What changed in this filing

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Item 1. Business

2024-10-09 compared with 2023-10-11 · 72 added, 62 removed, 117 unchanged (53% of the section changed)

2 unchanged sentences

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, Iceland, New Zealand, and Sweden.

Costco operated 861, 838, and 815 warehouses worldwide at September 3, 2023, August 28, 2022, and August 29, 2021.

The Company operates e-commerce websites in the U.S., Canada, Mexico, the U.K., Korea, Taiwan, Japan, and Australia.

Costco operated 890, 861, and 838 warehouses worldwide at September 1, 2024, September 3, 2023, and August 28, 2022.

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.”

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The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season.

References to 2024 and 2022 relate to the 52-week fiscal years ended September 1, 2024, and August 28, 2022.

References to 2023 relate to the 53-week fiscal year ended September 3, 2023.

References to 2022 and 2021 relate to the 52-week fiscal years ended August 28, 2022, and August 29, 2021.

We operate membership warehouses and e-commerce websites based on the concept that offering our members 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.

We operate membership warehouses and e-commerce sites based on the concept that offering our members 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.

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This process creates freight volume and handling efficiencies, lowering 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 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.

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Gasoline operations generally have extended hours.

Because the hours of operation are shorter than many other retailers, and due to other efficiencies inherent in a warehouse-type operation, labor costs are lower relative to the volume of sales.

Because the hours of operation are shorter than many other retailers, and due to other efficiencies inherent in a warehouse-type operation, we believe labor costs are lower relative to the volume of sales.

Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required.

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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 anywhere from 9,000 to 11,000 SKUs online, some of which are also available in our warehouses.

We average anywhere 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.

In keeping with our policy of member satisfaction, we generally accept returns of merchandise.

To promote member satisfaction, we generally accept returns of merchandise.

On certain electronic items, we typically have a 90-day return policy and provide, free of charge, technical support services, as well as an extended warranty.

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

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

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

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

Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation) and Other Businesses (includes e-commerce 1 , business centers 1 , travel, and other)

Warehouse ancillary businesses operate primarily within or next to our warehouses, encouraging members to shop more frequently.

The number of warehouses with gas stations varies significantly by country, and we have no gasoline business in Korea, China, or Sweden.

■ 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 or next to our warehouses, encouraging members to shop more frequently.

The number of warehouses with gas stations varies significantly by country, and we have no gasoline business in Korea or Sweden.

We operated 719 gas stations at the end of 2024.

Our gasoline business represented approximately 12% of total net sales in 2024.

Our other businesses sell products and services that complement our warehouse operations (core and warehouse ancillary businesses).

Our other businesses sell products and services that 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 2024.

This figure does not include other services we offer online in certain countries such as business delivery, travel, same-day grocery, and various other services.

Our business centers carry items

1 E-commerce and business centers are allocated to the appropriate merchandise categories in the Net Sales portion of Item 7.

tailored specifically for food services, convenience stores and offices, and offer walk-in shopping and deliveries.

Digitally originated sales, which represents sales that a member initiates through a digitally enabled device, including e-commerce, business delivery, travel, and same-day grocery, represented approximately 9% of total net sales in 2024.

Our business centers carry items tailored specifically 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, hotels, and other travel products exclusively for Costco members (offered in the U.S., Canada, and the U.K.).

We have direct buying relationships with many producers of brand-name merchandise.

Costco Travel offers vacation packages, car rentals, cruises and other travel products exclusively for Costco members (offered in the U.S., Canada, 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 alternatives.

To ensure sufficient product supply for future growth, we pursue diversification in our supply-chain management 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.

Our members may utilize their memberships at all of our warehouses and websites.

Our members may utilize their memberships at all of our warehouses and e-commerce sites.

Gold Star memberships are available to individuals;

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Affiliates are not available for Gold Star members.

Our annual fee for these memberships is $60 in the U.S.

During fiscal 2024, our annual fee for these memberships was $60 in the U.S.

and varies in other countries.

All paid memberships include a free household card.

Paid members (except affiliates) were eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $60.

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 $1,000 per year), redeemable at Costco warehouses.

The sales penetration of Executive members represented approximately 73.3% of worldwide net sales in 2024.

Our member renewal rate was 92.9% in the U.S.

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Total paid members 1

76,200 71,000 65,800

Household cards 60,600 56,900 53,100

Total cardholders 136,800 127,900 118,900

Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $60.

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 $1,000 per year), redeemable at Costco warehouses.

This program offers services that vary by state and country and provide access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing.

Executive members totaled 32.3 million and represented 45.4% of paid members.

The sales penetration of Executive members represented approximately 72.8% of worldwide net sales in 2023.

_______________

(1) Executive members represented 35,400, 32,300, and 29,100 of total paid members in 2024, 2023, and 2022.

Effective September 1, 2024, we increased our membership fees in the U.S.

and Canada for Gold Star, Business, and Business affiliates to $65 per year.

The Executive membership fee increased from $120 to $130 (membership fee of $65, plus Executive upgrade of $65), and the maximum annual 2% reward associated with the Executive Membership increased from $1,000 to $1,250.

Human Capital

Our Code of Ethics requires that we “Take Care of Our Employees,” which is fundamental to the obligation to “Take Care of Our Members.” We must also carefully control our selling, general and administrative (SG&A) expenses, so that we can sell high quality goods and services at low prices.

“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.” We must also carefully control our selling, general and administrative (SG&A) expenses, so that we can sell high quality goods and services at low prices.

Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.

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At the end of 2024, we employed 333,000 employees worldwide.

Approximately 95% are employed in our membership warehouses and distribution channels, and approximately 5% are represented by unions.

Approximately 95% are employed in our membership warehouses and distribution channels.

Approximately 5% are represented by unions.

We also utilize seasonal employees.

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The more significant include:

competitive compensation and benefits for those working in our membership warehouses and distributions channels;

a commitment to promoting from within;

competitive compensation and benefits;

a commitment to employee development and promoting from within;

and a target ratio of at least 50% of our employee base being full-time employees.

1 unchanged sentence

In 2024, in the U.S.

that rate was approximately 90% for employees who have been with us for at least one year.

and Canada that rate was approximately 93% for employees who have been with us for at least one year.

Diversity, Equity and Inclusion

The commitment to “Take Care of Our Employees” is also the foundation of our approach to promoting diversity, equity and inclusion and creating an inclusive and respectful workplace.

We strive for an environment where all employees feel that they belong, are accepted, included, respected and supported because of who they are.

We demonstrate leadership commitment to equity through consistent communication, employee development and education, support of diversity and inclusion initiatives within the organization, community involvement, and supplier diversity.

Costco continues its efforts to develop future leaders, including through the supervisor in training programs.

The commitment to “Take Care of Our Employees” includes promoting diversity, equity and inclusion and creating an inclusive and respectful workplace.

We strive for an environment where all employees feel that they belong, are accepted, included, respected and supported because of whom they are individually.

Costco continues its efforts to develop future leaders, including through our supervisor in training (SIT) programs in the U.S.

In 2024, over 7,500 hourly employees completed the 6-week course.

Costco strives to provide our employees with competitive wages and excellent benefits.

In March 2023, we increased the top of the wage scales by 85 cents per hour in the U.S, Canada and Puerto Rico.

In September of 2023, we increased the starting wage to at least $18.50 for all entry-level positions in the U.S.

We have also expanded our benefits in the U.S.

to include additional mental health support for children and adults at little to no cost to our employees.

Costco is firmly committed to protecting the health and safety of our members and employees and to serving our communities.

In July 2024, we increased the starting wage to at least $19.50 for all entry-level positions in the U.S.

We also increased the top of wage scales by $1 per hour, and increased all other steps of the wage scales by $0.50 per hour, bringing our average hourly rate at the end of 2024 for hourly employees in the U.S.

to approximately $31 per hour.

We continue to offer expansive benefits in the U.S.

that provide physical, emotional and financial well-being support for employees and their dependents at little cost to our employees.

Costco remains committed to protecting the health and safety of our members and employees and to serving our communities.

For more detailed information regarding our programs and initiatives, see “Employees” within our Sustainability Commitment (located on our website).

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Our industry is highly competitive, based on factors such as price, merchandise quality and selection, location, convenience, distribution strategy, and customer service.

We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, online

retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of merchandise.

We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of merchandise.

Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors in the U.S.

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The executive officers of Costco, their position, and ages are listed below.

All have over 25 years of service with the Company, with the exception of Mr.

Sullivan who has 22 years of service.

Most officers have over 25 years of service with the Company.

Name Position Executive

Craig Jelinek Chief Executive Officer.

Jelinek has been a director since February 2010.

Jelinek previously was President and CEO from January 2012 to February 2022.

He was President and Chief Operating Officer from February 2010 to December 2011.

Prior to that he was Executive Vice President, Chief Operating Officer, Merchandising since 2004.

Vachris President and Chief Operating Officer.

Vachris President and Chief Executive Officer.

Vachris has been a director since February 2022.

Vachris previously served as Executive Vice President of Merchandising from June 2016 to January 2022, as Senior Vice President, Real Estate Development, from August 2015 to June 2016, and Senior Vice President, General Manager, Northwest Region, from 2010 to July 2015.

Galanti Executive Vice President and Chief Financial Officer.

Vachris was previously President and Chief Operating Officer from February 2022 to December 2023.

He was Executive Vice President of Merchandising from June 2016 to January 2022, Senior Vice President, Real Estate Development, from August 2015 to June 2016, and Senior Vice President, General Manager, Northwest Region, from 2010 to July 2015.

Gary Millerchip Executive Vice President and Chief Financial Officer.

Millerchip previously served as Senior Vice President and Chief Financial Officer of The Kroger Co.

from April 2019 to February 2024 and, prior to that, as Chief Executive Officer of Kroger Personal Finance since July 2010.

Galanti Executive Vice President.

Galanti has been a director since January 1995.

Klauer Executive Vice President, Chief Operating Officer, Northern Division.

Klauer was Senior Vice President, Non-Foods and E-commerce Merchandise, from 2013 to January 2018.

He was Chief Financial Officer from October 1993 to March 2024.

Galanti will be retiring from the Company effective January 2025.

Miller Senior Executive Vice President, U.S.

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Miller was Senior Vice President, Western Canada Region, from 2001 to January 2018.

Callans Executive Vice President, Administration.

Callans was Senior Vice President, Human Resources and Risk Management, from 2013 to December 2018.

Rubanenko Executive Vice President, Chief Operating Officer, Eastern Division.

Rubanenko was Senior Vice President and General Manager, Southeast Region, from 2013 to September 2021, and Vice President, Regional Operations Manager for the Northeast Region, from 1998 to 2013.

John Sullivan Executive Vice President, General Counsel & Corporate Secretary.

Sullivan has been General Counsel since 2016 and Corporate Secretary since 2010.

Adamo Executive Vice President, Merchandising.

Adamo was Senior Vice President, Non-Foods, from 2018 to February 2022, and Vice President, Non-Foods, from 2013 to 2018.

Callans Executive Vice President, Administration.

Callans was Senior Vice President, Human Resources and Risk Management, from 2013 to December 2018.

Caton Frates Executive Vice President, Chief Operating Officer, Southwest Division.

Frates was Senior Vice President, Los Angeles Region, from 2015 to May 2022.

Teresa Jones Executive Vice President, Global Depots and Traffic.

Jones was Senior Vice President, Depot Operations from August 2022 to July 2024, and Vice President, Depot Operations, from 2018 to 2022.

Klauer Executive Vice President, Chief Operating Officer, Northern Division.

Klauer was Senior Vice President, Non-Foods and E-commerce Merchandise, from 2013 to January 2018.

Javier Polit Executive Vice President, Chief Information and Digital Officer.

Polit previously served as Chief Information Officer for Mondelez International (formerly Kraft Foods) from 2022 to 2024.

From 2017 to 2022, he was Chief Information Officer for Procter & Gamble Company.

Prior to that role, he served as Group Chief Information Officer for The Coca-Cola Company from 2007 to 2017.

Pierre Riel Executive Vice President, Chief Operating Officer, International Division.

Riel was Senior Vice President, Country Manager, Canada, from 2019 to March 2022, and Senior Vice President, Eastern Canada Region, from 2001 to 2019.

Rubanenko Executive Vice President, Chief Operating Officer, Eastern Division.

Rubanenko was Senior Vice President and General Manager, Southeast Region, from 2013 to September 2021, and Vice President, Regional Operations Manager for the Northeast Region, from 1998 to 2013.

John Sullivan Executive Vice President, General Counsel & Corporate Secretary.

Sullivan has been General Counsel since 2016 and Corporate Secretary since 2010.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business