Full Transcript: Costco Wholesale Q4 2026 Earnings Call

Costco Wholesale (NASDAQ: COST ) released fourth-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This content is powered APIs. 87 billion.

S. and international markets. 5%, driven by strong performance across various departments, including meat, bakery, electronics, and health and beauty. Costco's ancillary businesses, particularly gas, pharmacy, and travel, outperformed the overall growth rate, contributing to increased market share and member loyalty.

3% year over year, with Executive Membership penetration reaching an all-time high, indicating strong future renewal rates. Costco expanded its digital capabilities, including partnerships with Uber Eats and DoorDash, enhancing convenience for a younger member demographic. Management highlighted the successful reinvestment of tariff refunds into member value, lowering prices on various items and boosting unit growth. 5 billion in fiscal year 2027, focusing on new warehouses and supply chain improvements.

Full Transcript Abby, 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 fourth quarter 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.

And I would now like to turn the conference over to Mr. Gary Millerchip, Chief Financial Officer. You may begin. Gary Millerchip, Chief Financial Officer Good afternoon everyone and thank you for joining us for Costco Wholesale's fourth quarter 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. 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.

Ron Vachris, Chief Executive Officer 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. S.

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.

S. S. markets as well as international markets in which we operate. We're 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 27, 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 28. 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. 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 Wholesale's top-tier gasoline.

S. member households that purchased gas reach an all-time high. 2 billion versus the average price at the pump in markets where we operate. S.

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 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. S.

buildings are now achieving Rx Pay Ahead penetrations of more than one-third of prescriptions, saving both the members and our employees valuable time. These programs led to double-digit script growth for the year that more than offset the headwinds from lower prices as a result of Medicare Maximum Fair Price changes. 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 health care. 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 26, 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 26. Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%. S. S.

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've observed that 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. Executive Member penetration reached an all-time high in fiscal year 26. 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 signups 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'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.

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's right and taking care of our members are the driving force for the consistency of our financial results.

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 and field some questions. Gary Millerchip, Chief Financial Officer 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.

75 per diluted share. 15 per diluted share from IEEPA tariff refunds received in the quarter, less partial reinvestment of those refunds in increased member values. 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.

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, 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, they 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.

43 billion in Q4 2025. 7% adjusted for gas price inflation and FX. 7%. 8% adjusted for FX.

Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. 3%, while gas price inflation positively impacted sales by approximately 3%. 3% worldwide. 3% excluding gas price inflation and changes in FX.

3% year over year. 7%. 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.

8% year over year. This was driven by higher Executive Membership penetration and base membership growth. 4% versus last year. 6% year over year.

S. 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. 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.

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 & Sundries all higher year over year. Supply chain efficiencies drove margin improvement across all categories. Fresh also benefited from higher labor productivity in meat, bakery, and deli, and 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.

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 and is 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 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. 21%.

Excluding gas inflation, SG&A was lower or better by 2 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 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.

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, and FX and other was a $44 million benefit versus a $46 million benefit last year. 6% in Q4 last year. 4 billion for the full year. 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.