Costco Wholesale Corporation (COST)

Item 1—Business

Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in Seattle, Washington. We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, Mexico, Japan, the United Kingdom (U.K.), Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand. Costco operated 914, 890, and 861 warehouses worldwide at August 31, 2025, September 1, 2024, and September 3, 2023. The Company operates e-commerce sites in the U.S., Canada, Mexico, the U.K., Korea, Taiwan, Japan, and Australia. Our common stock trades on the NASDAQ Global Select Market, under the symbol “COST.”

We report on a 52/53-week fiscal year, consisting of thirteen four-week periods and ending on the Sunday nearest the end of August. The first three quarters consist of three periods each, and the fourth quarter consists of four periods (five weeks in the thirteenth period in a 53-week year). The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season. References to 2025 and 2024 relate to the 52-week fiscal years ended August 31, 2025, and September 1, 2024. References to 2023 relate to the 53-week fiscal year ended September 3, 2023.

General

We operate membership warehouses and e-commerce sites based on the concept that offering low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover. When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers. We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.

We buy most of our merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to our warehouses. Our depots receive large shipments from suppliers and quickly ship these goods to warehouses. This process creates freight volume and handling efficiencies, lowering

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costs associated with traditional multiple-step distribution channels. Our e-commerce operations ship merchandise through our depots and logistics operations, as well as through drop-ship and other delivery arrangements with our suppliers.

Our average warehouse space is approximately 147,000 square feet, with newer units being slightly larger. Floor plans are designed for efficiency in the use of selling space, the handling of merchandise, and the control of inventory. Because shoppers are attracted principally by the quality of merchandise and low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations.

Our operating hours are shorter than many other retailers, and due to other efficiencies inherent in a warehouse club operation, we believe labor costs are lower relative to the volume of sales. In the U.S., we recently added exclusive shopping hours for our Executive members and our gasoline operations generally have extended hours. Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required. In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, Executive member 2% reward certificates, co-brand cardholder rebates, and our proprietary stored-value card (shop card).

Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than elsewhere. We seek to limit most items to fast-selling models, sizes, and colors. We carry less than 4,000 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers. We average from 9,000 to 10,000 SKUs online, some of which are available in our warehouses. Many consumable products are offered for sale in case, carton, or multiple-pack quantities only.

To promote member satisfaction, we generally accept returns of merchandise. On certain electronic items, we have a 90-day return policy and provide, free of charge, technical support services, as well as an extended warranty. Additional third-party warranty coverage is sold on certain electronic items and major appliances.

We offer merchandise and services in the following categories:

■Core Merchandise Categories:

•Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, liquor, and tobacco)

•Non-Foods (including major appliances, small electronics, health and beauty aids, hardware, lawn and garden, sporting goods, tires, toys and seasonal, automotive, stamps, tickets, apparel, furniture, domestics, housewares, special order kiosk, and jewelry)

•Fresh Foods (including meat, produce, deli, and bakery)

■Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation)

■Other Businesses (includes e-commerce, business centers, travel, and other)

Warehouse ancillary operate primarily within, next to or near our warehouses, encouraging more frequent shopping. The number of warehouses with gas stations varies significantly by country. We operated 747 gas stations at the end of 2025. Our gasoline business represented approximately 10% of total net sales in 2025.

Our other businesses sell products and services that largely complement our warehouse operations. Our e-commerce operations give members convenience and a broader selection of goods and services. Net sales for e-commerce represented approximately 7% of total net sales in 2025. Digitally-enabled sales,

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which represents sales delivered to members that are initiated through a digital device, whether fulfilled through a warehouse or distribution center, as well as Costco Travel, represented approximately 10% of total net sales in 2025. Our business centers carry items tailored for food services, convenience stores and offices and offer walk-in shopping and deliveries. Business centers are included in our total warehouse count. Costco Travel offers vacation packages, car rentals, cruises and other travel products exclusively for Costco members (offered to varying degrees in the U.S., Canada, Australia, and the U.K.).

We have direct relationships with many producers of brand-name merchandise. We do not obtain a significant portion of merchandise from any one supplier. When sources of supply become unavailable, we seek alternative sources or items. For future product supply need, we pursue diversification in our supply-chain and seek to expand in-country production. We also purchase and manufacture private-label merchandise, as long as quality and member demand are high and the value to our members is significant.

Certain financial information for our segments and geographic areas is included in Note 11 to the consolidated financial statements included in Item 8 of this Report.

Membership

Our members may utilize their memberships at all of our warehouses and e-commerce sites. Gold Star memberships are available to individuals; Business memberships are limited to businesses, including individuals with a business license or comparable document. Business members may add additional cardholders (affiliates), to which the same annual fee applies. Affiliates are not available for Gold Star members. Our annual fee for these memberships is $65 in the U.S. and varies in other countries. All paid memberships include a free household card.

Paid members (except affiliates) are eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $65. Executive memberships are also available in Canada, Mexico, the U.K., Japan, Korea, Taiwan, and Australia, for which the additional fee varies. Executive members earn a 2% reward on qualified purchases (generally up to a maximum reward of $1,250 per year), redeemable at Costco warehouses. The sales penetration of Executive members represented approximately 73.6% of worldwide net sales in 2025.

Membership at the end of 2025, 2024, and 2023 was made up of the following (in thousands):

	2025	2024	2023
Gold Star	68,300	63,700	58,800
Business, including affiliates	12,700	12,500	12,200
Total paid members1	81,000	76,200	71,000
Household cards	64,200	60,600	56,900
Total cardholders	145,200	136,800	127,900

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(1)Executive members represented 38,700, 35,400, and 32,300 of total paid members in 2025, 2024, and 2023.

These membership counts include active memberships as well as memberships that have expired and not renewed within the 12 months prior to the reporting date. These expired memberships make up a small percentage of these membership counts, and many of them are subsequently renewed.

Our member renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide at the end of 2025. That rate, which excludes affiliates of Business members, is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date. Memberships that have an expiration date in the six months prior to the end of our reporting period are excluded from this calculation, regardless of whether or not they have been renewed. Although most members renew prior to expiration, the vast majority of those who renew late do so within six months of expiration. The timing of

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renewal after expiration is impacted by a variety of factors, such as warehouse openings and promotional activity.

Human Capital

“Take Care of Our Employees,” is a key component of our code of ethics and is fundamental to our commitment to “Take Care of Our Members.” Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.

Employee Base

Loading financial statements...

Financial statements

data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .

From 10-Q filed 2026-03-11 (period ending 2026-02-15).

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Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

(amounts in millions, except per share, share, percentages and warehouse count data)

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the Company expects or anticipates may occur in the future and may relate to such matters as net sales growth, changes in comparable sales, cannibalization of existing locations by new openings, price or fee changes, earnings performance, earnings per share, stock-based compensation expense, warehouse openings and closures, capital spending, the effect of adopting certain accounting standards, future financial reporting, financing, margins, return on invested capital, investments in technology, strategic direction, expense controls, membership fee changes, signups, and renewal rates, shopping frequency, litigation, attainment of sustainability goals, and the demand for our products and services. In some cases, forward-looking statements can be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, inflation or deflation, the effects of competition and regulation, uncertainties in the financial markets, consumer and small business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs and wages), workforce interruptions, energy and certain commodities, geopolitical conditions (including tariffs and global conflicts), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to environmental and social matters, public-health related factors, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission. 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.

OVERVIEW

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition. MD&A is provided as a supplement to and should be read in conjunction with our condensed consolidated financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q), as well as our consolidated financial statements, the accompanying Notes to Financial Statements, and the related MD&A in our fiscal year 2025 Form 10-K, which was filed with the Securities and Exchange Commission on October 8, 2025.

We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales. Net sales includes our core merchandise categories (foods and sundries, non-foods, and fresh foods), warehouse ancillary (gasoline, pharmacy, optical, food court, hearing aids, and tire

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installation) and other businesses (e-commerce, business centers, travel, and other). E-commerce and business center sales are allocated to the appropriate merchandise categories in the Net Sales discussion. The 2% reward associated with Executive membership reduces net sales and is allocated to the category in which the reward is generated (core merchandise categories, warehouse ancillary, and other businesses). Comparable sales is defined as net sales from warehouses and digitally-enabled businesses operating for more than one year, including remodels, relocations and expansions. Starting this year, we changed our e-commerce comparable sales metric to digitally-enabled comparable sales. This metric represents sales delivered to members that are initiated through a digital device, whether fulfilled through a warehouse or a distribution center, as well as Costco Travel. The comparable sales measures are intended as supplemental information and are not a substitute for net sales presented in accordance with U.S. GAAP and should be reviewed in conjunction with results reported in accordance with U.S. GAAP. Comparable sales growth is achieved through increasing shopping frequency from new and existing members and the amount they spend on each visit (average ticket). Sales comparisons can also be particularly influenced by certain factors that are beyond our control: fluctuations in currency exchange rates (with respect to our international operations) and inflation or deflation in the cost of gasoline and associated competitive conditions. The higher our comparable sales exclusive of these items, the more we can leverage our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability. Generating comparable sales growth is foremost a question of making available the right merchandise at the right prices, a skill that we believe we have repeatedly demonstrated over the long-term. Another substantial factor in net sales growth is the health of the economies in which we do business, including the effects of inflation or deflation, especially the United States. Net sales growth and gross margins are also impacted by competition, which is vigorous and widespread, across a wide range of global, national and regional wholesalers and retailers, including those with e-commerce operations. While we cannot control or reliably predict general economic health or changes in competition, we believe that we have been successful historically in adapting our business to these changes, such as through adjustments to our pricing and merchandise mix, including increasing the penetration of our private-label items, and through online offerings.

Our philosophy is to provide our members with quality goods and services at competitive prices. We do not focus in the short-term on maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our “pricing authority” – consistently providing the most competitive values. Our net sales and gross margin are influenced in part by our merchandising and pricing strategies in response to cost increases. Those strategies can include, but are not limited to, working with our suppliers to share in absorbing cost increases, earlier-than-usual purchasing and in greater volumes, sourcing in the countries and regions where items are sold, as well as passing cost increases on to our members. Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, negatively impacting gross margin and gross margin as a percentage of net sales (gross margin percentage) in the near term. Our digitally-enabled business, domestically and internationally, has a lower gross-margin percentage than our warehouse operations.

Government actions in various countries relating to tariffs affect the costs of some of our merchandise. The degree of our exposure is dependent on (among other things) the type of goods, rates imposed, and timing of the tariffs. Higher tariffs are more likely to adversely impact rather than improve our results.

We believe our gasoline business enhances traffic in our warehouses; it generally has a lower gross margin percentage and lower SG&A expense relative to our non-gasoline businesses. A higher penetration of gasoline sales will generally lower our gross margin percentage. Generally, rising gasoline prices benefit net sales growth which, given the higher sales base, negatively impacts our gross margin percentage but decreases our SG&A expenses as a percentage of net sales. A decline in gasoline prices has the inverse effect.

We also achieve net sales growth by opening new warehouses. As our warehouse base grows and available and desirable sites become more difficult to secure, square footage growth becomes a comparatively less substantial component of growth. Negative aspects of such growth include lower initial

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operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openings occur in existing markets. Our rate of square footage growth is generally higher in many of our foreign markets, due to the smaller base in those markets, and we expect that to continue.

The membership format is integral to our business and profitability. This format is designed to reinforce member loyalty and provide continuing fee revenue. The extent to which we achieve growth in our membership base, increase the penetration of Executive memberships, and sustain high renewal rates materially influences our profitability. Our renewal rate, which excludes affiliates of Business members, is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date. Our paid-membership growth rate may be adversely impacted when warehouse openings occur in existing markets as compared to new markets. Our worldwide renewal rate is adversely impacted by membership growth in newer international markets and a higher penetration of memberships sold online, including through digital membership promotions, which renew at a slightly lower rate on average.

Our financial performance depends heavily on controlling costs. While we believe that we have achieved successes in this area, some significant costs are partially outside our control, particularly health care and utility expenses. With respect to the compensation of our employees, our philosophy is not to seek to minimize their wages and benefits. Rather, we believe that achieving our longer-term objectives of reducing employee turnover, increasing productivity and enhancing employee satisfaction requires maintaining compensation levels that are better than the industry average for much of our workforce. This may cause us, for example, to absorb costs that other employers might seek to pass through to their workforces. Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and SG&A expenses, can have substantial impacts on net income.

Our operating models are generally the same across our U.S., Canadian, and Other International operating segments (see Note 9 to the condensed consolidated financial statements included in Part I, Item 1, of this Report). Certain operations in the Other International segment have relatively higher rates of square footage growth, lower wage and benefit costs as a percentage of sales, less or no direct membership warehouse competition, or lack e-commerce or business delivery.

In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S. dollar, which are differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into U.S. dollars. This impact is calculated based on the difference between the current and prior period's exchange rates. The impact of changes in gasoline prices on net sales is calculated based on the difference between the current and prior period's average price per gallon. Results expressed excluding the impacts of foreign-exchange and gasoline prices are intended as supplemental information and are not a substitute for net sales presented in accordance with U.S. GAAP and should be reviewed in conjunction with results reported in accordance with U.S. GAAP.

Our fiscal year ends on the Sunday closest to August 31. References to the second quarter of 2026 and 2025 relate to the 12-week fiscal quarters ended February 15, 2026, and February 16, 2025. References to the first half of 2026 and 2025 relate to the 24 weeks ended February 15, 2026, and February 16, 2025. Certain percentages presented are calculated using actual results prior to rounding.

Highlights for the second quarter of 2026 versus 2025 include:

•We opened four new warehouses, including one relocation, for a total of three net new warehouses: one in the U.S. and two in our Canadian segment, compared to one new warehouse in the U.S.;

•Net sales increased 9% to $68,242, driven by an increase in comparable sales and sales at 27 net new warehouses opened since the end of the second quarter of 2025;

•Membership fee revenue increased 14% to $1,355, primarily driven by new member sign-ups and membership fee increases;

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•Gross margin as a percentage of net sales and excluding the impact of gasoline price deflation increased 11 basis points;

•SG&A expenses as a percentage of net sales and excluding the impact of gasoline price deflation increased eight basis points;

•The effective tax rate was 25.2%, compared to 26.2%;

•Net income increased to $2,035, $4.58 per diluted share, compared to $1,788, $4.02 per diluted share; and

•A quarterly cash dividend of $1.30 per share was declared on January 15, 2026, and paid on February 13, 2026.

RESULTS OF OPERATIONS

Net Sales

	12 Weeks Ended						24 Weeks Ended
	February 15, 2026			February 16, 2025			February 15, 2026			February 16, 2025
Net Sales	$	68,242		$	62,530		$	134,220		$	123,515
Increases in net sales:
U.S.	7		%	11		%	8		%	9		%
Canada	12		%	5		%	10		%	6		%
Other International	15		%	5		%	13		%	6		%
Total Company	9		%	9		%	9		%	8		%
Increases in comparable sales:
U.S.	6		%	8		%	6		%	7		%
Canada	10		%	5		%	8		%	5		%
Other International	13		%	2		%	11		%	3		%
Total Company	7		%	7		%	7		%	6		%
Increases in comparable sales excluding the impact of changes in foreign-currency and gasoline prices:
U.S.	6		%	9		%	6		%	8		%
Canada	8		%	10		%	8		%	9		%
Other International	7		%	10		%	7		%	9		%
Total Company	7		%	9		%	7		%	8		%

Net sales increased $5,712 or 9%, and $10,705 or 9% during the second quarter and first half of 2026. The improvement was primarily attributable to an increase in comparable sales of $4,618 or 7% and $8,497 or 7% during the second quarter and first half of 2026. Comparable sales were positively impacted by increases of approximately 4% in average ticket and 3% in shopping frequency in both the second quarter and first half of 2026. The remaining increase was driven by sales at the 27 net new warehouses opened since the end of the second quarter of 2025.

Digitally-enabled comparable sales increased 23% and 22% during the second quarter and first half of 2026 and increased 22% and 21% excluding the impact of changes in foreign-currencies.

Sales increased $4,715 or 9% and $8,663 or 9% in core merchandise categories during the second quarter and first half of 2026, increasing in all categories. Sales increased $997 or 9% and $2,042 or 9% in warehouse ancillary and other businesses during the second quarter and first half of 2026.

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The volume of gasoline sold increased approximately 4%, positively impacting net sales by $209, or 33 basis points and $443 or 36 basis points during the second quarter and first half of 2026. Lower gasoline prices negatively impacted net sales by $402, or 64 basis points, and $431, or 35 basis points during the second quarter and first half of 2026, with a 5% and 3% decrease in the average price per gallon.

Changes in foreign-currencies relative to the U.S. dollar attributable to our Other International and Canadian operations positively impacted net sales by approximately $899, or 144 basis points, and approximately $935, or 76 basis points, during the second quarter and first half of 2026.

Membership Fees

	12 Weeks Ended				24 Weeks Ended
	February 15, 2026		February 16, 2025		February 15, 2026		February 16, 2025
Membership fees	$	1,355	$	1,193	$	2,684	$	2,359
Total paid members (000s)	82,100		78,400		—		—
Total cardholders (000s)	147,200		140,600		—		—

Membership fee revenue increased 14% in the second quarter and first half of 2026, driven by new member sign-ups and membership fee increases. At the end of the second quarter of 2026, our renewal rates were 92.1% in the U.S. and Canada and 89.7% worldwide. Renewal rates were negatively impacted by a higher number of memberships sold online, including through digital promotions, entering the renewal rate calculation. These memberships renew at a slightly lower rate on average.

As previously reported, we increased our annual membership fees in the U.S. and Canada, effective September 1, 2024. We account for membership fee revenue on a deferred basis, recognized ratably over the one-year membership period. The fee income increase accounted for approximately 35% and 40% of membership income growth during the second quarter and first half of 2026.

Gross Margin

	12 Weeks Ended						24 Weeks Ended
	February 15, 2026			February 16, 2025			February 15, 2026			February 16, 2025
Net sales	$	68,242		$	62,530		$	134,220		$	123,515
Less merchandise costs	60,719			55,744			119,229			109,853
Gross margin	$	7,523		$	6,786		$	14,991		$	13,662
Gross margin percentage	11.02		%	10.85		%	11.17		%	11.06		%

Quarterly Results

Gross margin as a percentage of net sales increased by 17 basis points. Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.96%, an increase of 11 basis points. The increase was positively impacted by 17 basis points in our warehouse ancillary and other businesses, primarily gasoline and pharmacy, and five basis points from a non-recurring legal settlement. Gross margin percentage was negatively impacted by seven basis points in our core merchandise categories, primarily due to 2% rewards and our co-branded credit card program, partially offset by an increase in non-foods and fresh foods. A LIFO charge in the second quarter of 2026 compared to a benefit in the second quarter of 2025 also negatively impacted gross margin by four basis points. Changes in foreign currencies relative to the U.S. dollar positively impacted gross margin by approximately $97, compared to the second quarter of 2025, attributable to Other International and Canadian operations.

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased 22 basis points, with increases in all categories. This

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measure eliminates the impact of changes in sales penetration and gross margin from our warehouse ancillary and other businesses.

Gross margin percentage on a segment basis, when expressed as a percentage of the segment's own sales and excluding the impact of changes in gasoline prices on net sales (segment gross margin percentage), increased in our U.S. segment, which performed similarly to the consolidated results above. Our Canadian segment gross margin percentage increased, primarily due to increases in warehouse ancillary and other businesses, partially offset by decreases in core merchandise categories. Gross margin increased in our Other International segment, primarily due to increases in warehouse ancillary and other businesses and core merchandise categories.

Year-to-date Results

Gross margin as a percentage of net sales increased by 11 basis points. Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.13%, an increase of seven basis points. The increase was positively impacted by 12 basis points in our warehouse ancillary and other businesses, primarily gasoline and pharmacy, and two basis points from a non-recurring legal settlement. Gross margin percentage was negatively impacted by four basis points in our core merchandise categories, primarily due to our co-branded credit card program and 2% rewards, partially offset by increases in non-foods, fresh foods, and foods and sundries. A LIFO charge in the first half of 2026 compared to a benefit in the first half of 2025 also negatively impacted gross margin by three basis points. Changes in foreign currencies relative to the U.S. dollar positively impacted gross margin by approximately $101, compared to the first half of 2025, attributable to Other International and Canadian operations.

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased 26 basis points. The increase was across all categories.

Segment gross margin percentage increased in all segments. Our U.S. segment performed similarly to the consolidated results above. Our Canadian segment gross margin percentage increased, primarily due to increases in warehouse ancillary and other businesses, partially offset by decreases in core merchandise categories. Gross margin increased in our Other International segment, primarily due to increases in warehouse ancillary and other businesses and core merchandise categories.

Selling, General and Administrative Expenses

	12 Weeks Ended						24 Weeks Ended
	February 15, 2026			February 16, 2025			February 15, 2026			February 16, 2025
SG&A expenses	$	6,272		$	5,663		$	12,606		$	11,509
SG&A expenses as a percentage of net sales	9.19		%	9.06		%	9.39		%	9.32		%

Quarterly Results

SG&A expenses as a percentage of net sales increased by 13 basis points. SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.14%, an increase of eight basis points. Compared to last year, results were negatively impacted by six basis points attributable to self-insured general liability claims expense and three basis points from central operating costs. Preopening costs were higher by one basis point. SG&A was favorably impacted by two basis points attributable to warehouse operations and other businesses. Changes in foreign currencies relative to the U.S. dollar increased SG&A expenses by approximately $65 compared to the second quarter of 2025, attributable to our Other International and Canadian operations. SG&A expenses as a percentage of net sales were higher in all segments.

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Year-to-date Results

SG&A expenses as a percentage of net sales increased by seven basis points. SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.36%, an increase of four basis points. Compared to last year, results were negatively impacted by three basis points attributable to self-insured general liability claims expense and two basis points due to a charge related to a tax assessment for prior years. Preopening costs were higher by one basis point. Warehouse operations and other businesses and stock compensation favorably impacted results by one basis point each. Changes in foreign currencies relative to the U.S. dollar increased SG&A expenses by approximately $65 compared to the first half of 2025, attributable to our Other International and Canadian operations. SG&A expenses as a percentage of net sales were higher in our U.S. segment, flat in our Canadian segment, and lower in our Other International segment.

Interest Expense

	12 Weeks Ended				24 Weeks Ended
	February 15, 2026		February 16, 2025		February 15, 2026		February 16, 2025
Interest expense	$	33	$	36	$	68	$	73

Interest expense is primarily related to Senior Notes and financing leases.

Interest Income and Other, Net

	12 Weeks Ended				24 Weeks Ended
	February 15, 2026		February 16, 2025		February 15, 2026		February 16, 2025
Interest income	$	140	$	109	$	262	$	205
Foreign-currency transaction gains (losses), net	(4)		23		21		66
Other, net	12		10		20		18
Interest income and other, net	$	148	$	142	$	303	$	289

The increase in interest income in the second quarter and first half of 2026 was due to higher cash balances, partially offset by lower interest rates. Foreign-currency transaction gains (losses), net, include revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations and mark-to-market adjustments for forward foreign-exchange contracts. See Derivatives and Foreign Currency sections in Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended August 31, 2025.

Provision for Income Taxes

	12 Weeks Ended						24 Weeks Ended
	February 15, 2026			February 16, 2025			February 15, 2026			February 16, 2025
Provision for income taxes	$	686		$	634		$	1,268		$	1,142
Effective tax rate	25.2		%	26.2		%	23.9		%	24.2		%

The effective tax rate for the first half of 2026 and 2025 was favorably impacted by discrete tax benefits of $72 and $100 related to stock compensation.

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LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our significant sources and uses of cash and cash equivalents:

	24 Weeks Ended
	February 15, 2026		February 16, 2025
Net cash provided by operating activities	$	7,684	$	6,008
Net cash used in investing activities	(2,568)		(2,007)
Net cash used in financing activities	(1,897)		(1,434)

Our primary sources of liquidity are cash flows from operations, cash and cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments were $18,240 and $15,284 at February 15, 2026, and August 31, 2025. Of these balances, unsettled credit and debit card receivables represented approximately $2,872 and $2,670 at February 15, 2026, and August 31, 2025. These receivables generally settle within four days.

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, leases, and construction and land purchase obligations. Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months. Construction and land-purchase obligations consist of contracts primarily related to the development and opening of new and relocated warehouses, the majority of which (other than leases) are due in the next 12 months.

We believe that our cash and investment positions and operating cash flow, with capacity under existing and available credit agreements, will be sufficient to meet our liquidity and capital requirements for the foreseeable future and that our U.S. current and projected asset position is sufficient to meet our U.S. liquidity requirements.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $7,684 in the first half of 2026, compared to $6,008 in the first half of 2025. Our cash flow provided by operations is primarily from net sales and membership fees. Cash flow used in operations generally consists of payments to suppliers, warehouse operating costs, including wages and employee benefits, utilities, credit and debit card processing fees, and operating leases. Cash used in operations also includes payments for income taxes. Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including inventory levels and turnover, payment terms with suppliers, and early payments to obtain discounts.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $2,568 in the first half of 2026, compared to $2,007 in the first half of 2025, and is primarily related to capital expenditures. Net cash from investing activities also includes purchases and maturities of short-term investments.

Capital Expenditure Plans

Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses, information systems, and manufacturing and distribution facilities. In the first half of 2026, we spent $2,815 on capital expenditures, and it is our current intention to spend approximately $6,500 during fiscal 2026, as we continue to invest in new warehouse openings, remodel existing locations, expand our depot network, and further develop our digitally-enabled businesses. These expenditures are expected to be financed with cash from operations, cash and cash equivalents, and short-term investments. We opened 12 new warehouses, including two relocations, in the first half of 2026, and plan to open 21 additional new warehouses, including three relocations, in the remainder of fiscal 2026. There

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can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs and the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $1,897 in the first half of 2026, compared to $1,434 in the first half of 2025. Cash flow used in financing activities during the first half of 2026 was primarily related to the payment of dividends, repurchases of common stock, and withholding taxes on stock-based awards.

Dividends

A quarterly cash dividend of $1.30 per share was declared on January 15, 2026, and paid on February 13, 2026.

Share Repurchase Program

On January 19, 2023, the Board of Directors authorized a share repurchase program in the amount of $4,000, which expires in January 2027. During the first half of 2026 and 2025, we repurchased 454,000 and 443,000 shares of common stock, at an average price per share of $924.46 and $932.03, totaling approximately $420 and $413. These amounts may differ from the accompanying condensed consolidated statements of cash flows due to changes in unsettled repurchases at the end of a quarter. Purchases are made from time to time, as conditions warrant, potentially including the open market, block purchases and pursuant to plans under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the Washington Business Corporation Act. The remaining amount available to be purchased under our approved plan was $1,542 at the end of the second quarter.

Bank Credit Facilities and Commercial Paper Programs

We maintain bank credit facilities for working capital and general corporate purposes. At February 15, 2026, we had borrowing capacity under these facilities of $1,447. Our Canadian and Other International operations maintain $946 of this capacity under bank credit facilities, of which $293 is guaranteed by the Company. Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the condensed consolidated balance sheets, were $98 at the end of the second quarter of 2026 and immaterial at the end of 2025.

We have letter of credit facilities, for commercial and standby letters of credit, totaling $236. The outstanding commitments under these facilities at the end of the second quarter of 2026 totaled $204, most of which were standby letters of credit that do not expire or have expiration dates within one year. The bank credit facilities have various expiration dates, most within one year, and we generally intend to renew these facilities. The amount of borrowings available at any time under our bank credit facilities is reduced by the amount of standby and commercial letters of credit outstanding.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires that we make estimates and judgments. We base these on historical experience and on assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K, for the fiscal year ended August 31, 2025. There have been no material changes to the critical accounting estimates previously disclosed in that Report.

Recent Accounting Pronouncements

See discussion of Recent Accounting Pronouncements in Note 1 to the condensed consolidated financial statements included in Part I, Item 1 of this Report.

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Held by

holders ( registered funds via N-PORT, institutional investors via 13F). Showing top by dollar value.

Holder	Type	ETF	MF	Position ($)	% of holder	Δ % of holder	Holder AUM

Recent insider activity

Last 90 days. Open-market trades (purchases & sales) by directors, officers, and 10%+ owners. 2 transactions across 2 insiders. Net: -1,430 shares, -$1,427,305.

Date	Insider	Role	Action	Shares	Price	Value
2026-04-01	Frates Caton	Executive Vice President	Sell	-700	$993.00	-$695,100
2026-03-09	Adamo Claudine	Executive Vice President	Sell	-730	$1,003.02	-$732,205

Source: SEC Form 4 filings.

Next expected filings

~2026-06-04 10-Q expected by 2026-06-19 (in 6 days)
~2026-10-07 10-K expected by 2026-10-29 (in 131 days)
~2026-12-16 10-Q expected by 2026-12-31 (in 201 days)
~2027-03-10 10-Q expected by 2027-03-25 (in 285 days)

Predicted from historical filing cadence; not an SEC commitment.

Recent SEC filings

2026-05-28 8-K Earnings Release; Financial Statements and Exhibits
2026-04-15 8-K Other Events; Financial Statements and Exhibits
2026-03-11 10-Q Quarterly Report
2026-03-05 8-K Earnings Release; Financial Statements and Exhibits
2026-01-21 8-K Shareholder Vote Results; Other Events
2025-12-17 10-Q Quarterly Report
2025-12-11 8-K Earnings Release; Financial Statements and Exhibits
2025-10-20 8-K Officer/Director Change; Financial Statements and Exhibits
2025-10-15 8-K Other Events; Financial Statements and Exhibits
2025-10-08 10-K Annual Report
2025-09-25 8-K Earnings Release; Financial Statements and Exhibits
2025-08-07 8-K Officer/Director Change
2025-07-16 8-K Other Events; Financial Statements and Exhibits
2025-06-11 8-K Officer/Director Change
2025-06-05 10-Q Quarterly Report

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