A：Costco's strategies to manage the impact of tariffs include moving the country of production when it makes sense, consolidating buying efforts globally to lower the cost of goods, leaning in on Kirkland signature where they have control of the supply chain, and sourcing more items domestically.

A：It is not clear what the process will be, what refunds, if any, will be received, and when they will happen. The complexity of the tariffs and multiple changes over the past year also make it challenging to track the exact impact.

A：Since the last call, Costco opened four warehouses, including one relocation in the U.S., 1 net new U.S. location, and two additional Canadian business centers. This brings the total warehouse count to 924 worldwide. They expect 28 net new openings in fiscal year 26 and are targeting 30 plus new openings per year in the coming years.

A：Costco is making strides with its roadmap to deliver a more seamless experience. They are achieving improvements in the speed of checkout and employee productivity, piloting automated pay stations, rolling out new personalization capabilities, and have seen positive member feedback on these digital enhancements.

A：For the second quarter, net income was $2.035 billion, or $4.58 per diluted share, an increase of nearly 14% from the prior year. Net sales were $68.24 billion, an increase of 9.1% from the second quarter of 2025. Comparable sales increased 7.4%, adjusted for gas price deflation and foreign exchange. Digital enabled comparable sales grew by 22.6% or 21.7% adjusted for foreign exchange. Traffic or shopping frequency increased 3.1% worldwide, and the average transaction or ticket was up 4.2%.

A：Foreign exchange positively impacted sales by approximately 1.4%, while gas price deflation negatively impacted sales by approximately 0.7%.

A：The renewal rate at the end of the second quarter for the U.S. and Canada was 92.1%, down 10 basis points from the prior quarter. The worldwide renewal rate was 89.7%, unchanged from the prior quarter. The slight decline in the U.S. and Canada renewal rate reflects the growth of new online members, who tend to renew at a slightly lower rate than warehouse signups.

A：Gross margin was higher by 19 basis points, or 17 basis points excluding gas deflation, driven by higher gas profitability and strong growth in pharmacy. Core on core margins were higher by 22 basis points, with non-foods, food and sundries, and fresh all showing improvement. The increase in core on core margins was broad-based, influenced by mix changes and higher 2% executive rewards.

A：LIFO negatively impacted the gross margin rate by 4 basis points with a $12 million LIFO charge in the current quarter compared to a $12 million credit in the prior year. The quarter's gross margin rate also included a non-recurring legal settlement, which had a positive impact of 5 basis points.

A：The reported SG&A rate was higher year over year by 13 basis points, or 8 basis points excluding gas deflation, coming in at 9.19% compared to last year's 9.06%. The operations component of SG&A was higher or worse by 2 basis points but better or lower by 2 basis points. Central expenses were higher or worse by 4 basis points, or higher by 3 basis points excluding the impact of gas deflation. This quarter's SG&A also included an increase in general liability reserves to reflect higher expected future costs for prior year claims not yet settled, which negatively impacted the rate by 6 basis points.

A：The tax rate in Q2 was 25.2%, compared to 26.2% in Q2 last year.

A：Fresh comparable sales were up low double digits, led by Meat and Bakery. Non-foods comp sales were up high single digits, with top-performing departments including jewelry, tires, major appliances, health and beauty, and small electrics.

A：Comps for food and sundries grew mid single digits, led by candy and packaged foods, while egg price deflation is a headwind. Sales in eggs have been impacted positively by the strong value proposition.

A：Kirkland's Signature remains a top focus, offering 15% to 20% value compared to national brands. In Q2, about 30 new KS items were launched, including crispy wings, black and salmon, and apparel items.

A：Pharmacy and Food Court experienced double-digit comparable sales growth, while optical and hearing had high single-digit growth. Digital site traffic was up 32%, and app traffic up 45%, with several categories showing double-digit year-over-year sales growth. The same-day delivery service through Instacart, Uber Eats, and DoorDash continued to grow faster than overall digital sales.

A：Weather dynamics created some volatility in the first two months of the year but no major impact was seen in total sales results. February traffic visits were lighter due to weather-related warehouse closings in the northeast. The impact on sales was not significant enough to warrant adjustment in results.

A：Members are very focused on quality and value, as well as on the newness and excitement of new items. The company has been able to deliver on these preferences consistently, resulting in strong sales performance each month, with an average of 6-7% growth, when excluding the impact of calendar shifts and short-term promotions.

A：The company has been implementing and testing various innovations to improve the vendor experience and increase business efficiency, including prepaying cards or lines for associates and investing back in areas like store wages and labor price. The company aims to see if these innovations result in savings that can be reinvested in the business.

A：Digital enhancements both online and in the warehouse have been very beneficial, with particular mention of improvements in the pharmacy business leading to increased traffic and better handling of new growth volume without needing additional staff. These improvements have improved the member experience and increased throughput.

A：The company continues to invest in the business, including employees, pricing, and overall operations, and is seeing the same return from members as it reinvests in the business. The investments have been positively received by members, resulting in increased traffic and sales.

A：The company's strategy includes expanding buildings, relocating, and upgrading the interiors of old warehouses. This ongoing investment is aimed at driving top-line sales and growing the business globally.

A：The company is anticipating a shift back to more traditional assortment practices in spring and summer, with a balanced supply chain and no disruptions from recent undertakings or the Middle East. Historically, rising gas prices lead to a stronger value proposition for the company, as members may shop at both the gas station and the warehouse due to the perceived value.

A：Competitive openings are not expected to have a negative impact on the company's membership base. New openings in existing markets will not result in the typical big swells seen with new market entries, but will rather lead to increased frequency and visits from members. The company remains confident in its ability to maintain membership and is focusing on value and quality across all operations.

A：Internationally, the company plans to showcase its values and pricing by expanding in markets with strong performance, such as Asia and Europe. The company expects a balance between locations outside North America and domestically, and anticipates good growth and expansion opportunities over the coming years.

A：The company is exploring new real estate opportunities that allow it to enter markets it previously could not. It is being more creative with the use of parking decks and unique models, such as residents above its locations in urban areas, to continue expanding into strong markets like Los Angeles and New York. This will influence the number of units opened domestically in the future.

A：The renewal rates have been impacted by the maturation of online members and initiatives around contacting and engaging with digital members through digital communications and retention strategies. Despite an expected decline due to the influx of digital members, the global and US renewal rates were flat and only down 10 basis points, respectively. The company expects a continued slow-down in the renewal rate reaching a maturation point, with a focus on retention programs that have shown positive adjustments and trajectory.

A：The company believes that auto-renewal is beneficial for members from a convenience standpoint and is helping with membership renewal rates. The auto-renewal program has been promoted within the company, and it is believed that it has a positive effect on renewal rates.

A：The company has seen lower inflation in the second quarter, trending towards low single digits, though this is subject to change given global events. Fresh produce and food and sundries have driven lower overall inflation, with some areas showing deflation, particularly in produce and eggs. Beef and candy have remained inflationary due to commodity impacts. The company is focused on monitoring the situation in the Middle East and the impact on inflation, as well as the effect of LIFO (Last In, First Out) and tariffs on non-foods. The company's view on inflation includes both price increases and mix changes in the basket, with the latter being a significant part of the growth. Inflation is expected to remain in the low single digits for non-foods, influenced by continued low interest rates and some commodity price increases.

A：The company considers both the actual price increases and the mix changes when defining the impact of inflation on its products. The units in the basket are growing, and the company does not specifically analyze each component but looks at the overall impact. The inflation attributed to price increases would only be a fraction of the total, with mix changes and increasing units being a meaningful part of the growth.

A：The company is focusing on building internal capabilities around delivering personalized and relevant communication to members, resulting in positive responses and increased visits or items in the basket. They are still in the early stages of retail media and are testing programs with suppliers on digital TV and targeted media amplifications. The company is also exploring opportunities to offer more value to members through services and partnerships, such as installation services and unique offerings like Costco Travel. For AI, the company is assessing where it can enhance performance in relation to its core mission of providing a high value to members and employees, without chasing non-core initiatives. The company is encouraged by the work done so far and is focusing on using AI to improve for members and support employees.

A：The company's financial strategy regarding payouts has not changed significantly despite the build-up of cash reserves. The possibility of a special dividend or more frequent payouts in the next few quarters is currently under consideration, although no definitive plans have been announced.

A：The company's main priorities involve investing in new warehouses, improving the member experience in existing warehouses, expanding the network of depots to support warehouse operations and e-commerce growth, investing in digital initiatives, and continuing to generate strong free cash flow.

A：The rationale behind the company's dividend and stock buyback strategy is to demonstrate confidence in future company growth, avoid dilution from executive stock grants, and ensure that any excess cash is used effectively, possibly through a special dividend, while maintaining financial flexibility for future capital expenditures.

A：The feasibility of a special dividend is assessed based on the company's cash balances and the potential yield compared to past special dividends. However, at the current time, the company has no plans to declare a special dividend.

A：The company has had success in its pharmacy business, with growth in this area outpacing total sales, although there will be a small impact due to changes in Medicare pricing. This is not considered a material headwind for top line sales results at the current time.

A：The company views retail media as a significant opportunity to capture value and help suppliers improve the return on their ad spend. The focus is on delivering more value to members, which in turn drives top line sales rather than significant changes to the margin profile.

A：The company's approach to expanding internationally includes entering new countries by opening warehouses, learning about the local culture and business practices, and then achieving a good steady growth pattern. In China, the company sees great opportunities and is pleased with the business growth. They expect to continue growing in line with their worldwide strategy, building on the growth in Japan, Korea, and Europe.