Risk factor changes · COST

What changed in Costco's risk factors

Item 1A (Risk Factors) of Costco's FY2026 10-K compared with its FY2025 10-K, sentence by sentence.

Newer: 10-K filed 2026-10-07 · Older: 10-K filed 2025-10-08

New in the latest 10-K 17

• Achieving these metrics relies heavily on member trust and our long-standing culture focused on value, integrity, member service, and always striving to do what is right.
• IT systems play a crucial role in conducting our business.
• We must also effectively monitor competitive technology trends, including the evolution of artificial intelligence (AI).
• Any failure to effectively incorporate these technologies could adversely affect our ability to compete.
• Additionally, the autonomous nature of AI presents unique challenges, particularly regarding third-party systems which may operate in ways that are difficult to monitor.
• There is a risk that these autonomous systems could bypass internal controls, lack adequate third-party governance, or result in unauthorized access to data, data leakage, and non-compliance with applicable data privacy laws.
• These systems may also produce inaccurate outputs, leading to unintended operational decisions.
• The rapid evolution of AI has automated and accelerated the scale of cybersecurity threats, potentially reducing the time for us to detect and mitigate potential information security incidents.
• If our security infrastructure fails to keep pace with these evolving threats, it could lead to more frequent or sophisticated compromises of our systems, networks, or data, adversely affecting our operations and member confidence.
• The use of AI carries risks related to the accuracy and reliability of its outputs.
• If these tools provide incorrect information to our members or our employees, or if the content generated inadvertently infringes upon the intellectual property rights of third parties, it could lead to reputational damage, legal claims, and increased regulatory scrutiny.
• Laws and restrictions on use of member information may also impair our ability to utilize data, consistent with member consents and preferences, which may carry significant potential penalties for noncompliance.
• Additionally, the emergence of AI tools may change consumer shopping habits and increase the competition we face.
• AI may also present inaccurate pricing or product data, or fail to capture the full value of our membership offering, impacting member purchasing decisions by prioritizing immediate or inaccurate price comparison or logistics over member loyalty.
• General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations.
• Other factors and uncertainties include, but are not limited to: the severity and duration of pandemics; evolving macroeconomic factors including general economic uncertainty, unemployment rates, and recessionary pressures; changes in labor markets affecting us and our suppliers; unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response; the pace of post-pandemic recovery; the long-term impact of the pandemic on our business, including consumer behaviors; and disruption and volatility within the financial and credit markets.
• Changes in rules or interpretation or changes in underlying assumptions, estimates, or judgments by our management could significantly change our reported or expected financial performance and have a material impact on our consolidated financial statements.

Reworded 67

Removed words are struck through; added words are highlighted.

• These Risk Factors should be carefully reviewed in conjunction with Management ' s Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and our consolidated financial statements and related notes in Item 8 of this Report.
• Our financial and operational performance is highly dependent on our U.S. and Canadian operations, which comprised 86% and 84% 83% of net sales and operating income in 2025. 2026.
• Within the U.S., we are highly dependent on our California operations, which comprised 26% of U.S. net sales in 2025. 2026.
• Declines in financial performance of our U.S. operations, particularly in California, and our Canadian operations could arise from, among other things: slow growth or declines in comparable warehouse sales (comparable sales); negative trends in operating expenses, including increased labor, healthcare healthcare, and energy costs; failing to meet targets for warehouse openings; cannibalizing existing locations with new warehouses; shifts in sales mix toward lower gross margin products; changes or uncertainties in economic conditions in our markets, including higher levels of unemployment and depressed home values; and failing to consistently provide high quality and innovative new products.
• Our failure to maintain membership growth, loyalty and loyalty, brand recognition recognition, and our culture could adversely affect our results of operations.
• Damage to our brands brands, reputation, or reputation culture may negatively impact comparable sales, diminish member trust, and reduce renewal rates and, accordingly, net sales and membership fee revenue, negatively impacting our results of operations.
• This could have an adverse effect on net sales, gross margin and operating income. 10 Table of Contents Availability and performance of our IT systems are vital to our business.
• Failure to successfully execute IT projects and have IT systems available to our business would adversely impact our operations. 10 Table of Contents IT systems play a crucial role in conducting our business.
• These systems are utilized to, among other things, process a very high volume of transactions, conduct payment transactions, track and value our inventory inventory, and produce reports critical for making business decisions.
• Any debilitating failure of our critical IT systems, data centers centers, and backup systems would require significant investments in resources to restore services and may cause serious impairment in our business operations, including loss of business services, increased cost of moving merchandise and failure to provide service to our members.
• Additionally, we collect, store store, and process sensitive information relating to our business, members, employees, and other third parties.
• Operating these IT systems and networks and processing and maintaining this data in a secure manner, manner are critical to our business operations and strategy.
• Attempts to gain unauthorized access to systems, networks networks, and data, both ours and third parties with whom we work, are increasing in frequency and sophistication, and in some cases, these attempts are successful.
• Phishing attacks have emerged as are particularly prominent, including as vectors for ransomware attacks, which have increased in breadth and frequency.
• Our IT systems and networks, or 11 Table of Contents those managed by third parties such as cloud providers or suppliers that otherwise host or have access to confidential information, periodically have vulnerabilities, which may go unnoticed for a period of time.
• While our cybersecurity and compliance efforts seek to mitigate such risks, there can be no guarantee that the actions and controls we and our third-party service providers have implemented and are implementing, implementing will be sufficient to protect our systems, information information, or other property.
• The potential impacts of a cybersecurity attack include reputational damage, litigation, government enforcement actions, penalties, disruption to systems and operations, unauthorized release of confidential or otherwise protected information, corruption of data, diminution in the value of our investment in IT systems systems, and increased cybersecurity protection and remediation costs.
• Further, the insurance coverage we maintain and indemnification arrangements with third parties may be inadequate to cover claims, costs, and liabilities relating to 11 Table of Contents cybersecurity incidents.
• In addition, data we collect, store store, and process is subject to a variety of U.S. and international laws and regulations (such as the European Union General Data Protection Regulation, California Consumer Privacy Act, Health Insurance Portability and Accountability Act, and China's Personal Information Protection Act), evolving rules concerning artificial intelligence, AI, and other privacy and cybersecurity laws and restrictions on use of member information that may also impair our ability to utilize data, consistent with member consents and preferences, which may carry significant potential penalties for noncompliance. laws.
• We accept payments using a variety of methods, including select credit and debit cards, cash and checks, co-brand cardholder rebates, Executive member 2% reward certificates, and our shop card.
• We must comply with evolving payment card association and network operating rules, including data security rules, certification requirements requirements, and rules governing electronic funds transfers.
• For example, we are subject to Payment Card Industry Data Security Standards, which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing processing, and transmission of individual cardholder data.
• If our internal systems are breached or compromised, we may be liable for card re-issuance costs, subject to fines and higher transaction fees fees, and lose our ability to accept card payments from our members, and our business and operating results could be adversely affected.
• If our merchandise, including food and prepared food products for human consumption, drugs, children ' s children's products, pet products products, and durable goods, do not meet or are perceived not to meet applicable safety or labeling standards or our members ' members' expectations, we could experience lost sales, increased costs, litigation litigation, or reputational harm.
• Such illnesses or injuries could result from tampering by unauthorized third parties, product 12 Table of Contents contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, manufacturing, storage, handling handling, and transportation phases, or faulty design.
• If we are 12 Table of Contents unable to make, improve, or develop relevant member-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected.
• Our success depends on the continued contributions of our employees, including members of our senior management and other key operations, IT, merchandising merchandising, and administrative personnel.
• We must attract, train train, and retain a large and growing number of qualified employees, while controlling related labor costs costs, preserving our culture, and maintaining our core values.
• Our ability to control labor and benefit costs is subject to numerous internal and external factors, including regulatory changes, prevailing wage rates, union relations relations, and healthcare and other insurance costs.
• Such losses could materially impact our cash flows and results of operations. 13 Table of Contents Market and Other External Risks We face strong competition from other retailers and warehouse club operators, which could adversely affect our business, financial condition and results of operations.
• We compete for members, employees, sites, products and services services, and in other important respects with a wide range of local, regional and national wholesalers and retailers, both in the United States and in foreign countries, including other warehouse-club operators, supermarkets, supercenters, online retailers, gasoline stations, pharmacies, hard discounters, department and specialty stores and operators selling a single category or narrow range of merchandise or services.
• Such retailers and warehouse club operators compete vigorously and in a variety of ways, including pricing, selection and availability, services, location, convenience, store hours, and the attractiveness attractiveness, and ease of use of websites and mobile applications.
• Some competitors have greater financial resources and technology capabilities, including the faster adoption of artificial intelligence, better access to merchandise, AI technologies, and greater market penetration than we do.
• Our inability to respond effectively to competitive pressures, changes in the retail markets or customer expectations could result in lost market share and negatively affect our financial results. 13 Table of Contents General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations.
• Higher energy and gasoline costs, inflation, levels of unemployment, healthcare costs, consumer debt levels, foreign-currency exchange rates, unsettled financial markets, weaknesses in housing and real estate markets, reduced consumer confidence, changes and uncertainties related to government fiscal, monetary monetary, and tax policies including changes in interest rates, tax rates, duties, tariffs, or other restrictions, sovereign debt crises, pandemics and other health crises, and other economic factors could adversely affect demand for our products and services, require a change in product mix, or impact the cost of or ability to purchase inventory.
• Additionally, trade-related actions in various countries have adversely affected the costs of some of our merchandise.
• Prices of certain commodities, including gasoline and consumable goods used in manufacturing and our warehouse retail operations, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, inflationary pressures, labor costs, competition, market speculation, government regulations, taxes taxes, and periodic delays in delivery.
• Inflationary factors factors, such as increases in merchandise costs costs, may adversely affect our business, financial condition and results of operations.
• We may not be able to adjust prices to sufficiently offset the effect of cost increases without negatively impacting consumer demand. 14 Table of Contents Suppliers may be unable to timely supply provide us with quality merchandise at competitive prices or may fail to adhere to our high standards, resulting in adverse effects on our business, merchandise inventories, sales, and profit margins. profits.
• Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes, union organizing activities, human and animal rights violations, animal welfare violations, financial liquidity, climate change, natural disasters, extreme weather conditions, environmental degradation, public health emergencies, supply constraints constraints, and general economic and political conditions and other risks similar to those we face that could limit their ability to timely provide us with acceptable merchandise.

Removed since the previous 10-K 10

• Availability and performance of our IT systems are vital to our business.
• Such losses could materially impact our cash flows and results of operations.
• We may not be able to adjust prices to sufficiently offset the effect of cost increases without negatively impacting consumer demand.
• Other factors and uncertainties include, but are not limited to: The severity and duration of pandemics;
• Evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures;
• Changes in labor markets affecting us and our suppliers;
• Unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response;
• The pace of post-pandemic recovery;
• If we fail to comply or respond adequately to changes in laws and regulations, our business, operations and financial performance may be adversely affected.
• Failure or perceived failure to meet our environmental, social or governance (ESG) goals or expectations set by changing public interest and government regulation of ESG topics could result in reputational harm or adversely affect our business.

Source: SEC EDGAR filings, compared sentence by sentence by EdgarStack. Sentence matching is automated and may pair or split passages imperfectly; check the linked filings before relying on any passage. A software tool, not financial advice. Not affiliated with the U.S. Securities and Exchange Commission.