Item 1. Business

Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in Seattle, Washington. We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, Mexico, Japan, the United Kingdom (U.K.), Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand. Costco operated 939, 914, and 890 warehouses worldwide at August 30, 2026, August 31, 2025, and September 1, 2024. The Company operates e-commerce sites in the U.S., Canada, Mexico, the U.K., Korea, Taiwan, Japan, Australia, and China. Our common stock trades on the NASDAQ Global Select Market, under the symbol “COST.”

We report on a 52/53-week fiscal year, consisting of thirteen four-week periods and ending on the Sunday nearest the end of August. The first three quarters consist of three periods each, and the fourth quarter consists of four periods (five weeks in the thirteenth period in a 53-week year). The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season. References to 2026, 2025, and 2024 relate to the 52-week fiscal years ended August 30, 2026, August 31, 2025, and September 1, 2024.

General

We operate membership warehouses and e-commerce sites based on the concept that offering low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover. When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers. We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.

We buy most of our merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to our warehouses. Our depots receive large shipments from suppliers and quickly

ship these goods to warehouses. This process creates freight volume and handling efficiencies, lowering costs associated with traditional multiple-step distribution channels. Our e-commerce operations ship merchandise through our depots and logistics operations, as well as through drop-ship and other delivery arrangements with our suppliers.

Our average warehouse space is approximately 148,000 square feet, with newer units being slightly larger. Floor plans are designed for efficiency in the use of selling space, the handling of merchandise, and the control of inventory. Because shoppers are attracted principally by the quality of merchandise and low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations.

Our operating hours are shorter than many other retailers, and due to other efficiencies inherent in a warehouse club operation, we believe labor costs are lower relative to the volume of sales. In the U.S., we offer exclusive shopping hours for our Executive members and our gasoline operations generally have extended hours. Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required. In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, Executive member reward certificates, co-brand cardholder rebates, and our proprietary stored-value card (shop card).

Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than elsewhere. We seek to limit most items to fast-selling models, sizes, and colors. We carry less than 4,000 active stock keeping units (SKUs) per warehouse in our core warehouse business, significantly less than other broadline retailers. We average from 9,000 to 11,000 SKUs online, some of which are available in our warehouses. Many consumable products are offered for sale in case, carton, or multiple-pack quantities only.

To promote member satisfaction, we generally accept returns of merchandise. On certain electronic items, we have a 90-day return policy and provide, free of charge, technical support services, as well as an extended warranty. Additional third-party warranty coverage is sold on certain electronic items and major appliances.

We offer merchandise and services in the following categories:

**■**Core Merchandise Categories:

• Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, liquor, and tobacco)

• Non-Foods (including consumer electronics, appliances, small electrics, health and beauty aids, hardware, lawn and garden, sporting goods, tires, toys and seasonal, automotive, stamps, tickets, apparel, furniture, domestics, housewares, special order kiosk, and jewelry)

• Fresh Foods (including meat, produce, deli, and bakery)

■Warehouse Ancillary (includes gasoline, pharmacy, food court, optical, hearing aids, and tire installation)

■Other Businesses (includes e-commerce, business centers, travel, and other)

Warehouse ancillary operate primarily within, next to or near our warehouses, encouraging more frequent shopping. The number of warehouses with gas stations varies significantly by country. We operated 774 gas stations at the end of 2026. Our gasoline business represented 11% of total net sales in 2026.

Our other businesses sell products and services that largely complement our warehouse operations. Our business centers carry items tailored for food services, convenience stores, and offices, and offer walk-in shopping and deliveries. Business centers are included in our total warehouse count. Our e-commerce operations give members convenience and a broader selection of goods and services. Costco Travel offers vacation packages, car rentals, cruises and other travel products exclusively for Costco members in varying degrees in the U.S., Canada, the U.K., and Australia. Digitally-enabled sales, which represents sales that are initiated through a digital device, whether fulfilled through a warehouse or distribution center, as well as Costco Travel, represented 11% of total net sales in 2026.

We have direct relationships with many producers of brand-name merchandise. We do not obtain a significant portion of merchandise from any one supplier. When sources of supply become unavailable, we seek alternative sources or items. We pursue diversification in our supply-chain and seek to expand in-country production. We also purchase and manufacture private-label merchandise, where quality and member demand are high and the value to our members is significant.

Certain financial information for our segments and geographic areas is included in Note 11 to the consolidated financial statements included in Item 8 of this Report.

Membership

Our members may utilize their memberships at all of our warehouses and e-commerce sites. Our annual fee for memberships is $65 in the U.S., varies in other countries and includes a free household card.

Membership at the end of 2026, 2025, and 2024 was made up of the following (in thousands):

(1)These membership counts include active memberships as well as memberships that have expired and not renewed within the 12 months prior to the reporting date. These expired memberships make up a small percentage of membership counts, and many of them are subsequently renewed.

Paid members, in most countries, are eligible to upgrade to an Executive membership for an additional annual fee. These members earn an Executive reward, generally 2% on qualified purchases, subject to an annual maximum value, redeemable at Costco warehouses. Executive members represented 42,300, 38,700, and 35,400 of total paid members in 2026, 2025, and 2024. The penetration of sales to Executive members represented approximately 75.2% of worldwide net sales in 2026.

Our member renewal rate was 92.3% in the U.S. and Canada and 89.8% worldwide at the end of 2026. This rate is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date. Memberships that have an expiration date in the six months prior to the end of our reporting period are excluded from this calculation, regardless of whether or not they have been renewed. Although most members renew prior to expiration, the vast majority of those who renew late do so within six months of expiration. The timing of renewal after expiration is impacted by a variety of factors, such as warehouse openings and promotional activity.

Human Capital

“Take Care of Our Employees,” is a key component of our code of ethics and is fundamental to our commitment to “Take Care of Our Members.” Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.

Employee Base

At the end of 2026, we employed 355,000 employees worldwide. Approximately 95% are employed in our membership warehouses and distribution channels. Around 5% are represented by unions. We also utilize seasonal employees.

The total number of employees by segment was:

Growth and Engagement

We believe that our warehouses are among the most productive in the retail industry, owing largely to the commitment and efficiency of our employees. We seek to provide them not merely with employment but careers. Many attributes of our business contribute to this objective. The more significant include: competitive compensation and benefits; a commitment to employee development and promoting from within; and a target ratio of at least 50% of our base being full-time employees. These attributes contribute to what we consider, especially for the industry, a high retention rate. In 2026, in the U.S. and Canada that rate was approximately 94% for employees who have been with us for at least one year.

Inclusion

The commitment to “Take Care of Our Employees” includes promoting an inclusive and respectful workplace. We strive for an environment where all employees feel that they belong, are accepted, included, respected, and supported. We demonstrate leadership commitment to inclusion through consistent communication, employee development and education, support of diversity and inclusion within the organization, community involvement, and supplier inclusion. Listening to our employees is one of the ways Costco takes care of its workforce. Costco continues its efforts to develop future leaders, including through our supervisor in training (SIT) programs in the U.S. and Canada. In 2026, over 8,100 hourly employees completed the six-week course.

Well Being

We strive to provide our employees with competitive wages and excellent benefits. In March 2026, we increased the top of wage scales by $1.00 per hour in the U.S. and Canada, bringing our average rate at the end of 2026 for hourly employees in the U.S. to approximately $33.00. We continue to offer expansive benefits in the U.S. that provide physical, emotional, mental, and financial well-being support for employees and their dependents at low cost to our employees. Globally, our policies and practices are designed to mirror our practices in the U.S. regarding compensation leadership, subject to local regulations, customs, and market conditions.

For more detailed information regarding our programs, see “Employees” within our Sustainability Commitment (located on our website). The Sustainability Commitment and other information on our website are not incorporated by reference into and do not form any part of this Annual Report.

Competition

Our industry is highly competitive, based on factors such as price, merchandise quality and selection, location, convenience, distribution strategy, and customer service. We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of merchandise. Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors in the U.S. We also compete with other warehouse clubs, including Walmart’s Sam’s Club and BJ’s Wholesale Club in the U.S. Many of the metropolitan areas in the U.S. and certain of our Other International locations have multiple competing clubs.

Intellectual Property

We believe that, to varying degrees, our trademarks, trade names, copyrights, proprietary processes, trade secrets, trade dress, domain names, and similar intellectual property add significant value to our business and are important to our success. We have invested significantly in the development and protection of our well-recognized brands, including the Costco Wholesale trademarks and our private-label brand, Kirkland Signature. We believe that Kirkland Signature products are high quality, offered at prices that are generally lower than national brands, and help lower costs, differentiate our merchandise offerings, and generally earn higher margins. We expect to continue to increase the sales penetration of our private-label items.

We rely on trademark and copyright laws, trade-secret protection, and confidentiality, license and other agreements with our suppliers, employees and others to protect our intellectual property. The availability and duration of trademark registrations vary by country; however, trademarks are generally valid and may be renewed indefinitely as long as they are in use and registrations are maintained.

Available Information

Our U.S. website is www.costco.com. We make available through the Investor Relations section of that site, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5, and any amendments to those reports, as soon as reasonably practicable after filing such materials with or furnishing such documents to the Securities and Exchange Commission (SEC). The information found on our website is not part of this or any other report filed with or furnished to the SEC. The SEC maintains a site that contains reports, proxy and information statements, and other information regarding issuers, such as the Company, that file electronically with the SEC at www.sec.gov.

We have a code of ethics for senior financial officers, pursuant to Section 406 of the Sarbanes-Oxley Act. Copies of the code are available free of charge by writing to Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, WA 98027. If the Company makes any amendments to this code (other than technical, administrative, or non-substantive amendments) or grants any waivers, including implicit waivers, to the Chief Executive Officer, Chief Financial Officer or principal accounting officer and controller, we will disclose (on our website or in a Form 8-K report filed with the SEC) the nature of the amendment or waiver, its effective date, and to whom it applies.

Information about our Executive Officers

The executive officers of Costco, their position, and ages are listed below. Most officers have over 25 years of service with the Company.