COSTCO WHOLESALE CORP /NEW COST

Costco's updated employee agreement took effect this week in the U.S. and Canada, reflecting a commitment to industry-leading pay and benefits. Highlights include an immediate $1/hour top-of-scale increase, with additional $1 increases in March 2026 and March 2027. The top-of-scale wage for U.S. service clerks is now $31.90/hour. The minimum wage increased by $0.50/hour to $20/hour. Paid vacations are now offered during the first year of employment, and U.S. employees can receive 6 weeks of vacation after 30 years of service. The average wage for U.S. and Canada employees is over $31/hour, including bonuses.

The company continues to expand its private label Kirkland Signature offerings, focusing on quality and value. Examples of recent price reductions include KS Refined Olive Oil from $29.99 to $27.99, KS Organic Peanut Butter from $11.49 to $9.99, and KS Tortilla Strips from $5.69 to $4.99. A new KS Purified Water SKU for China is produced in-country, leading to over 20% member savings. New KS Diapers offer improved quality (longer/thicker absorbent layer, softer outer cover, 2x more stretch) and 11% better value. Other new KS offerings include French Fries, Vodka and Soda, and Lager. KS continues to grow faster than the overall business.

Costco is advancing its technology roadmap, with the new warehouse tool in its app receiving over 43 million visits. For personalization, Q2 saw the first instance of multiple versions of digital MVMs sent out, differentiating messages based on previous shopping behavior. E-commerce sales were significantly boosted by bullion, but also saw double-digit growth in home furnishings, small electrics, hardware, and sporting goods. Costco Logistics had a record holiday season with over 500,000 deliveries, and Costco Next, the curated marketplace, also achieved record holiday sales with nearly 100 vendor sites.

Improvements were made to the co-brand credit card, increasing the reward on gas purchases at Costco locations to 5%. Executive Members using the card can double their cash back to 4% on most purchases. The company is in the early stages of building out its retail media capabilities, with 10 campaigns currently live and many more in the pipeline. This initiative aims to leverage CPG marketing dollars and reinvest value into member benefits, rather than solely creating a new margin profile.

Overall inflation in Q2 was low single digits, with fresh foods being the most inflationary, particularly meat and bakery (driven by eggs). Food and sundries saw low single-digit inflation, partially offset by deflation in sugar, butter, and flour. The supply chain remains relatively stable, though shipping delivery dates are less predictable. The consumer is described as focused on quality, value, and newness, showing willingness to spend but being very choiceful. There's a continued shift towards food at home versus food away from home.

Costco plans 28 new openings in FY25 (25 net new buildings), including 15 in the U.S., 3 in Canada, and 7 in other international countries. The 900th Costco location worldwide will open in Sharon, Massachusetts. Gas station hours in North America were extended, generally staying open an hour later, with some opening earlier, to enhance member convenience. The company is evaluating further store hour extensions but has no immediate plans.