What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-10-08 compared with 2024-10-09 · 82 added, 76 removed, 166 unchanged (49% of the section changed)

Item 7—Management's Discussion and Analysis of Financial Conditions and Results of Operations (amounts in millions, except per share, share, membership fee, and warehouse count data)

Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations (amounts in millions, except per share, share, percentages and warehouse count data)

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition.

1 unchanged sentence

This section generally discusses the results of operations for 2025 compared to 2024.

For discussion related to the results of operations and changes in financial condition for 2023 compared to 2022 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2023 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on October 11, 2023.

For discussion related to the results of operations and changes in financial condition for 2024 compared to 2023 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2024 Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on October 9, 2024.

We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales.

1 unchanged sentence

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 reduces net sales and 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.

5 unchanged sentences

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 SG&A expenses, reducing them as a percentage of sales and enhancing profitability.

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.

Net sales growth and gross margins are also impacted by 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.

2 unchanged sentences

Our net sales and gross margin are influenced in part by our merchandising and pricing strategies in response to cost increases.

Those strategies can include, but are not limited to, working with our suppliers to share in absorbing cost increases, earlier-than-usual purchasing and in greater volumes, as well as passing cost increases on to our members.

Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, negatively impacting gross margin and gross margin as a percentage of net sales (gross margin percentage) in the near term.

Those strategies can include, but are not limited to, working with our suppliers to share in absorbing cost increases, earlier-than-usual purchasing and in greater volumes, sourcing in the countries and regions where items are sold, as well as passing cost increases on to our members.

net sales (gross margin percentage) in the near term.

Our e-commerce business, domestically and internationally, has a lower gross-margin percentage than our warehouse operations.

Government actions in various countries relating to tariffs 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.

We believe our gasoline business enhances traffic in our warehouses;

3 unchanged sentences

A decline in gasoline prices has the inverse effect.

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

We also achieve net sales growth by opening new warehouses.

As our warehouse base grows, available and desirable sites become more difficult to secure, and square footage growth becomes a comparatively less substantial component of growth.

As our warehouse base grows and available and desirable sites become more difficult to secure, square footage growth becomes a comparatively less substantial component of growth.

Negative aspects of such growth include lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openings occur in existing markets.

Our rate of square footage growth is generally higher in foreign markets, due to the smaller base in those markets, and we expect that to continue.

Our e-commerce business, domestically and internationally, has a lower gross-margin percentage than our warehouse operations.

The membership format is an integral part of our business and profitability.

Our rate of square footage growth is generally higher in many of our foreign markets, due to the smaller base in those markets, and we expect that to continue.

The membership format is integral to our business and profitability.

This format is designed to reinforce member loyalty and provide continuing fee revenue.

The extent to which we achieve growth in our membership base, increase the penetration of Executive memberships, and sustain high renewal rates materially influences our profitability.

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.

Our paid-membership growth rate may be adversely impacted when warehouse openings occur in existing markets as compared to new markets.

Our worldwide renewal rate may be adversely impacted by lower renewal rates in newer markets.

Our worldwide renewal rate is adversely impacted by membership growth in newer international markets and a higher penetration of memberships sold online, including through digital membership promotions, which renew at a slightly lower rate on average.

Our financial performance depends heavily on controlling costs.

4 unchanged sentences

Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and SG&A expenses, can have substantial impacts on net income.

Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 11 to the consolidated financial statements included in Item 8 of this Report).

Our operating models are generally the same across our U.S., Canadian, and Other International operating segments (see Note 11 to the consolidated financial statements included in Item 8 of this Report).

Certain operations in the Other International segment have relatively higher rates of square footage growth, lower wage and benefit costs as a percentage of sales, less or no direct membership warehouse competition, or lack e-commerce or business delivery.

2 unchanged sentences

This impact is calculated based on the difference between the current and prior period's exchange rates.

The impact of changes in gasoline prices on net sales is calculated based on the difference between the current and prior period's average price per gallon sold.

Results expressed excluding the impacts of foreign exchange and gasoline prices are intended as supplemental information and are not a substitute for net sales presented in accordance with U.S.

The impact of changes in gasoline prices on net sales is calculated based on the difference between the current and prior period's average price per gallon.

Results expressed excluding the impacts of foreign-exchange and gasoline prices are intended as supplemental information and are 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.

Our fiscal year ends on the Sunday closest to August 31.

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

References to 2025 and 2024 relate to the 52-week fiscal years ended August 31, 2025, and September 1, 2024.

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

1 unchanged sentence

Highlights for 2025 include:

• We opened 30 new warehouses, including one relocation:

23 net new in the U.S., one new in our Canadian segment, and five new in our Other International segment, compared to 26 new warehouses, including three relocations, in 2023;

• Net sales increased 5% to $249,625, driven by an increase in comparable sales and sales at new warehouses opened in 2023 and 2024, partially offset by one less week of sales in 2024;

• Membership fee revenue increased 5% to $4,828, driven by new member sign-ups and upgrades to Executive membership, partially offset by one less week of membership fee income in 2024;

• Gross margin percentage increased 35 basis points, driven primarily by warehouse ancillary and other businesses, largely e-commerce and gasoline, and the absence of charges related to the discontinuation of our charter shipping activities recorded in 2023;

• SG&A expenses as a percentage of net sales increased six basis points, primarily due to warehouse operations and other businesses, which included the impact of wage increases in March and September 2023 and July 2024, partially offset by sales leverage and improved productivity;

• We opened 27 new warehouses, including three relocations, for a total of 24 net new warehouses:

15 in the U.S., two in our Canadian segment, and seven in our Other International segment, compared to 30 new warehouses, including one relocation, in 2024;

• Net sales increased 8% to $269,912, driven by an increase in comparable sales and sales at new warehouses;

• Membership fee revenue increased 10% to $5,323, driven by new member sign-ups and membership fee increases;

• Gross margin percentage increased 20 basis points;

11 basis points excluding the impact of gasoline price deflation on net sales;

• SG&A expenses as a percentage of net sales increased 11 basis points;

three basis points excluding the impact of gasoline price deflation;

• The effective tax rate in 2025 was 25.1%, compared to 24.4% in 2024;

• Net income increased 10% to $8,099, or $18.21 per diluted share compared to $7,367, or $16.56 per diluted share in 2024.

• We paid a special cash dividend of $15 per share in January 2024;

Foreign-exchange rates had a negative impact on net income of $97, $0.22 per diluted share;

• In April, the Board of Directors approved a 12% increase in the quarterly cash dividend.

19 unchanged sentences

Net sales increased $20,287 or 8% during 2025.

The improvement was attributable to an increase in comparable sales and sales at new warehouses opened in 2023 and 2024, partially offset by the impact of one less week of sales in 2024.

The improvement was primarily attributable to an increase in comparable sales of $14,788 or 6%.

Comparable sales were positively impacted by increases of 5% in shopping frequency and approximately 1% in average ticket.

The remaining increase in net sales was driven by sales at the 24 net new warehouses opened since the end of 2024.

Sales increased $19,086 or 10% in core merchandise categories, increasing in all categories.

Sales increased $1,276, or 3% in warehouse ancillary and other businesses, led by pharmacy, partially offset by a decrease in gasoline.

During 2024, the volume of gasoline sold increased approximately 1%, positively impacting net sales by $400, or 17 basis points, which includes the impact of one less week of sales in 2024.

Lower gasoline prices negatively impacted net sales by $917, or 39 basis points, compared to 2023, with a 3% decrease in the average price per gallon.

Sales in warehouse ancillary and other businesses increased $1,201, or 2%.

Lower gasoline prices negatively impacted net sales by $2,329, or 93 basis points, with an 8% decrease in the average price per gallon.

The volume of gasoline sold increased approximately 2%, positively impacting net sales by $440, or 18 basis points.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $474, 20 basis points, compared to 2023, attributable to our Canadian and Other International operations.

Comparable Sales

Comparable sales increased 5% during 2024 and were positively impacted by an increase in shopping frequency, partially offset by a slight decrease in average ticket.

dollar negatively impacted net sales by approximately $1,943, or 78 basis points, attributable to our Other International and Canadian operations.

Membership Fees

1 unchanged sentence

Membership fees $ 5,323 $ 4,828 $ 4,580

Membership fees increase 5 % 8 % 9 %

Membership fee revenue increased 5% in 2024, driven by new member sign-ups and upgrades to Executive Membership.

These increases were partially offset by one less week of membership fee income in 2024.

Membership fee revenue increased 10% in 2025, driven by new member sign-ups and membership fee increases.

At the end of 2025, our member renewal rates were 92.3% in the U.S.

and Canada and 89.8% worldwide.

Renewal rates benefited from higher penetration of Executive members.

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.

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

and Canada for Gold Star (individual), 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.

We account for membership fee revenue on a deferred basis, recognized ratably over one year.

We expect these fee changes to increase revenues approximately $370 over the next two years, $190 of which will benefit fiscal 2025, primarily in the latter half of the year.

Renewal rates were negatively impacted by a higher number of memberships sold online,

including through digital promotions, entering the renewal rate calculation.

These members renew at a slightly lower rate on average.

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 fee income increase accounted for approximately 40% of membership income growth during 2025.

2025 2024 2023

5 unchanged sentences

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.03%, an increase of 11 basis points.

This increase was positively impacted by:

19 basis points due to warehouse ancillary and other businesses, primarily e-commerce and gasoline;

16 basis points due to the absence of charges related to the discontinuation of our charter shipping activities that were recorded in the first and third quarters of 2023;

and three basis points due to a LIFO benefit.

This increase was partially offset by four basis points in our core merchandise categories and three basis points due to increased 2% rewards.

This increase was positively impacted by 19 basis points in our core merchandise categories, primarily due to fresh foods and our co-branded credit card program.

Gross margin percentage was negatively impacted by seven basis points due to a LIFO charge in 2025 for higher merchandise costs and one basis point in warehouse ancillary and other businesses.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted gross margin by approximately $224, attributable to our Other International and Canadian operations.

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased 16 basis points.

The increase was primarily due to non-foods, partially offset by fresh foods and foods and sundries.

This measure eliminates the impact of changes in sales penetration and gross margins from our warehouse ancillary and other businesses.

The increase was primarily due to fresh foods and foods and sundries, 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.

Gross margin 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.

and Canadian segments.

segment performed similarly to the consolidated results above.

Our Canadian segment gross margin percentage increased, primarily due to increases in core merchandise categories and warehouse ancillary and other businesses, partially offset by increased 2% rewards.

Gross margin percentage decreased in our Other International segment, primarily due to increased 2% rewards and a decrease in core merchandise categories.

segment, which performed similarly to the consolidated results above.

Our Canadian and Other International segments gross margin increased, primarily due to increases in core merchandise categories and warehouse ancillary and other businesses.

Selling, General and Administrative Expenses

2 unchanged sentences

SG&A expenses as a percentage of net sales 9.25 % 9.14 % 9.08 %

SG&A expenses as a percentage of net sales increased six basis points compared to 2023.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.10%, an increase of two basis points.

The comparison to last year was negatively impacted by two basis points in warehouse operations and other businesses, driven by our U.S.

operations, which included the impact of wage increases in March and September 2023, and July 2024, partially offset by sales leverage and improved productivity.

SG&A expenses as percentage of net sales were lower in our Canadian and Other International operations.

SG&A expenses as a percentage of net sales increased 11 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.17%, an increase of three basis points.

The comparison to last year was negatively impacted by three basis points due to warehouse operations and other businesses.

Changes in foreign currencies relative to the U.S.

dollar decreased SG&A expenses by approximately $127, attributable to our Canadian and Other International operations.

Interest Expense

2 unchanged sentences

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

The decrease was primarily due to repayment of the 2.750% Senior Notes in May 2024.

For more information on our debt arrangements, refer to the consolidated financial statements included in Item 8 of this Report.

5 unchanged sentences

Interest income and other, net $ 589 $ 624 $ 533

The increase in interest income in 2024 was due to higher global interest rates.

Foreign-currency transaction gains, net, include revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations and mark-to-market adjustments for forward foreign-exchange contracts.

The decrease in interest income in 2025 was due to lower interest rates, partially offset by higher cash balances.

Foreign-currency transaction gains, net, include revaluation or settlement of monetary assets and liabilities, and mark-to-market adjustments for forward foreign-exchange contracts.

See Derivatives and Foreign-Currency sections in Note 1 to the consolidated financial statements included in Item 8 of this Report.

3 unchanged sentences

Effective tax rate 25.1 % 24.4 % 25.9 %

The effective tax rate for 2024 was favorably impacted by discrete tax benefits of $94 related to the portion of the special dividend payable through our 401(k) plan, a net non-recurring tax benefit of $63 related to a transfer pricing settlement and certain true-ups of tax reserves, and $45 of excess tax benefits related to stock compensation.

The effective tax rate for 2023 was favorably impacted by discrete tax benefits of $54 due to excess tax benefits related to stock compensation.

The Organization of Economic Cooperation and Development (OECD) has introduced a framework to implement a global minimum corporate tax of 15% (referred to as Pillar 2) which is effective for fiscal 2025.

We will continue to evaluate the impacts of Pillar 2, but do not currently expect a material impact on our consolidated financial statements.

The effective tax rate for 2025 was favorably impacted by discrete tax benefits of $100 related to stock compensation.

The effective tax rate for 2024 was favorably impacted by discrete tax benefits of $94 related to the portion of the special cash dividend payable through our 401(k) plan, a net non-recurring tax benefit of $63 related to a transfer pricing settlement and certain true-ups of tax reserves, and $45 related to stock compensation.

The Organization of Economic Cooperation and Development (OECD) introduced a framework to implement a global minimum corporate tax of 15% (referred to as Pillar 2) which was effective for fiscal 2025.

The impacts of Pillar 2 did not have a material impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

5 unchanged sentences

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 $11,144 and $15,234 at September 1, 2024, and September 3, 2023.

Cash and cash equivalents and short-term investments were $15,284 and $11,144 at August 31, 2025, and September 1, 2024.

Of these balances, unsettled credit and debit card receivables represented approximately $2,670 and $2,519.

These receivables generally settle within four days.

Changes in foreign exchange rates impacted cash and cash equivalents positively by $40 and $15 in 2024 and 2023, and negatively by $249 in 2022.

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, leases, and construction and land purchase obligations.

See Notes 4 and 5 to the consolidated financial statements included in Item 8 of this Report for amounts outstanding on September 1, 2024, related to debt and leases.

See Notes 4 and 5 to the consolidated financial statements included in Item 8 of this Report for amounts outstanding on August 31, 2025, related to debt and leases.

Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months.

Construction and land-purchase obligations consist of contracts primarily related to the development and opening of new and relocated warehouses, the majority of which (other than leases) are due in the next 12 months.

We believe that our cash and investment position and operating cash flow, with capacity under existing and available credit agreements, will be sufficient to meet our liquidity and capital requirements for the foreseeable future and our U.S.

We believe that our cash and investment positions and operating cash flow, with capacity under existing and available credit agreements, will be sufficient to meet our liquidity and capital requirements for the foreseeable future and that our U.S.

current and projected asset position is sufficient to meet our U.S.

11 unchanged sentences

Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses, information systems, and manufacturing and distribution facilities.

In 2024, we spent $4,710 on capital expenditures, and it is our current intention to spend a similar amount du ring fiscal 2025 .

In 2025, we spent $5,498 on capital expenditures, and it is our current intention to spend $6,000 to $6,500 du ring fiscal 2026 .

These expenditures are expected to be financed with cash from operations, cash and cash equivalents, and short-term investments.

We opened 30 new warehous es, including one relocation, in 2024, and plan to

open up to 29 additional new warehouses, including three relocations, in 2025.

We opened 27 new warehous es, including three relocations, in 2025, and plan to open up to 35 new warehouses, including five relocations, in 2026.

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.

2 unchanged sentences

Cash flow used in financing activities primarily related to the payment of dividends, repayments of long-term debt and short-term borrowings, repurchases of common stock, and withholding taxes on stock-based awards.

On May 18, 2024, we paid the $1,000 outstanding principal balance on the 2.750% Senior Notes, using cash and cash equivalents and short-term investments.

Cash flow provided by financing activities included proceeds from short-term borrowings and four Guaranteed Senior Notes totaling approximately $500, at fixed interest rates ranging from 1.400% to 2.120%, issued by our Japan subsidiary.

Cash flow provided by financing activities included proceeds from short-term borrowings and issuance of long-term debt.

Long-term Debt

Repayments of long-term debt in 2025 totaled $103, as compared to $1,077 in 2024.

Repayments in 2024 included the $1,000 outstanding principal balance on our 2.750% Senior Notes.

There were no proceeds from long-term debt in 2025, as compared to $498 in 2024.

Proceeds in 2024 included four Guaranteed Senior Notes issued by our Japan subsidiary.

Cash dividends declared in 2025 totaled $2,183 or $4.92 per share, as compared to $8,589 or $19.36 per share in 2024.

Dividends in 2024 included a special dividend of $15 per share, resulting in a payment of approximately $6,655.

Dividends in 2024 included a special dividend of $15 per share, resulting in a payment of

approximately $6,655.

In April 2025, the Board of Directors increased our quarterly cash dividend from $1.16 to $1.30 per share.

8 unchanged sentences

We maintain bank credit facilities for working capital and general corporate purposes.

At September 1, 2024, we had borrowing capacity under these facilities of $1,198.

At August 31, 2025, we had borrowing capacity under these facilities of $1,220.

Our international operations maintain $721 of this capacity under bank credit facilities, of which $199 is guaranteed by the Company.

16 unchanged sentences

Liabilities associated with the risks that we retain are not discounted and are estimated using historical claims experience, demographic factors, severity factors, and other actuarial assumptions.

The costs of claims are highly unpredictable and can fluctuate as a result of inflation rates, regulatory or legal changes, and unforeseen developments in claims.

The costs of claims are highly unpredictable and can fluctuate as a result of inflation rates, regulatory or legal changes, and unforeseen developments

in claim frequency and amounts.

While we believe our estimates are reasonable, actual claims and costs could differ significantly from recorded liabilities.

3 unchanged sentences

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 7. Management’s Discussion and Analysis