Costco Wholesale Corporation Q1 FY2026 earnings call

Warehouse Openings

• In Q1, 8 new warehouses opened, including a relocation in Canada, third in France, 4 net new US locations, and 2 Canadian business centers. Total warehouse count is 921. Revised FY2026 net new openings to 28 due to delays, but plan 30+ per year in future years. Used creative real estate approaches like converting a hypermart in France and refurbishing home improvement warehouses in Canada. Planned 5 relocations in FY2026.

Digital Initiatives

• Focus on seamless member experience across warehouse and online. Implemented scanning memberships, digital wallet, prescanning in warehouses, leading to improved productivity and checkout speed. Launched personalization capabilities online. AI integrated into pharmacy inventory system (improved in-stocks to >98%) and gas business (to improve inventory management).

Financial and Merchandising Highlights

• Membership fee income up 14% y/y, driven by growth in membership base and executive upgrades. Q1 end had 39.7M paid executive members and 81.4M total paid members. Merchandising saw growth in fresh (mid-high single digits, led by meat), bakery (high single digits), nonfoods (mid-single digits), food and sundries (mid-single digits), with Kirkland Signature growing faster than overall sales. Lower prices on various Kirkland items.

Other Highlights

• US food court set daily record on Halloween, Black Friday e-business over $250M in nonfood orders, US bakery set pie sales record. Costco Travel had over $100M gross bookings in US post-Thanksgiving, up 12% y/y.

Net income for the first quarter was $2.001 billion or $4.5 per diluted share, up from $1.798 billion or $4.04 per diluted share in the prior year. Net sales were $65.98 billion, an increase of 8.2% from the prior year. Comparable sales were 6.4% both before and after adjusting for gas price deflation and foreign exchange, and 7.1% excluding gas sales entirely and adjusting for FX. Membership fee income was $1.329 billion, an increase of $163 million or 14% year over year. Gross margin rate was 11.32%, up 4 basis points year over year. Core margins were higher by 30 basis points, with nonfoods, foods and sundries, and fresh all showing year-over-year increases.

Warehouse Expansion

• Plan for 30 plus net new warehouse openings per year in future years. Continues to be creative with real estate projects to expand market reach and lower capital investment.

Digital Growth

• Expect digital sales to continue growing at a fast pace as more members engage digitally, with focus on delivering better member experience through personalized communication tools.

Capital Expenditure

• FY2026 capital expenditure estimated at ~$6.5 billion, with investments in warehouse openings, remodels, depot network, and digital.

Warehouse Delays

• Delays with buildings in Spain led to revising FY2026 net new openings, posing risk to expansion plans.

Health Care Costs

• Higher health care costs in the quarter prevented SG&A leverage, with potential impact on future margins.

Membership Renewal Rates

• Slight decline in renewal rates due to higher proportion of digitally signed-up members who renew at a lower rate, though efforts to improve engagement are ongoing.

Q: Is Costco willing to continue letting financial benefits fall to the bottom line or reinvest in technology?

A: Ron Vachris said technology is part of the future, but Costco will always focus on being the best price for members.

Q: Concern on traffic and executive member growth?

A: Gary Millerchip said sales trends are consistent, with 6.4% comps in Q1, and executive membership growth driven by extended hours and Instacart benefits.

Q: Thoughts on warehouse openings in US and membership?

A: Ron Vachris said next year's openings mix infills and new markets, with confidence in new sign-ups in previously reluctant markets.

Q: Retail media and AI road map?

A: Gary Millerchip said retail media is early innings, focused on member experience first; Ron Vachris excited about AI's role in procurement, supply chain, and member experience.

Q: Warehouse expansion and productivity?

A: Ron Vachris mentioned creative real estate approaches and international expansion opportunities; Gary Millerchip noted balance between US infills (accelerate sales) and international/new markets (drive new members).

Q: Renewal rate softness and offsetting?

A: Gary Millerchip said targeted communication to digitally signed-up members is helping offset softness, but slight decline may continue in next few quarters.

Q: Digital metrics and success?

A: Gary Millerchip said website traffic up 24%, app traffic up 48%, with continued growth expected; Ron Vachris excited about app enhancements like pay ahead and ordering deli items.

Q: Real estate pipeline and remodels?

A: John Heinbockel heard about international pipeline in Europe, Asia, and North America; Ron Vachris said remodels have dramatic uplift, with 5-6 relocations a year, improving facilities and sales.

Q: SG&A leverage and productivity runway?

A: Gary Millerchip said higher health care costs prevented leverage, but productivity improvements offset wage and hour investments, with runway for continued leverage.

Q: Food inflation and ticket growth?

A: Gary Millerchip said food inflation has puts and takes, with combination of natural inflation, pack size, and unit growth driving ticket growth.

Q: Membership growth slowdown?

A: Gary Millerchip said membership growth slowed but remains healthy, with opportunities in international and renewal rate improvements.

Q: Nonfood comps and gift card timing?

A: Gary Millerchip said nonfoods see market share gains, with focus on delivering value, and no specific forward guidance on gift card timing.

Q: Warehouse potential and Kirkland pricing?

A: Gary Millerchip said 30+ warehouses per year plan, with Kirkland Signature price investments focused on lowering prices while maintaining quality.

Q: Personalization efforts rollout?

A: Gary Millerchip said personalization is early, with focus on member experience and driving engagement, still room for improvement.

Q: Renewal rate decline and cohort?

A: Gary Millerchip said renewal rate decline is due to digitally signed-up younger members, efforts to arrest decline with targeted communication, but slight decline may continue.

Q: Comps in November-December and consumer?

A: Gary Millerchip said sales consistent with 6.5% growth over last two quarters, with bumpiness due to port strikes and tariffs, but overall member behavior resonating with value.