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 fourth quarter fiscal year 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 again. Thank you, and I would now like to turn the conference over to Mr. Gary Millerchip, Chief Financial Officer. You may begin.

Good afternoon, everyone, and thank you for joining us for Costco's fourth quarter 2026 earnings call. 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. Joining me for today's call is our CEO, Ron Vachris. Before we dive into our financial results, I'll hand over to Ron for some opening comments.

Thank you, Gary, and good afternoon, everyone. Thank you for joining us today. As we wrap up fiscal year 2026, I'll share a few highlights from the year before turning the call back over to Gary. In the fourth quarter, we opened 12 warehouses, including a relocation in Taiwan, 10 new U.S. buildings, and our 43rd warehouse in Mexico. For the fiscal year, we opened 28 new warehouses, including three relocations for a total of 25 net new buildings. This brings our warehouse count to 939 worldwide. Our current plan is to open another 33 warehouses in fiscal year 2027, of which five are relocations, as we build towards our goal of opening 30 net new warehouses per year. We continue to see significant opportunities for new warehouses growth, including new US markets, such as Buffalo, New York, and Lawrence, Kansas, infills in our more mature US markets, as well as international markets in which we operate. We're confident in the return on investment in all the buildings that we open with new markets bringing more new members and infills driving many fewer new signups but a much quicker maturity curve for sales and profitability. For fiscal year 27, we're planning to open four buildings in Europe, five in Canada and one in Mexico and have a strong pipeline of new warehouses planned for Asia, Australia and other international markets in fiscal year 28. Our business performed exceptionally well across all operating channels this year, including our warehouses, ancillary businesses and digital platforms. We delivered top line sales growth of over 10% and expanded our market share by deepening member loyalty and capturing a larger share of wallet. This success was anchored by our agile item driven model, Our buyers stayed ahead of member trends, quickly adjusting our assortment to offer high-quality, relevant products at the lowest prices. This strong performance was spread across a wide range of departments, including meat, bakery, major electronics, and health and beauty aids. Our ancillary businesses also performed very well across the board, with gas, pharmacy, and travel leading the way, all growing at a faster pace than our overall growth rate. Our gas business has had a record year, driven by members seeking value in Costco's top-tier gasoline in the face of rising prices. In fiscal year 26, we saw the penetration of U.S. member households that purchased gas reach an all-time high. During the fiscal year, we estimate we saved our members over $3.2 billion versus the average price at the pump in markets where we operate. We also expanded 26 existing US gas stations during this year at our highest volume locations to increase throughput and improve the overall member experience. In pharmacy, sales grew nearly 20% as we continue to expanding our digital capabilities. We increased member value and convenience through our GLP-1 and fertility programs, as well as digital options like RX mobile pay ahead and pickup lockers. Many U.S. buildings are now achieving RX pay-ahead penetrations of more than one-third of prescriptions, saving both members and our employees valuable time. These programs led to double-digit script growth for the year and that are more than offset the headwinds from lower prices as a result of Medicare maximum fair price changes. This quarter, we are excited to announce a new partnership with ScanHealth Systems to develop Medicare Advantage benefits that will help members get more value for their health care. Our Costco travel business continues to add exciting new packages and worldwide destinations. Vacation packages, cruises, and car rentals all grew double digits during the year as our great values continue to resonate with our members. During fiscal year 26, Costco sent over 750,000 members on cruises, an increase of 16%. One of those members booked a 154-night cruise on Regent Seven Seas at a cost of over $218,000. This member will receive an $8,800 shop card as they conclude their cruise. We continue to make progress on digital in fiscal year 26. Digitally enabled sales, which include third-party delivery, exceeded $33 billion and was an increase of more than 20%. Over the last few weeks, we further expanded the ways in which our members can engage with us online with the announcement that our Uber Eats partnership is growing from 17 states to the entire U.S., as well as expansion of DoorDash partnership to include the U.S. These partnerships will complement the successful long-term partnership that we've had with Instacart in the U.S. and Canada. Members using these new marketplaces are significantly younger than our overall member base. Average delivery times across all three platforms are under an hour, bringing increased convenience in addition to our great values. We've observed that these sales through these channels are mostly incremental with limited impact on our core warehouse grocery business. Our membership continues to be the most important item we sell, and the additional benefits we introduced for executive members last year continue to resonate well. Executive member penetration reached an all-time high in fiscal year 26. Renewal rates showed improvements again this quarter, with the increasing executive penetration likely to help improve those rates in the future. Growth in new member signups through digital channels and younger members also continued. Looking over a longer time horizon, our member base under 40 has grown nearly 60% since COVID, increasing our total penetration of members under 40 to more than a quarter of our total base. While these younger members start out spending a little less with us, over time they grow into higher spending members. Finally, I'll touch briefly on tariff refunds, and Gary will share more details later in the call. As shared in our earnings release, We received some initial tariff refunds in the fourth quarter, and we reinvested some of these dollars to give value back to our members. This was predominantly through price reductions on a number of items in the second half of the quarter, including everyday items in produce, meat and beverages, and some non-food items such as home furnishings and hardware. Reflecting back on the year, I want to thank all of our employees worldwide and congratulate them on another great year. As a management team, we continue to be incredibly proud of our 355,000 employees worldwide and the culture that they help foster. Their dedication to following our code of ethics, doing what's right, and taking care of our members are the driving force for the consistency of our financial results. With that, I'll turn it back over to Gary to discuss the financial results for the quarter, and I'll jump back on for Q&A and fields and questions.