What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-06-03 compared with 2026-03-11 · 90 added, 99 removed, 189 unchanged (50% of the section changed)

63 unchanged sentences

Our operating models are generally the same across our U.S., Canadian, and Other International operating segments (see Note 9 to the condensed consolidated financial statements included in Part I, Item 1, 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.

Certain operations in our 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.

In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S.

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

References to the second quarter of 2026 and 2025 relate to the 12-week fiscal quarters ended February 15, 2026, and February 16, 2025.

References to the first half of 2026 and 2025 relate to the 24 weeks ended February 15, 2026, and February 16, 2025.

References to the third quarter of 2026 and 2025 relate to the 12-week fiscal quarters ended May 10, 2026, and May 11, 2025.

References to the first thirty-six weeks of 2026 and 2025 relate to the 36 weeks ended May 10, 2026, and May 11, 2025.

Certain percentages presented are calculated using actual results prior to rounding.

Highlights for the second quarter of 2026 versus 2025 include:

• We opened four new warehouses, including one relocation, for a total of three net new warehouses:

one in the U.S.

and two in our Canadian segment, compared to one new warehouse in the U.S.;

• Net sales increased 9% to $68,242, driven by an increase in comparable sales and sales at 27 net new warehouses opened since the end of the second quarter of 2025;

• Membership fee revenue increased 14% to $1,355, primarily driven by new member sign-ups and membership fee increases;

• Gross margin as a percentage of net sales and excluding the impact of gasoline price deflation increased 11 basis points;

• SG&A expenses as a percentage of net sales and excluding the impact of gasoline price deflation increased eight basis points;

Highlights for the third quarter of 2026 versus 2025 include:

• We opened four new warehouses:

three in the U.S.

and one in Canada, compared to nine new warehouses, including one relocation;

• Net sales increased 12% to $69,154, driven by an increase in comparable sales and sales at 23 net new warehouses opened since the end of the third quarter of 2025;

• Higher gasoline prices positively impacted net sales by $1,367, or 221 basis points, and changes in foreign currencies positively impacted net sales by approximately $643, or 104 basis points;

• Membership fee revenue increased 11% to $1,373, primarily driven by new member sign-ups, membership fee increases, and upgrades to Executive Membership;

• Gross margin as a percentage of net sales and excluding the impact of gasoline price inflation increased one basis point;

• SG&A expenses as a percentage of net sales and excluding the impact of gasoline price inflation decreased two basis points;

• The effective tax rate was 25.4%, compared to 26.2%;

• Net income increased to $2,192, $4.93 per diluted share, compared to $1,903, $4.28 per diluted share;

• A quarterly cash dividend of $1.30 per share was declared on January 15, 2026, and paid on February 13, 2026.

• A quarterly cash dividend of $1.47 per share was declared on April 15, 2026, and paid on May 15, 2026.

RESULTS OF OPERATIONS

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

$ 69,154 $ 61,965 $ 203,374 $ 185,480

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Total Company 7 % 8 % 7 % 8 %

Net sales increased $5,712 or 9%, and $10,705 or 9% during the second quarter and first half of 2026.

The improvement was primarily attributable to an increase in comparable sales of $4,618 or 7% and $8,497 or 7% during the second quarter and first half of 2026.

Comparable sales were positively impacted by increases of approximately 4% in average ticket and 3% in shopping frequency in both the second quarter and first half of 2026.

The remaining increase was driven by sales at the 27 net new warehouses opened since the end of the second quarter of 2025.

Digitally-enabled comparable sales increased 23% and 22% during the second quarter and first half of 2026 and increased 22% and 21% excluding the impact of changes in foreign-currencies.

Sales increased $4,715 or 9% and $8,663 or 9% in core merchandise categories during the second quarter and first half of 2026, increasing in all categories.

Sales increased $997 or 9% and $2,042 or 9% in warehouse ancillary and other businesses during the second quarter and first half of 2026.

The volume of gasoline sold increased approximately 4%, positively impacting net sales by $209, or 33 basis points and $443 or 36 basis points during the second quarter and first half of 2026.

Lower gasoline prices negatively impacted net sales by $402, or 64 basis points, and $431, or 35 basis points during the second quarter and first half of 2026, with a 5% and 3% decrease in the average price per gallon.

Net sales increased $7,189 or 12%, and $17,894 or 10% during the third quarter and first thirty-six weeks of 2026.

The improvement was primarily attributable to an increase in comparable sales of $6,055 or 10% and $14,553 or 8% during the third quarter and thirty-six weeks of 2026.

Comparable sales were positively impacted by increases of approximately 7% and 5% in average ticket and 2% and 3% in shopping frequency in the third quarter and first thirty-six weeks of 2026.

The remaining increase was driven by sales at the 23 net new warehouses opened since the end of the third quarter of 2025.

Digitally-enabled comparable sales increased 21% and 22% during the third quarter and first thirty-six weeks of 2026 and increased 21% for each period excluding the impact of changes in foreign currencies.

Sales increased $3,721 or 7% and $12,384 or 8% in core merchandise categories during the third quarter and first thirty-six weeks of 2026, increasing in all categories.

Sales increased $3,468 or 29% and $5,510 or 16% in warehouse ancillary and other businesses during the third quarter and first thirty-six weeks of 2026, led by gasoline and pharmacy.

The volume of gasoline sold increased approximately 10% and 6%, positively impacting net sales by $662, or 107 basis points and $1,105 or 60 basis points during the third quarter and first thirty-six weeks of 2026.

Higher gasoline prices positively impacted net sales by $1,367, or 221 basis points, and $936, or 50 basis points during the third quarter and first thirty-six weeks of 2026, with a 20% and 5% increase in the average price per gallon.

Changes in foreign currencies relative to the U.S.

dollar attributable to our Other International and Canadian operations positively impacted net sales by approximately $899, or 144 basis points, and approximately $935, or 76 basis points, during the second quarter and first half of 2026.

dollar attributable to our Other International and Canadian operations positively impacted net sales by approximately $643, or 104 basis points, and approximately $1,578, or 85 basis points, during the third quarter and first thirty-six weeks of 2026.

Membership Fees

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

Membership fees $ 1,373 $ 1,240 $ 4,057 $ 3,599

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Total cardholders (000s) 148,500 142,800 — —

Membership fee revenue increased 14% in the second quarter and first half of 2026, driven by new member sign-ups and membership fee increases.

At the end of the second quarter of 2026, our renewal rates were 92.1% in the U.S.

Membership fee revenue increased 11% and 13% in the third quarter and first thirty-six weeks of 2026, driven by new member sign-ups, membership fee increases and upgrades to Executive Membership.

At the end of the third quarter of 2026, our renewal rates were 92.2% in the U.S.

and Canada and 89.7% worldwide.

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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 35% and 40% of membership income growth during the second quarter and first half of 2026.

The fee income increase accounted for approximately 25% and 35% of membership income growth during the third quarter and first thirty-six weeks of 2026.

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

Net sales $ 69,154 $ 61,965 $ 203,374 $ 185,480

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Quarterly Results

Gross margin as a percentage of net sales increased by 17 basis points.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.96%, an increase of 11 basis points.

The increase was positively impacted by 17 basis points in our warehouse ancillary and other businesses, primarily gasoline and pharmacy, and five basis points from a non-recurring legal settlement.

Gross margin percentage was negatively impacted by seven basis points in our core merchandise categories, primarily due to 2% rewards and our co-branded credit card program, partially offset by an increase in non-foods and fresh foods.

A LIFO charge in the second quarter of 2026 compared to a benefit in the second quarter of 2025 also negatively impacted gross margin by four basis points.

Gross margin as a percentage of net sales decreased by 21 basis points.

Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 11.26%, an increase of one basis point.

The increase was positively impacted by 14 basis points in our warehouse ancillary and other businesses, primarily pharmacy and e-commerce.

A smaller LIFO charge in the third quarter of 2026 compared to the third quarter of 2025 positively impacted gross margin by 14 basis points.

The absence of a charge this quarter related to a one-time expense for increased employee vacation positively impacted gross margin by two basis points.

Gross margin percentage was negatively impacted by 29 basis points in our core merchandise categories, primarily due to foods and sundries and fresh foods, partially offset by our co-branded credit card program and non-foods.

Changes in foreign currencies relative to the U.S.

dollar positively impacted gross margin by approximately $97, compared to the second quarter of 2025, attributable to 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 22 basis points, with increases in all categories.

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

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.

dollar positively impacted gross margin by approximately $69, compared to the third quarter of 2025, 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), decreased nine basis points.

The decrease 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.

The decrease was primarily due to a negative impact from core merchandise categories, partially offset by increases in warehouse ancillary and other businesses, a smaller LIFO charge and the absence of a charge related to a one-time expense for increased employee vacation.

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

Gross margin increased in our Other International segment, primarily due to increases in warehouse ancillary and other businesses and core merchandise categories.

Gross margin increased in our Other International segment, primarily due to increases in core merchandise categories.

Year-to-date Results

Gross margin as a percentage of net sales increased by 11 basis points.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.13%, an increase of seven basis points.

The increase was positively impacted by 12 basis points in our warehouse ancillary and other businesses, primarily gasoline and pharmacy, and two basis points from a non-recurring legal settlement.

Gross margin percentage was negatively impacted by four basis points in our core merchandise categories, primarily due to our co-branded credit card program and 2% rewards, partially offset by increases in non-foods, fresh foods, and foods and sundries.

A LIFO charge in the first half of 2026 compared to a benefit in the first half of 2025 also negatively impacted gross margin by three basis points.

Gross margin as a percentage of net sales increased by one basis point.

Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 11.18%, an increase of six basis points.

The increase was positively impacted by 13 basis points in our warehouse ancillary and other businesses, primarily pharmacy and gasoline, and three basis points from a smaller LIFO charge in the first thirty-six weeks of 2026 compared to the first thirty-six weeks of 2025.

A non-recurring legal settlement also positively impacted gross margin by two basis points.

Gross margin percentage was negatively impacted by 12 basis points in our core merchandise categories, primarily due to our co-branded credit card program, foods and sundries, and 2% rewards, partially offset by increases in non-foods.

Changes in foreign currencies relative to the U.S.

dollar positively impacted gross margin by approximately $101, compared to the first half of 2025, attributable to Other International and Canadian operations.

dollar positively impacted gross margin by approximately $170, compared to the first thirty-six weeks of 2025, 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 14 basis points.

The increase was across all categories.

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

Segment gross margin percentage increased in all segments.

1 unchanged sentence

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

Gross margin increased in our Other International segment, primarily due to increases in warehouse ancillary and other businesses and core merchandise categories.

Gross margin increased in our Other International segment, primarily due to increases in core merchandise categories and warehouse ancillary and other businesses.

Selling, General and Administrative Expenses

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

SG&A expenses $ 6,193 $ 5,679 $ 18,799 $ 17,188

1 unchanged sentence

Quarterly Results

SG&A expenses as a percentage of net sales increased by 13 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.14%, an increase of eight basis points.

Compared to last year, results were negatively impacted by six basis points attributable to self-insured general liability claims expense and three basis points from central operating costs.

Preopening costs were higher by one basis point.

SG&A was favorably impacted by two basis points attributable to warehouse operations and other businesses.

SG&A expenses as a percentage of net sales decreased by 20 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.14%, a decrease of two basis points.

Compared to last year, results were favorably impacted by five basis points attributable to the absence of a charge related to a one-time expense for increased employee vacation and one basis point from central operating costs.

SG&A was negatively impacted by three basis points attributable to warehouse operations and other businesses.

Stock compensation was higher by one basis point.

Changes in foreign currencies relative to the U.S.

dollar increased SG&A expenses by approximately $65 compared to the second quarter of 2025, attributable to our Other International and Canadian operations.

SG&A expenses as a percentage of net sales were higher in all segments.

dollar increased SG&A expenses by approximately $48

compared to the third quarter of 2025, attributable to our Other International and Canadian operations.

SG&A expenses as a percentage of net sales was lower in our U.S.

segment and higher in our Canadian and Other International segments.

Year-to-date Results

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

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.36%, an increase of four basis points.

Compared to last year, results were negatively impacted by three basis points attributable to self-insured general liability claims expense and two basis points due to a charge related to a tax assessment for prior years.

Preopening costs were higher by one basis point.

Warehouse operations and other businesses and stock compensation favorably impacted results by one basis point each.

SG&A expenses as a percentage of net sales decreased by three basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.29%, an increase of two basis points.

Compared to last year, results were negatively impacted by two basis points attributable to self-insured general liability claims expense.

A charge related to a tax assessment for prior years and warehouse operations and other businesses also negatively impacted SG&A by one basis point each.

The absence of a charge related to a one-time expense for increased employee vacation favorably impacted SG&A by two basis points.

Changes in foreign currencies relative to the U.S.

dollar increased SG&A expenses by approximately $65 compared to the first half of 2025, attributable to our Other International and Canadian operations.

dollar increased SG&A expenses by approximately $113 compared to the first thirty-six weeks of 2025, attributable to our Other International and Canadian operations.

SG&A expenses as a percentage of net sales were higher in our U.S.

segment, flat in our Canadian segment, and lower in our Other International segment.

and Canadian segments and lower in our Other International segment.

Interest Expense

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

Interest expense $ 32 $ 35 $ 100 $ 108

2 unchanged sentences

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

Interest income $ 130 $ 95 $ 392 $ 300

Foreign-currency transaction gains (losses), net

17 (17) 38 49

Other, net 8 7 28 25

Interest income and other, net $ 155 $ 85 $ 458 $ 374

The increase in interest income in the second quarter and first half of 2026 was due to higher cash balances, partially offset by lower interest rates.

The increase in interest income in the third quarter and first thirty-six weeks of 2026 was due to higher cash balances, partially offset by lower interest rates.

Foreign-currency transaction gains (losses), 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.

2 unchanged sentences

12 Weeks Ended 36 Weeks Ended

2026 February 16,

2025 February 15,

2026 February 16,

Provision for income taxes $ 746 $ 677 $ 2,014 $ 1,819

Effective tax rate 25.4 % 26.2 % 24.4 % 24.9 %

The effective tax rate for the first half of 2026 and 2025 was favorably impacted by discrete tax benefits of $72 and $100 related to stock compensation.

The effective tax rate for the first thirty-six weeks of 2026 and 2025 was favorably impacted by discrete tax benefits of $72 and $100 related to stock compensation.

LIQUIDITY AND CAPITAL RESOURCES

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36 Weeks Ended

2026 February 16,

Net cash provided by operating activities $ 11,133 $ 9,468

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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 $18,240 and $15,284 at February 15, 2026, and August 31, 2025.

Of these balances, unsettled credit and debit card receivables represented approximately $2,872 and $2,670 at February 15, 2026, and August 31, 2025.

Cash and cash equivalents and short-term investments were $19,996 and $15,284 at May 10, 2026, and August 31, 2025.

Of these balances, unsettled credit and debit card receivables represented approximately $3,078 and $2,670 at May 10, 2026, and August 31, 2025.

These receivables generally settle within four days.

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Cash Flows from Operating Activities

Net cash provided by operating activities totaled $7,684 in the first half of 2026, compared to $6,008 in the first half of 2025.

Our cash flow provided by operations is primarily fr om net sales and membership fees.

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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.

Net cash provided by operating activities totaled $11,133 in the first thirty-six weeks of 2026, compared to $9,468 in the first thirty-six weeks of 2025.

The increase was primarily due to higher cash flow provided from operating income, as well as reduced net investment in merchandise inventories.

The latter was a result of faster inventory turns and improved payment terms with suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $2,568 in the first half of 2026, compared to $2,007 in the first half of 2025, and is primarily related to capital expenditures.

Net cash used in investing activities totaled $4,160 in the first thirty-six weeks of 2026, compared to $3,343 in the first thirty-six weeks of 2025, and is primarily related to capital expenditures.

Net cash from investing activities also includes purchases and maturities of short-term investments.

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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 2026, we spent $2,815 on capital expenditures, and it is our current intention to spend approximately $6,500 during fiscal 2026, as we continue to invest in new warehouse openings, remodel existing locations, expand our depot network, and further develop our digitally-enabled businesses.

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

We opened 12 new warehouses, includ ing two relocations, in the first half of 2026, and plan to open 21 additional new warehouses, including three relocations, in the remainder of fiscal 2026.

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.

In the first thirty-six weeks of 2026, we spent $4,228 on capital expenditures, and it is our current intention to spend approximately $6,500 during fiscal 2026, as we continue to invest in new warehouse openings, remodel existing locations, expand our depot network, and further develop our digitally-enabled businesses.

These expenditures are expected to be financed with cash from operations, cash and cash equivalents, and

short-term investments.

We opened 16 new warehouses, includ ing two relocations, in the first thirty-six weeks of 2026, and plan to open 13 additional new warehouses, including one relocation, in the remainder of fiscal 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.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $1,897 in the first half of 2026, compared to $1,434 in the first half of 2025.

Cash flow used in financing activities during the first half of 2026 was primarily related to the payment of dividends, repurchases of common stock, and withholding taxes on stock-based awards.

A quarterly cash dividend of $1.30 per share was declared on January 15, 2026, and paid on February 13, 2026.

Net cash used in financing activities totaled $2,175 in the first thirty-six weeks of 2026, compared to $2,182 in the first thirty-six weeks of 2025.

Cash flow used in financing activities during the first thirty-six weeks of 2026 was primarily related to the payment of dividends, repurchases of common stock, repayments of short-term borrowings, withholding taxes on stock-based awards, and repayments of long-term debt.

Cash flow provided by financing activities included proceeds from short-term borrowings.

Long-term Debt

Repayments of long-term debt in the first thirty-six weeks of 2026 totaled $69, as compared to no repayments in 2025.

A quarterly cash dividend of $1.47 per share was declared on April 15, 2026, and paid on May 15, 2026.

Share Repurchase Program

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 2026 and 2025, we repurchased 454,000 and 443,000 shares of common stock, at an average price per share of $924.46 and $932.03, totaling approximately $420 and $413.

During the first thirty-six weeks of 2026 and 2025, we repurchased 638,000 and 658,000 shares of common stock, at an average price per share of $945.46 and $946.64, totaling approximately $603 and $623.

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.

1 unchanged sentence

Repurchased shares are retired, in accordance with the Washington Business Corporation Act.

The remaining amount available to be purchased under our approved plan was $1,542 at the end of the second quarter.

The remaining amount available to be purchased under our approved plan was $1,359 at the end of the third quarter.

Bank Credit Facilities and Commercial Paper Programs

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

At February 15, 2026, we had borrowing capacity under these facilities of $1,447.

At May 10, 2026, we had borrowing capacity under these facilities of $1,531.

Our Canadian and Other International operations maintain $1,028 of this capacity under bank credit facilities, of which $338 is guaranteed by the Company.

Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the condensed consolidated balance sheets, were $98 at the end of the second quarter of 2026 and immaterial at the end of 2025.

Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the condensed consolidated balance sheets, were $96 at the end of the third quarter of 2026 and immaterial at the end of 2025.

We have letter of credit facilities, for commercial and standby letters of credit, totaling $242.

The outstanding commitments under these facilities at the end of the second quarter of 2026 totaled $204, most of which were standby letters of credit that do not expire or have expiration dates within one year.

The outstanding commitments under these facilities at the end of the third quarter of 2026 totaled $205, 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.

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We base these on historical experience and on assumptions that we believe to be reasonable.

Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K, for the fiscal year ended August 31, 2025.

Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report

on Form 10-K, for the fiscal year ended August 31, 2025.

There have been no material changes to the critical accounting estimates previously disclosed in that Report.

5 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-Q

Item 2. Management’s Discussion and Analysis