Costco Wholesale Corp /new.

Performance and Margin Dynamics

Operational efficiency has shown a complex trajectory this fiscal year, balancing successful cost management against emerging margin pressures.

Cost Control and Inventory

Management successfully leveraged costs, reversing an initial rise in SG&A expenses. By the May 2026 filing, overall SG&A as a percentage of net sales had decreased three basis points year-to-date, following an initial stabilization at only a one-basis point increase in November 2025. Further operational improvements were noted in May 2026, which detailed a reduced net investment in merchandise inventories attributed to faster inventory turns and improved supplier payment terms.

Gross Margin Shifts

The company initially demonstrated positive gross margin momentum, increasing four basis points in November 2025 and achieving 11.02% versus 10.85% in February 2026. However, this trend faced headwinds from core merchandise categories. The May 2026 disclosure revealed that the gross margin percentage, when measured against core merchandise sales, had decreased nine basis points, primarily driven by performance in fresh foods and foods and sundries.

Accelerated Expansion and Digital Integration

The company has significantly accelerated its physical footprint expansion while formalizing the tracking of digital sales growth.

Warehouse Expansion Pace

Contrary to a noted slowdown in prior periods, the warehouse expansion plan has accelerated. The November 2025 filing projected opening 25 additional new warehouses for the remainder of fiscal 2026, a pace confirmed by the May 2026 filing which reported that sales growth was supported by 23 net new warehouses opened since the end of Q3 2025. Capital expenditure guidance remains consistent, maintained at approximately $6,500 for fiscal 2026.

Digital Sales Tracking

The company began tracking "Digitally-enabled comparable sales" in November 2025, reporting a significant increase of 21%, indicating the growing importance of digital channels to overall sales growth.

Evolving Risk Profile

Two new weaknesses have emerged since the annual baseline, focusing on membership stability and cost vulnerability.

Membership Retention Risk

A new weakness was identified in November 2025: member retention is negatively affected by the higher volume of memberships sold online, as these members tend to renew at a slightly lower average rate. This risk was reiterated in the February 2026 filing.

Margin Erosion Vulnerability

Management has explicitly acknowledged the inherent risk of margin erosion in both November 2025 and May 2026. This vulnerability stems from strategic choices, noting that efforts to drive sales via price reductions or maintaining steady pricing despite rising input costs can negatively impact gross margins in the near term.