. I think for us, what we see is more members definitely using AI as a tool to help them search for items as they are looking and thinking about shopping for different products and services. We think because of the compelling value, as you know, we hold very closely and dearly the pricing authority that we have with our members. So we are always going to make sure that we will show up in a way that for the items that we are selling, we have the best value for our members.

Gary Millerchip: Well, thanks for the question, Rupesh. I think as we talked about a little bit earlier on the call, we are excited about the opportunity with AI particularly. I do not know if I would say agentic commerce at the moment. I think for us, what we see is more members definitely using AI as a tool to help them search for items as they are looking and thinking about shopping for different products and services. We think because of the compelling value, as you know, we hold very closely and dearly the pricing authority that we have with our members. So we are always going to make sure that we will show up in a way that for the items that we are selling, we have the best value for our members.

Speaker #4: I think for us, what we see is more members definitely using AI as a tool to help them search for items as they're looking and thinking about shopping for different products and services.

Speaker #4: And we think, because of the compelling value, as you know, we hold very closely and dearly the pricing authority that we have with our members.

Speaker #4: So we're always going to make sure that we show up in a way that, for the items we're selling, we have the best value for our members.

Speaker #4: And we know that, because we have a curated assortment and our buyers are personally vetting every item that we sell, the quality of those items—and so the reviews that members are going to see around the quality of the products they're searching for—should also be very strong.

Ron Vachris: And we know that because we have a curated assortment and our buyers are personally vetting every item that we sell, that the quality of those items, and so the reviews that members are going to see around the quality of the products that they're searching for should also be very strong. We feel it's a great opportunity for us, particularly as today we don't do any paid digital advertising. We certainly appear in digital advertising more because of the sort of reputation that we have and as our members talk about us on social media. But AI presents an opportunity in a sort of a neutral environment for us to be able to ensure that our value and our quality shows up transparently for our members. It's early days in our mind. The traffic is growing significantly, but it's still a very low base.

Gary Millerchip: And we know that because we have a curated assortment and our buyers are personally vetting every item that we sell, that the quality of those items, and so the reviews that members are going to see around the quality of the products that they're searching for should also be very strong. We feel it's a great opportunity for us, particularly as today we don't do any paid digital advertising. We certainly appear in digital advertising more because of the sort of reputation that we have and as our members talk about us on social media. But AI presents an opportunity in a sort of a neutral environment for us to be able to ensure that our value and our quality shows up transparently for our members. It's early days in our mind. The traffic is growing significantly, but it's still a very low base.

Speaker #4: So, we feel it's a great opportunity for us, particularly as today we don't do a lot of digital, or we don't do any paid digital advertising.

Speaker #4: We certainly appear in digital advertising more because of the sort of reputation that we have, as our members talk about us on social media.

Speaker #4: But AI presents an opportunity, in a sort of neutral environment, for us to be able to ensure that our value and our quality show up transparently for our members.

Speaker #4: So, it's early days in our mind. The traffic is growing significantly, but it's still off a very low base. When we look at the volume that we see, we're seeing triple-digit growth in terms of the sales that are originating from that search activity on the different large language models—the AI tools that are out there for members.

Ron Vachris: When we look at the volume that we see, we're seeing triple-digit growth in terms of the sales that we're seeing originate from that search activity on the different large language models, the AI tools that are out there for members. So think of that being a Gemini, Anthropic, and OpenAI. We're seeing encouraging growth in those areas. I think you heard me say on the earlier part of the call, what's also encouraging to us is when consumers, or in our case, members are searching, it's also highlighting the value of a Costco membership, and we're seeing strong flow-through of membership activity and engagement because of the way our value is showing up there too. So I think we believe it's an exciting opportunity. We've still got a lot of work to do as we've been optimizing and modernizing our digital capabilities.

Gary Millerchip: When we look at the volume that we see, we're seeing triple-digit growth in terms of the sales that we're seeing originate from that search activity on the different large language models, the AI tools that are out there for members. So think of that being a Gemini, Anthropic, and OpenAI. We're seeing encouraging growth in those areas. I think you heard me say on the earlier part of the call, what's also encouraging to us is when consumers, or in our case, members are searching, it's also highlighting the value of a Costco membership, and we're seeing strong flow-through of membership activity and engagement because of the way our value is showing up there too. So I think we believe it's an exciting opportunity. We've still got a lot of work to do as we've been optimizing and modernizing our digital capabilities.

Speaker #4: So think of that being Gemini, Anthropic, and OpenAI. And we're seeing encouraging growth in those areas. I think you heard me say on the earlier part of the call, what's also encouraging to us is when consumers, or in our case, members, are searching, it's also highlighting the value of a Costco membership.

Speaker #4: And we're seeing strong flow-through of membership activity and engagement because of the way our value is showing up there, too. So, I think we believe it's an exciting opportunity.

Speaker #4: We've still got a lot of work to do, as we've been optimizing and modernizing our digital capabilities. There's a lot of work going on in the teams right now to work with those large language models to identify how we can continue to update our data and our product pages so that our value continues to show up transparently in that environment.

Ron Vachris: There's a lot of work going on with teams right now to work with those large language models to identify how we can continue to clean up and update our data and our product pages so that our value continues to show up transparently in that environment. But we feel it's a continued opportunity for us to continue to grow sales and to highlight the value that we offer for our members.

Gary Millerchip: There's a lot of work going on with teams right now to work with those large language models to identify how we can continue to clean up and update our data and our product pages so that our value continues to show up transparently in that environment. But we feel it's a continued opportunity for us to continue to grow sales and to highlight the value that we offer for our members.

Speaker #4: But we feel it's a continued opportunity for us to keep growing sales and to highlight the value we offer to our members.

Speaker #10: Great. Thank you.

Rupesh Parikh: Great. Thank you.

Speaker #2: And our next question comes from the line of Corey Tarlow with Jefferies. Your line is open.

Operator: Our next question comes from the line of Corey Tarlowe with Jefferies. Your line is open.

Speaker #8: Great, thanks, and good afternoon. I think it was Gary in your prepared remarks. You talked about how a lot of your newer members are younger and maybe more digitally savvy.

Corey Tarlowe: Great. Thanks, and good afternoon.

Ron Vachris: Good afternoon.

Gary Millerchip: Good afternoon.

Corey Tarlowe: I think it was Gary, in your prepared remarks, you talked about how a lot of your newer members are younger and maybe more digitally savvy. Given the robust digital growth that you've seen, combined with the stronger growth from newer, younger members, does this at all cause you to think differently about perhaps what the optimal orientation is for the club over the next, let's say, three to five years?

Speaker #8: Given the robust digital growth that you've seen, combined with the stronger growth from newer, younger members, does this at all cause you to think differently about perhaps what the optimal orientation is for the club over the next, let's say, three to five years?

Speaker #4: Yeah, thanks for the question. I think overall, what we're describing and what we're seeing is that, first of all, as younger members engage with Costco, of course, they're generally signing up through a digital phone or laptop or iPad, because that's the way they generally start that engagement and journey.

Gary Millerchip: Yeah. Thanks for the question. I think, overall, what we are describing and what we are seeing is that, first of all, as younger members engage with Costco, of course, they are generally signing up through a digital

Gary Millerchip: phone or laptop or iPad, because that is the way they generally start that engagement and journey. I think what we have found over time is that how we communicate with those members definitely requires continued growth in our digital capabilities through improving the member experience online and through the app, as we have been doing over the last year or so, continuing to use the information that we know about our members to provide a better personalized experience for them as they are engaging through the membership. But I think just as importantly, if not more importantly, has been to how we draw those members into the experience of the warehouse and to really help them see the value of the relationship.

Speaker #4: I think what we've found over time is that how we communicate with those members definitely requires continued growth in our digital capabilities—through improving the member experience online and through the app, as we've been doing over the last year or so. We're continuing to use the information that we know about our members to provide a better, personalized experience for them as they're engaging through the membership.

Speaker #4: But I think just as importantly, if not more importantly, has been how we draw those members into the experience of the warehouse and really help them see the value of the relationship.

Speaker #4: You may have seen, actually, there was a recent article that talked about how, for younger consumers, they're really engaging and excited about experiences and the opportunity that Costco presents—to be in a brick-and-mortar retail environment and to enjoy the treasure hunt experience and engage in, whether it's the food court or the non-food items that we offer.

Gary Millerchip: You may have seen, actually, there was a recent article that talked about, for younger consumers, how they are really engaging and excited about experiences and the opportunity that Costco presents to be in a brick-and-mortar retail environment and to enjoy the treasure hunt experience and engage in, whether it is the food court or the non-food items that we offer. So I think for us, we certainly see it as a different way for members to enter into the Costco experience. But the warehouse continues to be hugely important to the value that we offer for members to create a differentiated experience. So our amazing employees have the chance to engage with members and help build loyalty with them as well. I do not know that we feel that it changes the way in which we would expect the warehouse to look in the coming years.

Speaker #4: So I think for us, we certainly see it as a different way for members to enter into the Costco experience. But the warehouse continues to be hugely important to the value that we offer for members, to create a differentiated experience so our amazing employees have the chance to engage with members and help build loyalty with them as well.

Speaker #4: So, I don't know that we feel it changes the way in which we'd expect the warehouse to look in the coming years, but we do think having an experience that combines the value of everything we offer in the warehouse with enhancing the experience online is important to continue to grow member loyalty.

Gary Millerchip: But we do think having an experience that combines the value of everything we offer in the warehouse with enhancing the experience online is important to continuing to grow member loyalty. And we definitely see that where members engage with us through the warehouse, and they are engaged through the digital app or engaging through digital channels, they are even more loyal and shopping more frequently, not just online, but also in the warehouse as well.

Speaker #4: And we definitely see that where members engage with us through the warehouse, and they're engaged through the digital app or engaging through digital channels, they're even more loyal.

Speaker #4: And shopping more frequently—not just online, but also in the warehouse as well.

Speaker #8: Thank you.

Corey Tarlowe: Thank you.

Speaker #2: And our next question comes from the line of Kelly Bainia with BMO Capital Markets. Your line is open.

Operator: Our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.

Speaker #9: Hi, thanks for taking our questions. Gary, I wanted to go back to the membership household growth. You made the point that the Asia markets could be a catalyst for higher contribution to that membership growth over time.

Kelly Bania: Hi. Thanks for taking our questions. Gary, I wanted to go back to the membership household growth. You made the point that obviously the Asia markets could be a catalyst for higher contribution to that membership growth over time. Are you willing to share some metrics on what new member households look like in international countries such as Asia and how that compares to the US? Because with this acceleration to a net new 30 units, it does look like that's weighted a little bit more towards international. Can you just help us do some math around that?

Speaker #9: But are you willing to share some metrics on what member households, new member households, look like in international countries such as Asia, and how that compares to the U.S.?

Speaker #9: Because it does look like, with this acceleration to a net new 30 units, it does look like that's the way—a little bit more towards international.

Speaker #9: So, can you just help us do some math around that?

Speaker #4: Yeah, thanks, Kelly. Certainly, we do expect, as you mentioned, to continue to grow new warehouses, and we believe we've got a path for the next five to ten years of targeting about 30 new warehouses a year. That's why we're continuing to increase the capital investment towards that goal.

Gary Millerchip: Yeah. Thanks, Kelly. Certainly we do expect, as you mentioned, to continue to grow new warehouses, and we believe we've got a path for the next 5 to 10 years of targeting that 30 new warehouses a year, which is why we continue to increase the capital investment towards that goal. From a membership point of view, I would say, and Ron may want to add some more color on this, too, I think it's important to calibrate some of these things that we get to a strong outcome, whether it's in the new warehouses that we open or when you look at the success of our model overall in slightly different ways in the different markets that we operate in.

Speaker #4: From a membership point of view, I would say—and Ron may want to add some more color on this, too—I think it's important to sort of calibrate some of these things so that we get to a strong outcome, whether it's in the new warehouses that we open or when you look at the success of our model overall in slightly different ways in the different markets that we operate in.

Speaker #4: So, if you think about some of those warehouses and businesses that we have in, say, Asia—like China, Japan, Korea—in many cases, we're going to see a much higher number of members per warehouse.

Gary Millerchip: If you think about some of those warehouses and businesses that we have in, say, Asia, like China, Japan, Korea, in many cases, we are going to see a much higher number of members per warehouse. But they often visit less frequently. We like the model. It performs very well. But the challenge there is how do we increase the level of frequency of visit and how do we increase the engagement with those members that we have in those markets, because while the dynamics work very well overall, we think there is an opportunity to improve how frequently and how much they are spending at Costco. In a US market, we might see less members per warehouse, but they are spending significantly more per member, and we get to a similar strong economic outcome, but it is a different engagement in the way that they are engaging overall with Costco.

Speaker #4: But they often visit less frequently. So we like the model. It performs very well, but the challenge there is how do we increase the level of frequency of visit and how do we increase the engagement with those members that we have in those markets?

Speaker #4: Because while the dynamics work very well overall, we think there's an opportunity to improve how frequently and how much they're spending at Costco.

Gary Millerchip: In a US market, we might see less members per warehouse, but they are spending significantly more per member, and we get to a similar strong economic outcome, but it is a different engagement in the way that they are engaging overall with Costco.

Speaker #4: In a U.S. market, we might see fewer members per warehouse, but they're spending significantly more per member. And so we get to a similarly strong economic outcome, but it's a different engagement in the way that they're engaging overall with Costco.

Speaker #4: So, when we talk about membership growth, it kind of comes back to my answer to one of the earlier questions. For us, it's also about quality and ensuring that on one level, we could open a new warehouse in Asia that might have a significantly outsized growth in the membership base.

Gary Millerchip: When we talk about membership growth, it kind of comes back to my answer to one of the earlier questions, is for us, it is also about quality and ensuring that at one level, we could open a new warehouse in Asia that might have a significantly outsized growth in the membership base, and for a quarter or two, it might show higher membership growth. But in some cases, you have some of those members that are just coming in for the first year to experience Costco, and it might not really be a long-term value driver for us around membership renewal and continued shopping in the warehouses. Net-net, those Asian warehouses perform very well because they have a high number of members, but they do look a little bit different. For us, our focus is really on are we growing membership?

Speaker #4: And for a quarter or two, it might show higher membership growth. But in some cases, you've got some of those members that are really just coming in for the first year to experience Costco.

Speaker #4: And it might not really be a long-term value driver for us around membership renewal and continued shopping in the warehouses. Net-net, those Asian warehouses perform very well because they have a high number of members, but they do look a little bit different.

Speaker #4: So, for us, our focus is really on: are we growing membership? Are we growing the quality of engagement with members and the loyalty of members?

Gary Millerchip: Are we growing the quality of engagement with members and loyalty of members? And do we get to a strong sales performance by growing our membership base and growing engagement with those members? I think based on the current outlook that we have for the growth in new warehouses, we feel good about the shape of how that looks at the moment, but certainly it can change over time. If you were to have two or three openings in Asia in a particular year, you might see higher growth in that membership base. But that might also mean when you look at our total metrics, it might be less impressive from a sales growth per member because it brings down that overall average.

Speaker #4: And do we get to a strong sales performance by growing our membership base and growing engagement with those members? I think, based on the current outlook that we have for the growth in new warehouses, we feel good about the shape of how that looks at the moment.

Speaker #4: But certainly, it can change over time. If you were to have two or three openings in Asia in a particular year, you might see higher growth in that membership base.

Speaker #4: But that might also mean when you look at our total metrics, it may look less impressive from a sales growth per member standpoint because it brings down that overall average.

Speaker #9: Thanks, Gary.

Kelly Bania: Thanks, Gary.

Speaker #2: And our next question comes from the line of Greg Millage with Evercore ISI. Your line is open.

Operator: Our next question comes from the line of Greg Melich with Evercore ISI. Your line is open.

Speaker #10: Hi, thanks. I'd love it if you could unpack the inflation commentary a little bit more. I think you said that food inflation was running similar to prior quarters, maybe around 1%, and that non-food was higher but decelerating.

Greg Melich: Hi, thanks. I wonder if you could unpack the inflation commentary a little bit more. I think you said that food inflation was running similar to prior quarters, maybe around 1%, and that non-food was higher but decelerating. I guess as part of that and the inflation outlook, how much do you think bringing the churro back will add to average ticket in the next quarter?

Speaker #10: And I guess as part of that, and the inflation outlook, how much do you think bringing the churro back will add to average ticket?

Speaker #10: In the next quarter?

Speaker #4: I love the question. Thanks, Greg. Yeah. Just to unpack inflation for you. So what we're seeing overall currently, if I add together the sort of the cumulative impact in all of our merchandising categories, we feel like inflation currently is running in the low single digits, and it's relatively stable overall from what we've seen in prior quarters.

Gary Millerchip: I love the question. Thanks, Greg. Just to unpack inflation for you. What we are seeing overall currently, if I add together the sort of the cumulative impact in all of our merchandising categories, we feel like inflation currently is running in the low single digits, and it is relatively stable overall from what we have seen in prior quarters. The area where we did see some increase in the current quarter was in non-foods. That was really, I would not say it was isolated, but the vast majority of it was within memory costs on consumer electronics and the items that you would expect to be related to oil. So gas prices, which we include in our inflation number, and petroleum-based items as well. So those would be the areas where we would have seen the increase in non-foods.

Speaker #4: The area where we did see some increase in the current quarter was in non-foods. And that was really—and I won't say it was isolated—but the vast majority of it was in memory, costs on consumer electronics, and the items that you would expect to be related to oil.

Speaker #4: So, gas prices—which we include in our inflation number—and petroleum-based items as well. Those would be the areas where we would have seen the increase in non-foods.

Speaker #4: It would still be relatively low inflation overall if you blend it out across all of non-foods, but that would have had an impact overall on inflation.

Gary Millerchip: It would still be relatively low inflation overall if you blend it out across all of non-foods, but that would have had an impact overall on the inflation. In fresh and food and sundry, generally consistent with what we have seen in the prior couple of quarters. There is still inflation in certain areas, so think of beef would be a good example where we still see inflation. We still see some inflation, I should say, in resins, as I mentioned, in steel and flour, some individual commodities. But there are also deflationary items like eggs and dairy and butter and cheese in particular. So all those things generally blend out to largely offset each other. I would say maybe just to comment on one thing to unpack inflation too.

Speaker #4: In fresh food and sundries, yeah, generally consistent with what we've seen in the prior couple of quarters. There's still inflation in certain areas.

Speaker #4: So think of beef as a good example where we still see inflation. We still see some inflation, I should say, in resins, as I mentioned, in steel, in flour, and some individual commodities.

Speaker #4: But there are also deflationary items like eggs, dairy, butter, and cheese in particular. So all those things generally blend out to largely offset each other.

Speaker #4: I would say, maybe just to comment on one thing—to unpack inflation, too. It might have seemed a bit contradictory for us to say inflation is relatively consistent, but we had a large LIFO charge during the quarter.

Gary Millerchip: It might have seemed a bit contradictory for us to say inflation's relatively consistent, but we had a large LIFO charge during the quarter. Maybe just to clarify the way our LIFO calculation works. Because of the accounting around LIFO, if the inflation happens at the end of the year, so in the final quarter, we have to chew up the inflation for the whole year. Normally, if it was fairly consistent throughout the year, you would spread the charge over each quarter. But because the inflation I mentioned in consumer electronics and in the gas and the petroleum-related items happened in the Q4, we have to chew up the whole sort of calculation on the inventory that we have on hand at the end of the year for the inflation rate.

Speaker #4: Maybe just to clarify the way our LIFO calculation works: because of the accounting around LIFO, if inflation happens at the end of the year, so in the final quarter, we have to true up the inflation for the whole year.

Speaker #4: Normally, if it was fairly consistent throughout the year, you would spread the charge over each quarter. But because the inflation I mentioned in consumer electronics and in the gas and petroleum-related items happened in the fourth quarter, we have to true up the whole sort of calculation on the inventory that we have on hand at the end of the year for the inflation rate.

Speaker #4: So, while we took a $150 million or so charge in the fourth quarter, if you look at the total charge for LIFO for the year, it's slightly north of $200 million, which, if you kind of divide that by the total inventory that we have on hand in the US, that would be about one and a half percent inflation.

Gary Millerchip: While we took a $150 million or so charge in the Q4, if you look at the total charge for LIFO for the year, it's slightly north of $200 million, which if you kind of divide that by the total inventory that we have on hand in the US, that would be about 1.5% inflation. So while it sounds like a big number in the quarter, it's still really only pointing to about 1.5% inflation as the impact of LIFO on the total inventory that we have at the end of the fiscal year, if that helps.

Speaker #4: So, while it sounds like a big number in the quarter, it's still really only pointing to about 1.5% inflation as the impact of LIFO on the total inventory that we have at the end of the fiscal year, if that helps.

Speaker #10: That's helpful. Thanks, Gary.

Greg Melich: That's helpful. Thanks, Gary.

Speaker #2: And our next question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Operator: Our next question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Speaker #11: Hi, this is Gabriella Gar on for Oliver. Thanks for taking our question. I wanted to zoom out a little bit and ask about the strength of the consumer, since you've noted for a couple of quarters now strengths in both value-oriented categories, but also premium ones like jewelry or travel.

Gabriella Garr: Hi, this is Gabriella Garr on for Oliver. Thanks for taking our question. I wanted to zoom out a little bit and ask about the strength of the consumer. Since you've noted for a couple of quarters now strengths in both value-oriented categories, but also premium ones like jewelry or travel. I'd love to hear how you characterize the strength of the consumer today across income cohorts versus last quarter or last year. Any commentary you can provide around price elasticity as you've made some of these additional value investments.

Speaker #11: I'd love to hear how you'd characterize the strength of the consumer today across income cohorts versus last quarter or last year. And then, any commentary you can provide around price elasticity as you've made some of these additional value investments.

Speaker #4: Sure, thanks for the question. I think we would say that when we think about the consumer—or for us, our member—of course, it's very similar to prior quarters.

Gary Millerchip: Sure. Thanks for the question. I think we would say that when we think about the consumer or for us, our member, of course, is very similar to prior quarters. I think our members are very resilient, and they continue to show a willingness to spend on discretionary items where they see that there's exciting new items that are offering great value to them. I think we do see both of the things you described. We see members being very thoughtful about where they're spending their dollars. They're looking for value in everyday items. They're also, as I mentioned, willing to spend on items where they see it's a great value, even if it is in some of those non-discretionary categories.

Speaker #4: I think our members are very resilient, and they continue to show a willingness to spend on discretionary items where they see exciting new products that are offering great value to them.

Speaker #4: And I think we do see both of the things you describe. We see members being very thoughtful about where they're spending their dollars. They're looking for value in everyday items.

Speaker #4: But they're also, as I mentioned, willing to spend on items where they see it's a great value, even if it is in some of those non-discretionary categories.

Speaker #4: So, what I mean by that—maybe just to take as examples for you—are the sort of three main categories that we focus on, which are non-foods, food and sundry, and fresh.

Gary Millerchip: What I mean by that, maybe just taking as examples for you in the sort of three main categories that we focus on, which are non-foods, food and sundry, and fresh. If you think about non-foods, we see strength in everyday items where we offer great value on things like tires and housewares and even everyday furniture. We also see strong growth in some of the health and beauty items like small appliances. When you look at self-care, things like fragrances, skin and hair care, even members willing to splurge on great value items where we're offering tremendous value on massage chairs and saunas, those kind of items. We've seen over 50% growth in those items.

Speaker #4: If you think about non-foods, we see strength in everyday items where we offer great value on things like tires, housewares, and even everyday furniture.

Speaker #4: But we also see strong growth in some of the health and beauty items, like small appliances, when you look at self-care—things like fragrances, skin and hair care. Even members want to splurge on great value items, where we're offering tremendous value on massage chairs and so on, as those kinds of items.

Speaker #4: We've seen over 50% growth in those items. So in non-foods, they will be good examples where we're seeing both of those dynamics at play—looking for that great value on everyday items, but also willing to buy items that are maybe more discretionary where they see the value.

Gary Millerchip: In non-foods, they would be good examples where we're seeing both of those dynamics at play of looking for that great value on every day, but also willing to buy items that are maybe more discretionary where they see the value. Similarly, I'd say in fresh, everyday items, it really shows up in ground beef and poultry, but on premium items in USDA Prime and Wagyu beef. Also in bakery, we see tremendous strength in bakery, where we're offering really great quality, indulgent items for members to buy. I think it shows up in all the different categories. We see both elements of it, and the nice thing about being an item business is I think we're able to deliver on both of those expectations of our members, and we're seeing growth in both ends of that spectrum.

Speaker #4: Similarly, I would say in fresh, everyday items, it really shows up in ground beef and poultry, but then, on premium items, in USDA Prime and Wagyu beef. But also, in bakery, we see tremendous strength in bakery, where we're offering really great-quality, indulgent items for members to buy.

Speaker #4: So I think it shows up in all the different categories. We see both elements of it, and the nice thing about being an item business is, I think, we're able to deliver on both of those expectations of our members. We're seeing growth on both ends of that spectrum.

Speaker #2: Thanks, appreciate the caller. And our next question comes from the line of Kate McShane with Goldman Sachs. Your line is open.

Gabriella Garr: Thanks. Appreciate the color.

Operator: Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is open.

Speaker #12: Hi, good afternoon. Thanks for taking our question. It's been asked a couple of times with regards to the younger customer, but our question about that was: it sounds like they maybe start buying a little bit less when they come to you than the average member.

Kate McShane: Hi. Good afternoon. Thanks for taking our question. It's been asked a couple of times with regards to the younger customer, but our question with regards to that was, it sounds like they maybe start buying a little bit less when they come to you than the average member, and we just wondered what that maturity curve looked like. Then just how much incremental lift do you expect from your new third-party fulfillment agreements?

Speaker #12: And we just wondered what that maturity curve looked like, and then just how much incremental lift do you expect from your new third-party fulfillment agreements?

Speaker #4: Sure. Thanks, Kate. On the maturity, it's really a case of what we tend to find is that younger members, generally speaking—as you might imagine—are a smaller household, and generally the income levels are a little bit lower than when they sort of, for us, would sort of reach their peak maturity, I'm guessing, having the most need for what we offer at Costco.

Gary Millerchip: Sure. Thanks, Kate. On the maturity, it's really a case of what we tend to find is that younger members, generally speaking, as you might imagine, are a smaller household, and generally, the income levels are a little bit lower than when they sort of, for us, would sort of reach their peak maturity in getting, having the most need for what we offer at Costco. So really, as they go through that sort of pre-40 through 40 to 55 or so is when we see our members hit that peak spending pattern because their income is generally at its peak, and they're also sort of largest family size. So, generally taking advantage of the broader elements of what Costco has to offer.

Speaker #4: So really, as they go through that sort of pre-40, through 40 to 55 or so, is when we see our members hit that peak spending pattern, because their income is generally at its peak and they're also at sort of their largest family size.

Speaker #4: So generally, taking advantage of the broader elements of what Costco has to offer, I'd probably call out more in the shorter term some of the other metrics that I mentioned around the potential for higher spend per member.

Gary Millerchip: I would probably call out more in the shorter term, some of the other metrics that I mentioned around the potential for higher spend per member when we look at our executive member penetration and how that has grown. Generally speaking, as members are investing a higher level in the fee, they, psychologically, if you like, looking to get the most value from their membership, so we tend to see higher spend on executive members. Similarly, as members engage more in gas, we tend to find they visit more frequently. We did not necessarily see that in the very early days of the spike in gas prices in the market because I think members were generally filling up short-term to fill in more frequently, rather than visiting at the same time to the warehouse.

Speaker #4: When we look at our executive member penetration and how that's grown, generally speaking, as members are investing at a higher level in the fee, they psychologically, if you like, are looking to get the most value from their membership.

Speaker #4: And so, we tend to see higher spend among Executive Members. Similarly, as members engage more in gas, we tend to find they visit more frequently.

Speaker #4: We didn't necessarily see that in the very early days of the spiking gas prices in the market, because I think members were generally filling up short-term, to fill in more frequently, rather than visiting at the same time to the warehouse.

Speaker #4: But we do believe, as members see the value of gas that we're offering, and we've got more new members buying gas for the first time, that we think that's a great indicator of continued spend and growth with members as well.

Gary Millerchip: But we do believe as members see the value of gas that we are offering, and we have got more new members buying gas for the first time, that we think that is a great indicator of continued spend and growth with members as well. So I think it is a combination of all of those that we would expect to be positive for us in terms of driving that incremental spend per member. On the third-party side, our general experience is that there are different consumers or members for us that are engaging in the different platforms. So we do think there will be incrementality by bringing more choice to our members. Generally speaking, we find where members engage in one of those three platforms, or at least Instacart for us so far, it is generally incremental.

Speaker #4: So, I think it's a combination of all of those that we would expect to be positive for us, in terms of driving that incremental spend per member.

Speaker #4: And then, on the third-party site, our general experience is that there are different consumers or members, for us, that are engaging in the different platforms.

Speaker #4: So, we do think there will be incrementality by bringing more choice to our members. And, generally speaking, we find where members engage in one of those three platforms, or at least Instacart for us so far, it's generally incremental.

Speaker #4: So it tends to be an additional shopping trip versus it pulling away from anything that we see as well. So we tag a hat on overall loyalty as well.

Gary Millerchip: So it tends to be an additional shopping trip versus it is pulling away from anything that we see as has on overall loyalty as well.

Speaker #2: Thank you. And our next question comes from the line of Chris Horvers with JPMorgan. Your line is open.

Kate McShane: Thank you.

Operator: Our next question comes from the line of Chris Horvers with JPMorgan. Your line is open.

Speaker #13: Thanks, guys. Good evening. I want to try to bring together the pricing and inflation question a little bit. We're getting to a point where I think the egg deflation should start to go to zero, and no longer be a headwind.

Chris Horvers: Thanks, guys. Good evening. I want to try to bring together sort of the pricing and inflation question a little bit. We are getting to a point where I think the deflation should start to go to zero and no longer be a headwind. It also seems like we are getting past most retailers, the timeframe of reinvesting tariff rebates and the oil is persistent enough where prices probably do go up. I guess as you look ahead in the calendar year, do you think that grocery inflation number, the low single digit, has a bit of an inflection coming? Or on the other hand, do you think that the softer industry volumes around grocery, obviously not for Costco, but across the industry, it is weaker because of some of the pressures on the low end.

Speaker #13: And it also seems like we're getting past most retailers—the timeframe of reinvesting tariff rebates. And the oil's persistent enough where prices probably do go up.

Speaker #13: So I guess as you look ahead in the calendar year, do you think that grocery inflation number, the low single digit, has a bit of an inflection coming?

Speaker #13: Or on the other industry volumes around grocery—obviously not for Costco—but across the industry, it is weaker because of some of the pressures on the low end.

Speaker #13: Do you think we don't have that sort of ultimate rationality that the industry has always demonstrated? Obviously, you're the last to raise and first to lower, but ultimately you do act rationally.

Chris Horvers: Do you think we do not have that sort of ultimate rationality that the industry has always demonstrated? Obviously, you are the last to raise and first to lower, but ultimately you do act rational when there are these persistent cost pressures. Just want to get the overall view on how you think grocery inflation proceeds over the next 3 to 6 months and whether the industry is sort of strong enough and rational enough for those prices to actually go up.

Speaker #13: When there are these persistent cost pressures, I just want to get the overall view on how you think grocery inflation proceeds over the next three to six months, and whether the industry is strong enough and rational enough for those prices to actually go up.

Speaker #4: Yeah, I think for us, as you might expect, we think it's difficult to predict what's going to happen with inflation. I think especially because of the uncertainty around the situation in the Middle East and how long that might impact, and what you might see in terms of volatility in prices on oil and oil-related items.

Gary Millerchip: Yeah, I think for us, as you might expect, we think it is difficult to predict what is going to happen with inflation. I think especially because of the uncertainty around the situation with the Middle East and how long that might impact and what you might see in terms of volatility in prices on oil and oil-related items. Then, of course, there is still uncertainty around potentially where exactly we land on the tariffs that exist today or could exist in the future. I think there are variables that make it really hard for us to predict with too much precision of what may happen. The best reference for us we can share, I think, is really what we have seen in recent quarters.

Speaker #4: And then, of course, there's still uncertainty around where exactly we land on the tariffs that exist today, or could exist in the future.

Speaker #4: So I think there are variables that make it really hard for us to predict with too much precision what may happen. I think, as you say, the best reference we can share is really what we've seen in recent quarters.

Speaker #4: I don’t know that we call out, outside of caveating everything I say with those two major factors, which could have a meaningful impact on what happens in the coming 6 to 12 months.

Gary Millerchip: I don't know that we call out outside of caveating everything I'd say with those two major factors could have a meaningful impact on what happens in the coming 6 to 12 months. Generally speaking, we've seen prices be relatively stable, and I think you're right. We may see the world a little bit differently because our focus is always on how do we find ways to lower our costs, how are we finding efficiencies to offset where there might be commodity price inflation. I don't know that we characterize what we see today as being any different looking forward from that outside of the unknowns that I just described.

Speaker #4: Generally speaking, we've seen prices be relatively stable. And I think you're right—we may see the world a little bit differently, because our focus is always on how do we find ways to lower our costs, how are we finding efficiencies to offset where there might be commodity price inflation.

Speaker #4: I don't know that we characterize what we see today as being any different, looking forward, from that, outside of the unknowns that I just described.

Speaker #4: And so, from our perspective, it's been a relatively stable environment for inflation. Our goal is to continue to find ways to achieve cost savings and efficiencies that would offset where we might see those pressures, to keep prices and value there for our members.

Gary Millerchip: From our perspective, it's been a relatively stable environment for inflation, and our goal is to continue to find ways to find cost savings and efficiencies that would offset where we might see those pressures to keep prices and value there for our members and drive top-line sales.

Speaker #4: And drive top-line sales.

Speaker #13: Thank you.

Chris Horvers: Thank you.

Speaker #2: And our next question comes from the line of David Bellinger with Mizuho. Your line is open.

Operator: Our next question comes from the line of David Bellinger with Mizuho. Your line is open.

Speaker #14: Hey, thanks for the question. I want to go into the third-party delivery expansion a bit more. Should we think about this as the ultimate solution for delivery for Costco?

David Bellinger: Hey, thanks for the question. I want to go into the third-party delivery expansion a bit more. Should we think about this as the ultimate solution for delivery for Costco? Because you do have a higher mix of these younger customers coming in. They tend to mix towards a propensity for faster delivery speeds, a lot of convenience. Is this it, or could there be some type of precursor here for a new investment cycle for Costco where you have to meet those needs of the consumer ever more than you did in the past? Thank you.

Speaker #14: Because you do have a higher mix of these younger customers coming in, they tend to lean toward a propensity for faster delivery speeds and a lot of convenience.

Speaker #14: Is this it, or could there be some type of precursor here for a new investment cycle for Costco, where you have to meet those needs of the consumer ever more than you did in the past?

Speaker #14: Thank you.

Speaker #4: I think we feel pretty good about where we are with the digital engagement and delivery times, be it in big and bulky. We've made some significant improvements in the past five years, bringing our times of delivery of furnishings and appliances from four to five weeks down to three to four days.

Ron Vachris: I think we feel pretty good about where we are with the digital engagement and delivery times. Be it in big and bulky, we've made some significant improvements in the past five years, bringing our times of delivery of furnishings and appliances from four to five weeks down to three and four days. The same type of improvement has been experienced in this same-day delivery, and the majority of these deliveries are done within 45 minutes if that's what the customer wants. Gary said earlier, we find a lot of this interaction to be incremental to our experiences with our members who are still visiting the clubs regularly. They use these as fill-in shops, and some may use them even more frequently than that.

Speaker #4: The same type of thing, the same type of improvement, has been experienced in same-day delivery. And the majority of these deliveries are completed within 45 minutes, if that's what the customer wants.

Speaker #4: As Gary said earlier, we find a lot of this interaction to be incremental to our experiences, with our members still visiting the clubs regularly.

Speaker #4: But they use these as fill-in shops, and some may use them even more frequently than that. So, we see it as a great addition to the offering.

Ron Vachris: We see it as a great addition to the offering, and there is a subset of people that really take advantage of this, and that tends to be the younger customers that we have that resonate more with the immediacy of delivery, and they want that then. But we do see it really serving a purpose, be it from prescription deliveries to grocery deliveries. It's broad-based, and it's very, again, like we said, incremental to the relationship with our members out there.

Speaker #4: And there is a subset of people that really take advantage of this, and that tends to be the younger customers that we have, who resonate more with the immediacy of delivery, and they want that then.

Speaker #4: But we do see it really serving a purpose, be it from prescription deliveries to grocery deliveries. It's broad-based, and it's very, again, like we said, incremental to the relationship with our members out there.

Speaker #2: And our final question comes from the line of Christopher Nardone with Bank of America. Your line is open.

Operator: Our final question comes from the line of Christopher Nardone with Bank of America. Your line is open.

Speaker #13: Thanks, guys. So first, I was wondering if there's any specific cost buckets within SG&A where you're starting to see more pressure, relative to the last few quarters.

Christopher Nardone: Thanks, guys. First, I was wondering if there's any specific cost buckets within SG&A where you're starting to see more pressure relative to the last few quarters, and if there's any reason you wouldn't be able to continue leveraging SG&A if you're comping in this 6% range in the foreseeable future. If I can sneak in a quick follow-up just separately on GLP-1s. Just curious if you're starting to see an impact to sales from some of these recent price changes, and if not, could we see a larger headwind next year in calendar 2027 from the next round of pricing cuts?

Speaker #13: And is there any reason you wouldn't be able to continue leveraging SG&A if you're operating in this 6% range in the foreseeable future? And if I can sneak in a quick follow-up—just separately, on GLP-1s, I'm curious if you're starting to see an impact to sales from some of these recent price changes.

Speaker #13: And if not, could we see a larger headwind next year, in calendar 2027, from the next round of pricing cuts?

Speaker #4: Yeah, thanks for the questions. I think, first of all, on SG&A, I think you characterized it pretty well. We did see a little bit of leverage during the quarter.

Gary Millerchip: Yeah. Thanks for the questions. I think first of all, on SG&A, I think you characterized it pretty well. We did see a little bit of leverage during the quarter. I wouldn't say that there is anything that we'd call out today that would cause us to think there's some major sort of headwinds that would impact our ability if we're comping at the rate that you mentioned to be able to create some leverage in the model. I think the one area that we have called out previously in other quarters would be general liability and healthcare as costs that have been growing at a faster rate. But Q4 would be a good example where we were able to continue to achieve a little bit of SG&A leverage, even with continued cost increases in those areas.

Speaker #4: I wouldn't say that there is anything that we'd call out today that would cause us to think there's some major sort of headwind that would impact our ability, if we're comping at the rate that you mentioned, to be able to create some leverage in the model.

Speaker #4: I think the one area that we have called out previously in other quarters would be general liability in healthcare, as costs have been growing at a faster rate.

Speaker #4: But Q4 would be a good example where we were able to continue to achieve a little bit of SG&A leverage, even with continued cost increases in those areas.

Speaker #4: But certainly, if that trend were to deteriorate, that would be a factor that could influence our ability to do that. But when we look at our employee agreements, I think those are factored in for a three-year period.

Gary Millerchip: But certainly, if that trend were to deteriorate, that would be a factor that could influence our ability to do that. But when we look at our employee agreements, I think those are factored in for a three-year period, and year one is always the most expensive of a three-year agreement there. So we're into year two now with that. When we look at the sort of opportunities to continue to be more productive as we drive top-line sales, I don't think there's anything particular I would call out that would be something to watch out for beyond what you saw in our Q4 results. From a GLP-1 perspective, I think probably the best way to look at it is the example of what's happened, as Ron shared in our earlier comments with the initial changes on GLP-1s. We certainly had some impact on our business.

Speaker #4: And year one is always the most expensive of a three-year agreement there. So we're into year two now with that. So from when we look at the sort of opportunities to continue to be more productive as we drive top-line sales, I don't think there's anything particularly I would call out that would be something to watch out for beyond what you saw in our Q4 results.

Speaker #4: From a GLP-1 perspective, I think the best way to look at it is the example of what's happened, as Ron shared in our earlier comments.

Speaker #4: With the initial changes on GLP-1s, we certainly had some impact on our business. But with the significant value that we offer through the programs that we've invested in today, and continue to invest in, we feel like we've found ways to both offset those impacts and also drive more value for our members, and drive increased script count as well as top-line sales.

Gary Millerchip: But with the significant value that we offer through the programs that we've invested in to date and continue to invest in, we feel like we've found ways to both offset those impacts and also drive more value for our members and drive increased script count as well as top-line sales. While I do think that will continue to be those underlying headwinds that we have to manage, we feel good about the way in which we're delivering more value for members through our healthcare, creating more convenience for them, and we believe those will allow us to continue to see momentum in that part of our business.

Speaker #4: So while I do think there will continue to be those underlying headwinds that we have to manage, we feel good about the way in which we're delivering more value for members through our healthcare, creating more convenience for them, and we believe those will allow us to continue to see momentum in that part of our business.

Ron Vachris: As at Costco, when we see lower prices, we see an opportunity, and we have really taken great advantage of that this year in the pharmacy with the lower GLP pricing, the lower drug prices that we have been out there, how we have been able to capitalize on more unit growth. The same type of thing with the tariff investments that we have made. We have made significant tariff investments. Unit growth has been fantastic, and that is what it is all about. It is how do we get that value back to the member? The units have responded excellent, and we have continued to see that in the pharmacy and in the core business itself. So we look to the opportunities of lower prices and taking care of our members.

Speaker #4: As at Costco, when we see lower prices, we see an opportunity. And we've really taken great advantage of that this year in the pharmacy, with the lower GLP pricing, the lower drug prices that we've seen out there, and how we've been able to capitalize on more unit growth.

Speaker #4: The same type of thing with the tariff investments that we've made. We've made significant tariff investments. Unit growth has been fantastic, and that's what it's all about—how do we get that value back to the member? The units have responded excellently, and we've continued to see that in the pharmacy and in the core business itself.

Speaker #4: So, we look to the opportunities of lower prices and taking care of our members.

Speaker #13: Thank you.

Christopher Nardone: Thank you.

Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.