COSTCO WHOLESALE CORP /NEW COST

Costco continues to pursue aggressive warehouse expansion, planning for 30+ net new openings annually in future years, with 28 planned for FY26. The company is adopting creative real estate strategies, such as converting existing structures and developing mixed-use sites (e.g., Baldwin Hills, LAX), to expand into new markets and relieve pressure on high-volume locations. Relocations of existing warehouses are also planned (5 in FY26) to enhance member experience and significantly accelerate sales growth, with uplifts ranging from 20% to 60% depending on added amenities like gas stations and parking.

Costco is leveraging technology to create a seamless member experience, both in-warehouse and online. Initiatives include scanning memberships at entry, the Digital Wallet, and pre-scanning small-to-medium baskets, which have improved checkout speed by up to 20%. Online, new personalization capabilities based on search history have yielded positive sales lifts. AI is being integrated into operations, notably in pharmacy inventory management, improving in-stocks to over 98% and contributing to mid-teen growth in scripts filled. AI tools are also being deployed in the gas business for inventory management and sales optimization.

The company reported strong membership growth, with 39.7 million paid executive memberships (up 9.1%) and 81.4 million total paid members (up 5.2%). However, the worldwide renewal rate saw a slight 10 basis point decline to 89.7%, attributed to a higher percentage of new online members who historically renew at a slightly lower rate. Management is actively implementing targeted communications to engage these members and mitigate further declines, showing early success in Q1. The extended operating hours and Instacart benefits have also contributed to executive membership upgrades.

Costco's focus on quality, value, and newness continues to drive market share gains across departments. Fresh sales were up mid-to-high single digits, led by double-digit meat growth. Nonfoods and Food & Sundries also saw mid-single-digit comp sales, with strong performance in categories like gold, jewelry, and candy. Kirkland Signature items, offering 15-20% value over national brands, continue to grow faster than overall sales, with 45 new KS items launched in Q1. The company remains committed to being the first to lower prices, exemplified by recent price reductions on KS products like chicken pot pie and bacon.

Overall inflation remained consistent with recent quarters, with fresh and food & sundries seeing mixed commodity trends (e.g., beef/seafood inflation offset by produce/egg deflation). Non-foods experienced low single-digit inflation, primarily from gold and imported goods. Costco is mitigating tariff impact^🌐s by changing production countries, sourcing domestically, consolidating global buying, and leveraging Kirkland Signature. Productivity improvements from technology investments and operational efficiencies largely offset wage investments and extended operating hours, though higher healthcare costs and a tax assessment impacted SG&A leverage.