COSTCO WHOLESALE CORP NEW

Previous wording

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 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. Comparable sales is defined as net sales from warehouses open for more than one year, including remodels, relocations and expansions, and sales related to e-commerce sites operating for more than one year. The measure is intended as supplemental information and is 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 our 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.

Current wording

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 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 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 open for more than one year, including remodels, relocations and expansions, and sales related to e-commerce sites operating for more than one year. The measure is intended as supplemental information and is 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 our 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.

Previous wording

Government actions in various countries relating to tariffs, particularly China and the United States, 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 could adversely impact our results.

Current wording

Government actions in various countries relating to tariffs, particularly China, Mexico, Canada and the United States, 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.

Previous wording

Our fiscal year ends on the Sunday closest to August 31. References to the first quarter of 2025 and 2024 relate to the 12-week fiscal quarters ended November 24, 2024, and November 26, 2023. Certain percentages presented are calculated using actual results prior to rounding.

Current wording

Our fiscal year ends on the Sunday closest to August 31. References to the second quarter of 2025 and 2024 relate to the 12-week fiscal quarters ended February 16, 2025, and February 18, 2024. References to the first half of 2025 and 2024 relate to the 24 weeks ended February 16, 2025, and February 18, 2024. Certain percentages presented are calculated using actual results prior to rounding.

Previous wording

Highlights for the first quarter of 2025 versus 2024 include:

Current wording

Highlights for the second quarter of 2025 versus 2024 include:

Previous wording

•Net sales increased 8% to $60,985, driven by an increase in comparable sales and sales at 26 net new warehouses opened since the end of the first quarter of 2024;

Current wording

•Net sales increased 9% to $62,530, driven by an increase in comparable sales and sales at 23 net new warehouses opened since the end of the second quarter of 2024;

Previous wording

•Membership fee revenue increased 8% to $1,166, driven by new member sign-ups and upgrades to Executive Membership;

Current wording

•Membership fee revenue increased 7% to $1,193, primarily driven by new member sign-ups and membership fee increases;

Previous wording

•Net income was $1,798, $4.04 per diluted share, compared to $1,589, $3.58 per diluted share in 2024; and

Current wording

•Net income was $1,788, $4.02 per diluted share, compared to $1,743, $3.92 per diluted share in 2024; and

Previous wording

(1) Comparable sales for the first quarter of 2024 were calculated using comparable retail weeks.

Current wording

(1) Comparable sales for the second quarter and first half of 2024 were calculated using comparable retail weeks.

Previous wording

Net sales increased $4,268 or 8% during the first quarter of 2025. The improvement was attributable to an increase in comparable sales and sales at the 26 net new warehouses opened since the end of the first quarter of 2024. Sales increased $4,333 or 10% in core merchandise categories during the first quarter of 2025. Sales in warehouse ancillary and other businesses decreased less than 1% during the first quarter of 2025, due to lower gasoline prices, partially offset by pharmacy and all other warehouse ancillary businesses. Lower gasoline prices negatively impacted net sales by $908, 160 basis points, compared to 2024, with a 12% decrease in the average price per gallon. The volume of gasoline sold increased approximately 1%. Changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately $164, 29 basis points, attributable to our Other International and Canadian operations.

Current wording

Net sales increased $5,199 or 9%, and $9,467 or 8% during the second quarter and first half of 2025. The improvement was attributable to an increase in comparable sales and sales at the 23 net new warehouses opened since the end of the second quarter of 2024. Sales increased $4,786 or 10% and $9,119, or 10% in core merchandise categories during the second quarter and first half of 2025, increasing in all categories. Sales in warehouse ancillary and other businesses increased $413 or 4%, and $348, or 2% during the second quarter and first half of 2025, led by pharmacy, partially offset by lower gasoline prices.

Previous wording

Comparable sales increased 5% in the first quarter of 2025 and were positively impacted by increased shopping frequency and a slightly higher average ticket.

Current wording

Comparable sales increased 7% and 6% in the second quarter and first half of 2025 and were positively impacted by increased shopping frequency and a slightly higher average ticket.

Previous wording

Membership fee revenue increased 8% in the first quarter of 2025, driven by new member sign-ups and upgrades to Executive Membership. At the end of the first quarter of 2025, our renewal rates were 92.8% in the U.S. and Canada and 90.4% worldwide. 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.

Current wording

Membership fee revenue increased 7% and 8% in the second quarter and first half of 2025, primarily driven by new member sign-ups and the fee increase (discussed below). Changes in foreign currencies relative to the U.S. dollar negatively impacted membership fees by $22 and $23 in the second quarter and first half of 2025. At the end of the second quarter of 2025, our renewal rates were 93.0% in the U.S. and Canada and 90.5% worldwide. 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.

Previous wording

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. Due to this deferral, the increases had an immaterial impact in the first quarter of 2025.

Current wording

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 recent membership fee increase contributed approximately 3% of membership fee revenue during the second quarter of 2025.

Previous wording

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased three basis points. The increase was primarily due to fresh foods, partially offset by non-foods. This measure eliminates the impact of changes in sales penetration and gross margin from our warehouse ancillary and other businesses.

Current wording

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased eight basis points. The decrease was primarily due to increased supply chain costs to support higher inventory levels and certain mix changes in our non-food categories. This measure eliminates the impact of changes in sales penetration and gross margin from our warehouse ancillary and other businesses.

Previous wording

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 all segments. Our U.S. segment performed similarly to the consolidated results above. Our Canadian and Other International segment's gross margin percentage increased, primarily due to increases in core merchandise categories, partially offset by increased 2% rewards.

Current wording

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 decreased, primarily due to decreases in core merchandise categories, partially offset by warehouse ancillary and other businesses. Gross margin decreased in our Other International segment, primarily due to decreases in core merchandise categories.

Previous wording

Gross margin percentage increased 24 basis points. Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.11%, an increase of seven basis points. This increase was positively impacted by: 17 basis points in our core merchandise categories, primarily due to sales mix and our co-branded credit card program, and six basis points related to 2% rewards. This increase was partially offset by 16 basis points due to warehouse ancillary and other businesses, primarily gasoline, partially offset by e-commerce.

Current wording

Gross margin percentage increased 14 basis points. Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.98%, an increase of six basis points. This increase was positively impacted by 14 basis points in our core merchandise categories, primarily due to our co-branded credit card program. This increase was partially offset by eight basis points due to warehouse ancillary and other businesses, primarily gasoline, partially offset by e-commerce. Changes in foreign currencies relative to the U.S. dollar negatively impacted gross margin by approximately $158, compared to the first half of 2024, attributable to our Other International and Canadian operations.

Previous wording

SG&A expenses as a percentage of net sales increased 14 basis points. Excluding the impact of gasoline price deflation that measure was flat. The comparison to last year was favorably impacted by four basis points due to lower preopening costs and three basis points due to stock compensation expense. SG&A was negatively impacted by four basis points due to warehouse operations and other businesses, which included the impact of the wage increase in July 2024, partially offset by sales leverage and improved productivity. Central operating costs were also higher by three basis points. SG&A expenses as a percentage of net sales were lower in our U.S. segment and higher in our Canadian and Other International segments.

Current wording

SG&A expenses as a percentage of net sales increased three basis points. SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.25%, a decrease of four basis points. The comparison to last year was favorably impacted by two basis points related to warehouse operations and other businesses, largely attributable to sales leverage and improved productivity. Preopening costs were also lower by two basis points, and stock compensation was lower by one basis point. SG&A was negatively impacted by one basis point due to central operating costs. Changes in foreign currencies relative to the U.S. dollar decreased SG&A expenses by approximately $93 compared to the first half of 2024, attributable to our Other International and Canadian operations.

Previous wording

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

Current wording

Interest expense is primarily related to Senior Notes and financing leases. The decrease in interest expense for the second quarter and first half of 2025 was primarily due to repayment of the 2.750% Senior Notes in May 2024.

Previous wording

The decrease in interest income in the first quarter was due to lower average cash and investment balances, following the special dividend in January 2024, and lower interest rates. Foreign-currency transaction gains, net, include mark-to-market adjustments for forward foreign-exchange contracts and revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations. See Derivatives and Foreign Currency sections in Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended September 1, 2024.

Current wording

The decrease in interest income in the second quarter and first half of 2025 was due to lower average cash and investment balances, following the special dividend in January 2024, and lower interest rates. Foreign-currency transaction gains, net, include mark-to-market adjustments for forward foreign-exchange contracts and revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations. See Derivatives and Foreign Currency sections in Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended September 1, 2024.

Previous wording

The effective tax rate for the first quarter of 2025 and 2024 was favorably impacted by discrete tax benefits of $100 and $44 of excess tax benefits related to stock compensation.

Current wording

The effective tax rate for the first half of 2025 was favorably impacted by discrete tax benefits of $100, primarily excess tax benefits related to stock compensation.

Previous wording

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 $11,827 and $11,144 at November 24, 2024, and September 1, 2024. Of these balances, unsettled credit and debit card receivables represented approximately $2,789 and $2,519 at November 24, 2024, and September 1, 2024. These receivables generally settle within four days.

Current wording

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 $13,158 and $11,144 at February 16, 2025, and September 1, 2024. Of these balances, unsettled credit and debit card receivables represented approximately $2,292 and $2,519 at February 16, 2025, and September 1, 2024. These receivables generally settle within four days.

Previous wording

Net cash provided by operating activities totaled $3,260 in the first quarter of 2025, compared to $4,651 in the first quarter of 2024. The decrease in net cash provided by operating activities was due to an increase in our net investment in merchandise inventories. Our cash flow provided by operations is primarily from net sales and membership fees. Cash flow used in operations generally consists of payments to mercha ndise 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, early payments to obtain discounts, and the shift in timing of the seasonal holiday to the second quarter of 2025.

Current wording

Net cash provided by operating activities totaled $6,008 in the first half of 2025, compared to $5,382 in the first half of 2024. Our cash flow provided by operations is primarily from net sales and membership fees. Cash flow used in operations generally consists of payments to mercha ndise 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.

Previous wording

Net cash used in investing activities totaled $985 in the first quarter of 2025, compared to $366 in the first quarter of 2024, and is primarily related to capital expenditures. Net cash from investing activities also includes purchases and maturities of short-term investments.

Current wording

Net cash used in investing activities totaled $2,007 in the first half of 2025, compared to $1,752 in the first half of 2024, and is primarily related to capital expenditures. Net cash from investing activities also includes purchases and maturities of short-term investments.

Previous wording

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 quarter of 2025, we spent $1,264 on capital expenditures, and it is our current intention to spend a total of approximately $5,000 during fiscal 2025. These expenditures are expected to be financed with cash from operations, cash and cash equivalents, and short-term investments. We opened sevennew warehouses, including one relocation, in the first quarter of 2025 and plan to open 22 additional new warehouses, including two relocations, in the remainder of fiscal 2025. There 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.

Current wording

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 2025, we spent $2,401 on capital expenditures, and it is our current intention to spend a total of approximately $5,000 during fiscal 2025. These expenditures are expected to be financed with cash from operations, cash and cash equivalents, and short-term investments. We opened eightnew warehouses, including one relocation, in the first half of 2025 and plan to open 20 additional new warehouses, including two relocations, in the remainder of fiscal 2025. There 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.

Previous wording

Net cash used in financing activities totaled $1,193 in the first quarter of 2025, compared to $974 in the first quarter of 2024. Cash flow used in financing activities during the first quarter of 2025 was primarily related to the payment of dividends, withholding taxes on stock-based awards, repurchases of common stock, and repayments of short-term borrowings. Cash flow provided by financing activities included proceeds from short-term borrowings.

Current wording

Net cash used in financing activities totaled $1,434 in the first half of 2025, compared to $8,250 in the first half of 2024. Cash flow used in financing activities during the first half of 2025 was primarily related to the payment of dividends, repurchases of common stock, withholding taxes on stock-based awards, and repayments of short-term borrowings. Cash flow provided by financing activities included proceeds from short-term borrowings.

Previous wording

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 quarter of 2025 and 2024, we repurchased 230,000 and 288,000 shares of common stock, at an average price per share of $899.23 and $564.06, totaling approximately $206 and $162. 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, in the open market or in block purchases, 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 $2,659 at the end of the first quarter.

Current wording

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 2025 and 2024, we repurchased 443,000 and 528,000 shares of common stock, at an average price per share of $932.03 and $609.51, totaling approximately $413 and $322. 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, in the open market or in block purchases, 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 $2,452 at the end of the second quarter.

Previous wording

We maintain bank credit facilities for working capital and general corporate purposes. At November 24, 2024, we had borrowing capacity under these facilities of $1,184. Our international operations maintain $689 of this capacity under bank credit facilities, of which $159 is guaranteed by the Company. Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the consolidated balance sheets, were immaterial at the end of the first quarter of 2025 and at the end of fiscal 2024.

Current wording

We maintain bank credit facilities for working capital and general corporate purposes. At February 16, 2025, we had borrowing capacity under these facilities of $1,176. Our international operations maintain $680 of this capacity under bank credit facilities, of which $159 is guaranteed by the Company. Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the consolidated balance sheets, were immaterial at the end of the second quarter of 2025 and at the end of 2024.

Previous wording

We have letter of credit facilities, for commercial and standby letters of credit, totaling $222. The outstanding commitments under these facilities at the end of the first quarter of 2025 totaled $202, 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.

Current wording

We have letter of credit facilities, for commercial and standby letters of credit, totaling $220. The outstanding commitments under these facilities at the end of the second quarter of 2025 totaled $198, 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.