Costco Wholesale Corporation

Ladies and gentlemen, thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation fiscal second quarter 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you, and I would now like to turn the conference over to Gary Millerchip, Chief Financial Officer. You may begin.

Good afternoon, everyone, and thank you for joining us for Costco's second quarter 2026 earnings call. In addition to covering our second quarter financial results today, we will also review our February sales results. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into our results, I'm delighted to say that Ron Baccaras is once again joining me for today's call. I'll now hand over to Ron for some opening comments.

Thank you, Gary. Good afternoon everyone and thank you for joining us today. I'll make a few brief comments about some key business priorities before turning it back over to Gary. Let me start by addressing tariffs. As I know this topic is of great interest to our members and our shareholders. The future impact of tariffs remains extremely fluid. As the recently eliminated IEPA tariffs have now been replaced with new global tariffs for at least the next 150 days. Our buyers continue to act with great agility and urgency, always with the goal of reducing the impact of tariff on prices for our members. We believe our expertise in buying and our limited skew count model puts us in a position to manage this as well as anyone. Our strategies include moving the country of production when that makes sense, consolidating buying efforts globally to lower the cost of goods, leaning in on Kirkland Signature, where we have the most control of the supply chain, and sourcing more items domestically. Let's move to regarding IEPA tariff refunds. It is not yet clear what the process will be, what refunds, if any, will be received, and when this will happen. Throughout the past year, we've taken action to reduce the impact of tariffs. In many cases, we didn't pass the full cost on to our members. The complexity of the tariffs implemented over the past year including layering of different tariffs on top of each other and multiple changes in rates throughout the year, also made it challenging to track the exact impact to an individual item sold. As we've done in the past, when legal challenges have recovered charges passed on in some form to our members, our commitment will be to find the best way to return this value to our members through lower prices and better values. We'll be transparent in how we plan to do this, if and when we receive any refunds. At Costco, we always want to be the first to lower prices and the last to raise them. During the second quarter, we lowered prices on key items, such as eggs, cheese, coffee, and some paper products, as we saw lower inflation in these commodities. We will continue to be a pricing authority, and as some tariffs have been reduced, we are lowering prices on affected items, such as certain textiles, bedding, and cookware skews. Turning to our growth priorities, as I shared last quarter, our real estate and operations teams are focused on increasing our pipeline of new warehouses, both domestically and internationally. Since our last call, we opened four warehouses, including one relocation in the US, one net new US location, and two additional Canadian business centers. This brings our total warehouse count to 924 warehouses worldwide. We currently expect to have 28 net new openings in fiscal year 26 and are targeting 30 plus new openings per year in the coming years. In digital, we continue to make strides with our roadmap to deliver a more seamless experience for members in warehouse and online. In the warehouses, we're achieving meaningful improvements in the speed of checkout, employee productivity, both as a result of our mobile wallet enhancements, pharmacy pay ahead, and the rollout of employee pre-scan technology. We're also piloting automated pay stations that will allow members to pay for their pre-scan orders seamlessly with an average transaction time of around eight seconds. Early results show this is improving the flow of traffic and we've received great member feedback. On our digital sites, we continue to roll out new personalization capabilities which are resonating well with our members and are starting to have measurable impact on e-commerce sales growth. As consumers embrace AI and their shopping habits, we believe our commitments to providing the best value on great quality items can make Costco a beneficiary of these shifts. We're working closely with the leading AI companies to ensure our values will be visible to existing and potential future Costco members as they engage with these tools. With that, I'll turn it back over to Gary to discuss the results for the quarter, and I'll jump back on during Q&A to field some questions.