What repeats and what does not: reading Costco's fourth quarter from the filing

Sources: Costco Wholesale Corporation, Form 8-K filed 24 September 2026, accession 0000909832-26-000084, Items 2.02 and 9.01, with Exhibit 99.1 and Exhibit 99.2; Form 10-Q for the quarter ended 10 May 2026, filed 3 June 2026, accession 0000909832-26-000051; Form 10-K for the fiscal year ended 31 August 2025, filed 8 October 2025, accession 0000909832-25-000101. All read directly from sec.gov. Figures marked as computed are arithmetic performed here on filed inputs, with the basis of each numerator and denominator stated beside it.

The short answer

The quarter is strong and the filing says so. It also supplies, without being asked, the arithmetic that separates the part which repeats from the part which does not. None of that makes the year weak. It makes the year readable, which is a different and more useful thing.

1. What was filed, and what was not

The 8-K itself is one page of substance. Item 2.02 states that the company issued a press release containing its operating results for the sixteen week fourth quarter and the fifty two week fiscal year ended 30 August 2026, and that Exhibit 99.1 and Exhibit 99.2 are attached. Exhibit 99.1 carries a consolidated statement of income, a consolidated balance sheet marked "Subject to Reclassification", and a condensed consolidated statement of cash flows. Exhibit 99.2 is a supplement of nine pages of slides carrying the operating detail: comparable sales split into traffic and ticket, membership counts and renewal rates, and a basis point bridge for gross margin and for selling, general and administrative expenses.

What is not filed matters as much. There is no fiscal 2026 Form 10-K yet; the fiscal 2025 one was filed on 8 October 2025. Everything below that needs a note rather than a face statement is therefore taken from the Form 10-Q for the quarter ended 10 May 2026, filed 3 June 2026, or from the fiscal 2025 Form 10-K, and is labelled with that date. Where the fourth quarter is covered by neither, this file says so instead of estimating.

2. Two hundred and seventy basis points of the headline number

Comparable sales for the fourth quarter were 9.4 per cent for the total company. On the company's own adjusted basis, excluding the impacts of changes in gasoline prices and foreign exchange, they were 6.7 per cent. The gap is 270 basis points, computed. In the United States segment the reported figure is 10.7 per cent against 7.2 per cent adjusted, a gap of 350 basis points. In Canada the gap is 40 basis points and in Other International 80 basis points.

Exhibit 99.2 then splits comparable sales into traffic and ticket, and the split settles the question. Comparable traffic for the total company is plus 3.3 per cent on the reported basis and plus 3.3 per cent on the adjusted basis. It is the same number twice, because a price index does not change how many people walked in. Comparable ticket is plus 5.9 per cent reported and plus 3.3 per cent adjusted. The whole of the 270 basis point difference sits in ticket. In the United States the same test gives ticket of plus 7.3 per cent reported against plus 3.9 per cent adjusted, with traffic identical at plus 3.2 per cent on both bases.

The chief financial officer said on the earnings call of 24 September 2026, as reported by the Seattle Times the same day, that "gas was definitely a major impact on top line sales". The company does not hide this: it publishes the adjusted series in the same document, and the fiscal 2025 Form 10-K records the mechanism running the other way, with gasoline price deflation reducing net sales that year. A commodity inside the revenue line is a two way street.

3. The same gasoline price, moving two ratios in opposite directions

This is the finding that is hardest to see and easiest to use. Exhibit 99.2 reports fourth quarter gross margin of 11.02 per cent, down 11 basis points against the fourth quarter of fiscal 2025, and up 20 basis points excluding the impact of gasoline prices. It reports selling, general and administrative expenses at 8.94 per cent of net sales, an improvement of 27 basis points, and an improvement of 2 basis points excluding the same gasoline impact. On the supplement's own legend, a plus is favourable or lower and a minus is unfavourable or higher.

The difference between the two versions of the gross margin change is 31 basis points and the difference between the two versions of the selling and administrative change is 25 basis points, both computed. Both ratios have the same denominator, which is net sales. A higher gasoline price raises that denominator without raising the cost base underneath the selling and administrative line, so the expense ratio improves. The same higher denominator carries low margin fuel volume into the sales mix, so the blended gross margin percentage falls. One price moved, two ratios moved, and they moved opposite ways. Neither movement is a decision anybody made.

The independent check on the arithmetic is the face statement. Fourth quarter net sales of $93,873 million less merchandise costs of $83,531 million gives gross margin of $10,342 million, which is 11.02 per cent of net sales. The prior year quarter gives $9,395 million on $84,432 million, or 11.13 per cent. The change is 11 basis points down, which is what the supplement prints. Selling, general and administrative expenses of $8,391 million on $93,873 million is 8.94 per cent against $7,778 million on $84,432 million, or 9.21 per cent, an improvement of 27 basis points. Both bridges tie to the face statement to the basis point.

4. The company supplies the denominator lesson itself

Exhibit 99.2 carries a line most readers skip. Under the gross margin bridge it prints "Core on Core Sales: +18 bps", against a core line in the bridge itself of minus 32 basis points reported and minus 9 basis points excluding gasoline. The same core merchandise margin is therefore presented twice in one slide, once as a percentage of total net sales and once as a percentage of core merchandise sales, and it moves in opposite directions depending on which denominator is used.

The fiscal 2025 Form 10-K explains why, in the company's own words: the gross margin in core merchandise categories, expressed as a percentage of core merchandise sales rather than total net sales, "eliminates the impact of changes in sales penetration and gross margin from our warehouse ancillary and other businesses". The 10-K also defines the two groups it is separating. Warehouse ancillary is gasoline, pharmacy, optical, food court, hearing aids and tire installation. Other businesses is e-commerce, business centers, travel and other. Gasoline sits in warehouse ancillary, not in other businesses, which matters when reading the abbreviated captions in the quarterly supplement. The supplement's bridge line is printed as "Other Bus" and the supplement does not define that abbreviation, so this file does not assert which of the two groups it covers.

A ratio with a mixed denominator measures mix as much as it measures performance. Any business with a low margin category growing at a different rate from the rest has this problem, and the fix is the one the 10-K describes: measure the category against its own sales.

5. The membership fee increase finished paying during this quarter

The argument running in the business press before the results is dated and named. On 23 September 2026, Daniel Sparks wrote a piece for The Motley Fool headed "Costco's Membership Fee Boost Is About to Run Out", syndicated the same week to AOL and The Globe and Mail. The filing answers it, in two numbers that sit four lines apart.

Membership fee revenue for the fifty two weeks was $5,907 million against $5,323 million, an increase of $584 million or 11.0 per cent, computed on the face statement in Exhibit 99.1. Membership fee revenue for the sixteen week fourth quarter was $1,850 million against $1,724 million, an increase of $126 million or 7.3 per cent. Exhibit 99.2 prints the same fourth quarter figure as 7.3 per cent growth and 7.7 per cent excluding foreign exchange. The full year rate and the quarterly rate differ by 366 basis points, computed, and the quarterly rate is the later one.

The balance sheet says the same thing from the other side. Deferred membership fees, which are the unearned portion collected but not yet recognised, were $3,006 million at 30 August 2026 against $2,854 million a year earlier, an increase of 5.3 per cent. Fees recognised in the income statement grew 11.0 per cent. The deferred balance is 50.9 per cent of the year's recognised fees, against 53.6 per cent a year earlier, both computed. That particular ratio puts a balance sheet stock over an income statement flow, which is a basis mismatch, and it is used here only because it is constructed identically in both years and the comparison between the two is the point. It is not a measure of anything on its own. Membership fees are collected up front and recognised ratably over the one year membership period, so the deferred balance leads the income statement rather than following it. It is growing at half the rate of the line it feeds.

For the size of what is at stake, membership fees of $5,907 million are 50.6 per cent of operating income of $11,685 million, computed. The increase of $584 million is 44.9 per cent of the $1,302 million increase in operating income. Strip membership fees out entirely and operating income on net sales is 1.944 per cent for fiscal 2026 against 1.875 per cent for fiscal 2025, an improvement of about 7 basis points, computed. The merchandise business did improve. It improved by about 7 basis points while the fee line supplied nearly half of the growth in the total.

The fiscal 2025 Form 10-K puts a figure on the mechanism directly: "The fee income increase accounted for approximately 40% of membership income growth during 2025." The fourth quarter of fiscal 2026 is where the comparison base finally contains the higher price on both sides.

What did not deteriorate is worth stating with the same care. The worldwide renewal rate is 89.8 per cent and the United States and Canada rate is 92.3 per cent. Paid memberships are 84.1 million, up 3.8 per cent, and total cardholders 150.4 million, up 3.6 per cent. Executive memberships are 42.3 million and account for 75.6 per cent of sales penetration. The members are renewing. The price rise has simply stopped being new.

6. $2,328 million of the operating cash flow is working capital

Net cash provided by operating activities was $15,825 million against $13,335 million. Inside it, the line described as changes in working capital contributed $2,328 million against $1,764 million, which is 14.7 per cent of the total against 13.2 per cent, computed. That is a real and recurring feature of a business that sells inventory before it pays for it. It is also the part of operating cash flow that is a balance sheet position rather than an earning, and it can reverse.

The balance sheet shows the shape of it. Accounts payable rose $2,808 million to $22,591 million, an increase of 14.2 per cent. Merchandise inventories rose $1,208 million to $19,324 million, an increase of 6.7 per cent. Payables are 116.9 per cent of inventories at 30 August 2026 against 109.2 per cent a year earlier, both computed on the same two balance sheet lines. The absolute gap between the two widened by $1,600 million in the year.

One discipline is needed here and it is worth stating out loud. The cash flow statement presents working capital as a single aggregated line and does not break it into components. The balance sheet movements above are balance sheet movements, which include exchange translation and are not the same as the cash flow contribution of each component. This file therefore reports the aggregate from the cash flow statement and the individual balances from the balance sheet, and does not add one to the other or attribute the $2,328 million to any specific component. The fiscal 2026 Form 10-K will carry the detail.

7. $2,250 million at about 2.10 per cent, due inside nine months

The single largest movement on the balance sheet that no coverage mentioned is one line. The current portion of long term debt is $2,248 million at 30 August 2026 against $75 million at 31 August 2025. That is thirty times the prior year balance, computed, and it is not new borrowing. It is existing paper crossing the twelve month line.

Note 4 of the Form 10-Q for the quarter ended 10 May 2026 identifies it exactly. The carrying value of long term debt at that date was $1,000 million of 3.000 per cent Senior Notes due May 2027, $1,250 million of 1.375 per cent Senior Notes due June 2027, $1,750 million of 1.600 per cent Senior Notes due April 2030, $1,000 million of 1.750 per cent Senior Notes due April 2032 and $684 million of other long term debt, being Guaranteed Senior Notes issued by the company's Japan subsidiary. Total $5,684 million, less $14 million of unamortised debt discounts and issuance costs. The two 2027 tranches total $2,250 million and carry a weighted average coupon of about 2.10 per cent, computed on principal.

The same note prices it. The fair value of the company's long term debt, including the current portion, was approximately $5,259 million at 10 May 2026 against a carrying value of $5,684 million. Both figures are stated for the same set of instruments in the same sentence of the same note, which is the only basis on which the comparison may be made. The difference of $425 million, or about 7.5 per cent of carrying value, is what a market prices for paper written at coupons between 1.375 per cent and 3.000 per cent.

Here is where the piece has to be careful, because this is where a smaller company and this one diverge completely. For Costco the maturity is an administrative event. Cash and cash equivalents were $20,207 million at 30 August 2026, with a further $1,094 million of short term investments, against total debt of $6,162 million being $2,248 million current and $3,914 million long term. Net of debt the company holds $15,139 million, computed. Interest income and other, net was $711 million for the year against interest expense of $145 million, a ratio of 4.9 times on captions as filed, the numerator being a combined caption that the release does not split, and the net $566 million is 4.62 per cent of income before income taxes of $12,251 million, all computed. A company in that position does not have a refinancing question. It has a decision about whether to repay or to reissue, and either answer works.

For a company with $10 million to $500 million of revenue the same maturity profile is the whole year's agenda. The lesson is not that low coupon debt was clever, although it was. It is that the value of the cheap money was always going to be handed back at the maturity date, and the only thing that determines whether that is a footnote or an emergency is what is sitting on the other side of the balance sheet when it arrives. The date is knowable years ahead. It is in the debt note of every filing in between.

8. The buyback did not reduce the share count

Repurchases of common stock were $848 million for the year against $903 million the year before. Stock based compensation in the same statement was $924 million against $860 million. The repurchase was $76 million less than the non cash compensation charge, computed.

The share count is the test, and it is on the face of the balance sheet. Common stock issued and outstanding was 443,266,000 shares at 30 August 2026 against 443,237,000 shares at 31 August 2025. The count rose by 29,000 shares. Weighted average diluted shares for the year fell from 444,803 thousand to 444,427 thousand, a reduction of 376 thousand or under one tenth of one per cent. Note 5 of the Form 10-Q records the programme behind it: a $4,000 million authorisation expiring in January 2027, with $1,359 million remaining at 10 May 2026, and 638,000 shares repurchased in the first thirty six weeks at an average price of $945.46.

Nothing here is irregular and nothing is hidden. A company generating $9,390 million of cash after capital expenditure, computed as $15,825 million less $6,435 million, chose to pay $2,458 million of dividends and to retain the rest. The point is definitional. A repurchase smaller than the equity being issued to employees is a dilution offset, and calling it a return of capital at a board meeting will mislead the people in the room. The share count is the only line that settles it.

9. Canada earns 18.0 per cent of the operating income

The fourth quarter segment split is not disclosed until the Form 10-K, so this section uses Note 9 of the Form 10-Q for the thirty six weeks ended 10 May 2026, and says so. On that table the United States produced total revenue of $149,934 million and operating income of $5,124 million, Canada $27,774 million and $1,416 million, and Other International $29,723 million and $1,344 million. The three foot to total revenue of $207,431 million and operating income of $7,884 million, which is what the filed total says.

The operating margins are 3.418 per cent in the United States, 5.098 per cent in Canada and 4.522 per cent in Other International, all computed on each segment's own revenue. Canada carries 13.4 per cent of revenue and 18.0 per cent of operating income. It also holds 115 of the 939 warehouses, or 12.2 per cent of the estate at the year end count in Exhibit 99.1.

Set that against where the capital is going. Additions to property and equipment in the same thirty six weeks were $3,335 million in the United States, $455 million in Canada and $438 million in Other International. Measured against each segment's own depreciation and amortisation the ratios are 2.40 times, 3.07 times and 1.72 times, computed. The warehouse plan in Exhibit 99.2 projects the estate moving from 939 to 967 by the end of fiscal 2027: 18 of the 28 additions in the United States, 5 in Canada and 5 in Other International. That is 64.3 per cent of the openings going to the segment with the lowest operating margin of the three.

No conclusion about whether that is right belongs in this file, and none is offered. A domestic market can absorb capital at a scale a smaller one cannot, and the filings disclose neither returns by warehouse nor the reasons behind any siting decision. What can be said is what the two tables say side by side: the segment with the highest margin is receiving the smallest number of new units, and the consolidated operating margin of 3.854 per cent hides a range of 168 basis points between the best and worst reportable segments on the most recent disclosed basis.

10. The tariff refund, and the claim on it

Exhibit 99.1 states that the fourth quarter "was positively impacted by a non-recurring benefit of $0.15 per diluted share from IEEPA tariff refunds received in the quarter, less partial reinvestment of those refunds in increased member values". Exhibit 99.2 quantifies the consequence: excluding the benefit, net income grew 12.3 per cent and earnings per share grew 12.4 per cent, against reported growth of 14.9 per cent and 15.0 per cent.

That arithmetic reconciles independently. Fifteen cents on 444,364 thousand diluted shares for the quarter is $66.7 million, computed. Fourth quarter net income of $2,998 million less $66.7 million is $2,931.3 million, which against $2,610 million in the prior year quarter is growth of 12.31 per cent. The company's 12.3 per cent is reproduced from the face statement by a different route than the one the company used, which is the only reason it is quoted here.

On the earnings call of 24 September 2026, reported the same day by Megan Ulu-Lani Boyanton of the Seattle Times, the company said it had received $184 million, being $174 million of refunds and $10 million of interest, and described it as more than a third of the total it expects. That is call commentary rather than a filed figure, and it is attributed here rather than asserted. The filed figure is the fifteen cents.

The counter-finding belongs in the same section, because leaving it out would make this read as a one sided benefit. Note 8 of the Form 10-Q for the quarter ended 10 May 2026 discloses that in March 2026 four class actions were filed against the company seeking a refund of tariffs paid under the International Emergency Economic Powers Act that were passed on to members through higher prices, naming four separate courts. The company states that it does not believe any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on its financial position, results of operations or cash flows. That is the company's own assessment, quoted as such. No view is offered here on any of it, and no prediction is made about the outcome. The reason it appears at all is that a refund received and a refund claimed by somebody else are two entries about the same money, and a reader who is given the first without the second has not been given the position.

The rest of the year's income statement is unremarkable in the best sense. The effective tax rate was 24.69 per cent against 25.13 per cent, computed, a reduction of 44 basis points worth about $54 million at the prior year rate. Operating margin on total revenue was 3.854 per cent against 3.772 per cent. Additions to property and equipment of $6,435 million were 2.41 times depreciation and amortisation of $2,674 million, which is a company building rather than harvesting.

11. What this file does not compute

What to watch

Three things to take back to a smaller company

Sources

Questions this file answers

Was 9.4 per cent comparable sales growth real?

It is the reported figure and it is accurate. The company also publishes an adjusted figure of 6.7 per cent for the total company, excluding the impacts of changes in gasoline prices and foreign exchange, and the 270 basis point difference is computed on those two figures. Comparable traffic is plus 3.3 per cent on both bases, so the whole of the difference sits in ticket, which was plus 5.9 per cent reported and plus 3.3 per cent adjusted.

Has the membership fee increase stopped contributing?

Membership fee revenue grew 11.0 per cent across the fifty two weeks and 7.3 per cent in the sixteen week fourth quarter, a difference of 366 basis points, computed on Exhibit 99.1. Deferred membership fees on the balance sheet grew 5.3 per cent, to $3,006 million from $2,854 million. The renewal rate is 89.8 per cent worldwide and paid memberships rose 3.8 per cent, so member behaviour is unchanged. The price rise is no longer new in the comparison.

What is the $2,248 million on the balance sheet?

It is the current portion of long term debt at 30 August 2026, against $75 million a year earlier. Note 4 of the Form 10-Q for the quarter ended 10 May 2026 identifies the instruments as $1,000 million of 3.000 per cent Senior Notes due May 2027 and $1,250 million of 1.375 per cent Senior Notes due June 2027, a total of $2,250 million at a weighted average coupon of about 2.10 per cent, computed on principal. It is existing debt crossing the twelve month line, not new borrowing.

Did the share repurchase reduce the share count?

No. Repurchases were $848 million for the year and stock based compensation in the same cash flow statement was $924 million. Common stock issued and outstanding went from 443,237,000 shares to 443,266,000, an increase of 29,000. Weighted average diluted shares fell by 376 thousand, under one tenth of one per cent.

How much of the quarter was the tariff refund?

Exhibit 99.1 states a non-recurring benefit of $0.15 per diluted share from IEEPA tariff refunds received in the quarter, less partial reinvestment in increased member values. Exhibit 99.2 states that excluding it, net income grew 12.3 per cent and earnings per share 12.4 per cent, against reported growth of 14.9 per cent and 15.0 per cent. Fifteen cents on 444,364 thousand diluted shares is $66.7 million, computed, which reproduces the company's 12.3 per cent independently.

Why does this file use a 10-Q from May for the segment numbers?

Because the fiscal 2026 Form 10-K has not been filed. The fiscal 2025 annual report was filed on 8 October 2025. Until the fiscal 2026 one arrives, the most recent filed segment table, debt note and contingencies note are those in the Form 10-Q for the quarter ended 10 May 2026, and every figure taken from it is labelled with that date.