Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
|---|---|---|---|---|---|---|---|
1,600 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | up 7.6% versus last year and 129.5 million cardholders, up 7.1%, with consistent growth throughout the quarters. At Q1 end, we had 33.2 million paid Executive members, an increase of 939,000 during the 12 weeks since Q4 end. Executive members now represent a little over 46% of our paid members and a little over 73% of worldwide sales. Moving down the income statement next is, our gross margin. Our reported gross margin in the fourth quarter was higher year-over-year by 43 basis points, coming in at 11.04%, up from Q1 of last year at 10.61%. That 43 basis point reported number ex-gas deflation would be plus 36 basis points. As I normally do here, we write down two columns and six line items. The first column is reported in the first quarter. The second column is margins, excluding gas deflation. It's the year-over-year change in the first quarter. On a core merchandise, plus 3 basis points reported, minus 3 basis points ex-deflation. Ancillary and other businesses, plus 24% reported and plus 22% ex-gas deflation; 2% reward lower year-over-year, minus 4 basis points reported and minus 3 ex-gas deflation; LIFO, plus 3 and plus 3 and other plus 17 and plus 17 for a total, again, reported year-over-year up 43 basis points and ex-gas deflation up 36 basis points. Starting with the core. Again, it was total company, it was plus 3 and minus 3 reported and ex-gas deflation. In terms of core margin on their own sales, our core-on-core margins were up by 5 basis points year-over-year. Ancillary and other business gross margin, again, higher by 24 and higher by 22 ex-gas deflation. This increase was driven largely by gas and e-comm. Our 2% reward higher by 4 and higher by 3 ex-deflation, reflecting higher sales penetration coming from our Executive members. LIFO plus 3 basis points. We had a $15 million LIFO credit in the first quarter of this year. This compared to a very small $0.5 million LIFO charge in Q1 a year ago. And then, the other line item, the 17 basis points to the positive. As was mentioned earlier, last year |
1,601 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | in Q1 a year ago. And then, the other line item, the 17 basis points to the positive. As was mentioned earlier, last year in Q1, there was a 17 basis point impact from a $93 million pre-tax charge, primarily related -- primarily for the downsizing of our charter shipping activities. Moving on to SG&A. We reported SG&A of 9.45%, higher by 25 basis points than last year's 9.20%. Again, in Q1, we're right down the two columns. Reported and without gas deflation, operations, minus 18 and minus 14 basis points, minus being -- meaning it's higher year-over-year. Central minus 2 and minus 1. Stock compensation minus 3 and minus 2. Pre-opening expense, minus 2 and minus 2, again, for a total reported margin higher minus 25% year-over-year. I'm sorry, SG&A, not margin, 25 and without gas deflation, higher by 19 basis points. The quarter again was higher by 18 and higher by 14, excluding the impact from gas. This included 12 weeks of this past March's extra top of scale increase in our wages, which represents an estimated 2 basis point hit. And as of September 18, we raised the starting wage in the U.S. and Canada, that estimated impact from those new wages to be roughly 2 basis points as well. Again, central, nothing much to say other than its 1 basis point higher, excluding gas deflation. Again, it was stock comp's, the minus 2x gas deflation and pre-opening. We did have a couple of more openings this year in the quarter than we did last year and that was higher by 2 basis points. Below the operating income line, interest expense was $38 million this year, $4 million higher than last year's $34 million figure. Interest income and other for the quarter was higher by $107 million, coming in at $160 million this year versus $53 million last year. This was driven largely by the increase in interest income, about $100 million of that $107 million due to higher interest rates as well as high cash balances. The small additional impact was a favorable FX year-over-year. In terms of income taxes, our tax rate in the first |
1,602 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | balances. The small additional impact was a favorable FX year-over-year. In terms of income taxes, our tax rate in the first quarter was 24.5%. This compares to 23.0% a year ago or 1.5 percentage points higher this year than last year. The increase in our rate as of Q1 -- in Q1 is primarily attributable to lower benefit from the stock-based compensation from a year ago. Overall, reported net income was up 16.5% year-over-year in the quarter. A few other items of note. In terms of warehouse expansion in the first quarter, we opened 10 locations, including one relo (ph), so a net of nine increases. That -- those nine included eight in the U.S. and one in Canada. For the full year fiscal '24, we estimate opening -- we're planning to open 33 locations, including two relos, so for a net increase of 31 new warehouses that would be up from 23 that we opened in fiscal '23. For Q2 fiscal '24, we plan four new locations, including our sixth building in China, are early in the calendar year. Regarding capital expenditures, first quarter capital expenditure spend was approximately $1.04 billion. We estimate that fiscal '24 CapEx will be in the $4.4 billion to $4.6 billion range, that's up from $4.3 billion we had in fiscal '23, reflecting a continued increase in the number of the expansion that we're doing. In terms of e-commerce business, e-com sales in Q1 ex-FX increased 6.1%, the first quarterly year-over-year increase in five fiscal quarters and trended well during the three reporting periods of September, October, November. E-comm showed strength in several areas. In food, things like e-gift cards, pet items, snack items were up in the mid-teens. Appliances were up year-over-year in the mid-20s. TVs was actually in the high-singles despite the challenges with other aspects of consumer electronics like computers, and tires were up in the low-teens. So overall, a pretty good showing there. As well, Costco Logistics enjoyed record-breaking deliveries. In the first quarter of fiscal '24, we completed over 800,000 |
1,603 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | As well, Costco Logistics enjoyed record-breaking deliveries. In the first quarter of fiscal '24, we completed over 800,000 deliveries, which were up 17% versus the comparable quarter last year. And some fun wow items in the quarter in e-commerce. You've probably read about the fact that we're selling gold 1 ounce gold bars. We sold over $100 million of gold during the quarter. We sold a Babe Ruth autographed index card for $20,000. And in addition to e-gift cards on everything from restaurants to golf to airlines, and we just in the last couple of weeks, launched a Disney e-gift card valued at $250 for $224.99. And for you last-minute shoppers out there, there is a Mickey Mantle autographed 1951 Rookie Card in nearly perfect condition and it's on sale online for $250,000. Next, good progress continues to be made with our e-com mobile and digital efforts. No big enhancements and changes to the site leading up to the holiday, mostly holiday prep. We did have 100% site availability during Cyber week, and sales for the five Cyber Days, Thanksgiving, Black Friday, Saturday, Sunday, and Cyber Monday were up year-over-year in the mid-teens. Our app downloads during the quarter were 2.75 million, so total app downloads are now stand at 30.5 million or a 10% increase during the quarter, and that's after up being over 40% increase in all of fiscal '23 versus the prior year. Our site traffic approaching 0.5 billion and just under 10% increase and the average order value being up about 2.5%. So we continue to make progress there. Next couple of comments regarding inflation, most recently in the last fourth quarter discussion. We had estimated that year-over-year inflation was in the 1% to 2% range. Our estimate for the quarter just ended, that inflation was in the 0% to 1% range. Bigger deflation in some big and bulky items like furniture sets due to lower freight costs year-over-year as well as on things like domestics, bulky, lower priced items again, where the freight cost is significant. Some deflationary items were as |
1,604 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | things like domestics, bulky, lower priced items again, where the freight cost is significant. Some deflationary items were as much as 20% to 30% and again, mostly freight-related. TVs, the average sale prices have been lower while unit's been higher. And talking to the buyers overall, our inventories and our SKU counts are in good shape across all channels. And so far, we've had a good seasonal sell-through during the quarter. Lastly, as you saw in this afternoon's press release, we declared a $15 per share special cash dividend. This is our fifth special dividend in 11 years. The total payout will be about just under $6.7 billion and will be funded using existing cash and not accompanied by any issuance of debt. The special cash dividend will be paid on January 12th to shareholders of record on December 28th. Finally, in terms of upcoming releases, we will announce our December sales results for the five weeks ending Sunday, December 31, on Thursday, January 4th, after market close. With that, I will turn it back for Q&A to Lisa and be happy to answer any questions. |
1,605 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: Thank you. [Operator Instructions] We'll take our first question from Michael Lasser with UBS.
Michael Lasser: Good evening. Thank you so much for taking my question. You had indicated over the last 1.5 years or so that Costco had been raising prices faster than it had throughout its history. So now with prices coming down, what is going to be the posture on passing along those savings? You already noted that inflation is flat to up 1%. So do you expect deflation, especially on the food side as you get through the next couple of quarters?
Richard Galanti: Well, talking to buyers, we've seen that even during the quarter, we saw a trend towards that 0% versus the 1%. But at the end of the day, we don't -- the buyers are looking out three to six months. They have -- on the fresh food side, commodities-wise, they haven't seen a lot. There are a few things that are up and a few things are down, but no giant trend either way. Look, as you know us for a long time, we want to be the first to lower prices. We're out there pressing our vendors as we seek different commodity components come down and certainly on the non-food side, as we saw shipping costs come down, things like that. And so probably a little more than less, but we'll have to wait and see. We don't know.
Michael Lasser: And my follow-up is another point that you've made for a long time is that Costco's going to draft off the profitability of the broader retail sector. If you compare Costco's operating margin over the last 12 months versus where it was prior to the pandemic, it's 300 to 400 basis points higher. And yet, across retail, there are signs that profitability is coming down. So now, what we've seen in the ways of Costco either maintaining this existing rate of operating profit margin or even further growing it from here, so it just simply going to be a function of your ability to drive further sales growth in the -- consistently mid-single digit range or better. |
1,606 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Sure. Well, happily, I'm able to say that, that's -- you get to figure that one out. At the end of the day, we're -- as you've known for a long time, we're a top line company, we want to drive sales. Certainly, as there's been deflation in certain products, we've seen units go up. I'm looking at one example here just in the last month, $100 million plus of KS net items where sales were flat to down a couple percent, while units were up in the mid-teens, that takes a little more labor to do. But at the end of the day, that's what we want to do. We want to drive people and frequency. I think as long as we see renewal rates continue to do what they do, as long as we see new sign-ups continue to what they do and hopefully continue to get people to convert to Executive as well and constantly driving the best value out there, we'll be in good stead. And so far, we've been able to do that and I think we'll continue to be able to do that.
Michael Lasser: Thank you very much and have a good holiday.
Richard Galanti: You too.
Operator: We'll take our next question from Simeon Gutman with Morgan Stanley.
Jacquelyn Sussman: Hi, there. This is Jackie Sussman on for Simeon. Thank you so much for taking our question. The core and core margin was up modestly this quarter and it seems like it moderated sequentially. Looking forward to the balance of the year, it seems like the comparison gets a bit tougher. I guess how should we think about your core and core margin? Could it stay expanding and positive for the rest of the year or any color on that would be helpful. Thank you so much.
Richard Galanti: There are so many different moving parts to it. As you've heard me say and I say in the last several years, we want to drive top line first. We're also pragmatic. We want -- we recognize we're a for-profit company and we'll continue to work hard to do both. I wouldn't read much into any number going up a little or down a little, frankly. It fluctuates and there's lots of different components to it. |
1,607 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Jacquelyn Sussman: Got you. Thanks so much. And just a quick follow-up. Was the Black Friday and Cyber Monday gains that you had better than what you were expecting internally? Thanks so much.
Richard Galanti: They’re a little better than we were expecting but we were ready for it.
Jacquelyn Sussman: Thanks so much.
Operator: We'll take our next question from Chuck Grom with Gordon Haskett.
Charles Grom: Hey. How is it going Richard? Good afternoon. I wanted to just dive into the core margins a little bit more and see if you could flesh out some of the category color. If you said it, I missed it, but food, sundries, fresh and on the hardlines parts of the business.
Richard Galanti: Well, without giving you specific basis points, food and sundries was slightly down, very slightly down. Non-food was actually up. Some of that relates to the fact that we are comparing against last year when we had higher freight costs and trying to drive business and fresh was down a little bit. So nothing Earth-shattering in either of those directions.
Charles Grom: Okay. And then on the ancillary up 22 basis points, I think we all get the gas component. But can you just talk about why the e-commerce margins were so much better in the quarter?
Richard Galanti: I think, well, first of all, part of just ancillary in general is a sales penetration issue. Without going into it that the fact that it showed more -- sometimes when you look back over the quarters, they go in opposite directions, the core on core and then the other businesses. And so given that you had higher sales penetration in both and e-com, that helped you, and e-com, we had a lot of strength. We're doing a lot of big and bulky and we're driving that business. |
1,608 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Charles Grom: Okay. Great. And then just bigger picture, I just have a question on the change at the CEO seat with Ron starting in a few weeks and replacing Craig, who replaced Jim. You've had the fortunate opportunity to work with all three. And I guess I'm curious what change, if any, you think we could see from an operating standpoint moving forward?
Richard Galanti: Yeah. Well, I always joke I'm up for review so I'm going to say nice things. But at the end of the day, the reality is, we're staying the course. I remember questions were asked 12-plus years ago when Craig became President, and two years later, Jim retired and Craig became CEO and President. And what's -- who can replace Jim? And I think the same questions asked today, who could replace Greg? And it really is a seamless transition. You have somebody retiring that's been here 40-ish years and it's been in the business both on operations and merchandising for a successful number of years in both. And you've got Ron who's coming in, who started when he was 17 at a Price Club in Arizona. And he already has his 40-year gold patch. And again, 30-ish years in operations, a year in real estate traveling in the world and then six or seven years in merchandising. So I think it is pretty seamless. And to see them, the two of them work together over the last two years, almost two years since Ron became President, it's very similar to what I saw during those two years when Craig became President, and then two years later, Jim retired and Craig took on the CEO role as well. And so that's pretty much steady as she goes.
Charles Grom: Got you. Great. Happy holidays. Thanks.
Richard Galanti: Thanks.
Operator: We'll take our next question from Scott Mushkin with R5 Capital. |
1,609 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Thanks.
Operator: We'll take our next question from Scott Mushkin with R5 Capital.
Scott Mushkin: Hey, Richard. I guess, I just wanted to think about the potential clubs in the U.S. I know it comes up sometimes, but obviously, you added eight. It just seems like there's maybe more runway you can hear in the U.S. And I wonder if you have any thoughts on that. And then I had a quick follow-up.
Richard Galanti: Sure. Well, if we were to open the 31 this year, that would be somewhere in the low 20s, the 23, 24 in the U.S. And I recognize a few of those are business centers, which is we continue to add as well as regular -- most of the regular warehouses. And I would say that, yes, I guess the story I'd share with you is six or eight years ago when it was roughly 60-40 or 70-30 U.S.-Canada versus the international -- other international. We were asked, what would it be by today? I'd say, well, by today, it will be 50-50. Well, today, you're asking the same question, it's 60-40 or 70-30 today, what will it be? And I think it will trend that way over time, but we are finding more opportunities in the U.S. Clearly, our average sales volume per location is higher today than we would have expected ourselves thankfully, six, seven years ago, what would it be by now. And we are finding those opportunities. So I view that as good news. We still -- we've got a lot of things going on to drive International, but International will be 6 or 7 units this year. And then opportunity to grow last year, international was -- is 9 or 10 and that's more of a timing issue.
Scott Mushkin: So then my follow-up is around traffic and also like the growth you had in appliances and TVs. You're just kind of going in a different direction than a lot of people. So what's driving the share gains in those categories? But also, are you guys doing anything specifically different to drive the traffic numbers you're seeing? Because I mean, they're pretty amazing, given the environment. |
1,610 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Yeah. Well, look, I've always said I think the biggest attribute of value is the lowest price, given quantity and quality of good or service and then certainly add to that the trust that our members have. I think as it relates to specific things like I pointed out, like appliances and even tires, its value. We -- and the -- and having acquired Interval three or four years ago now called Costco Logistics, we're doing a lot of business there. And I think we've gotten a better job of communicating what the value is, not just showing what the price of the exact item is at some of the other big retail competitors on some of these big items. But then you add in delivery, take away the old product used, the installation, delivery, take away the old product for disposition, it’s significant savings. Go do a price check of some of those things compared to our competition, that’s where you’ll see the strength.
Scott Mushkin: Perfect. Thanks.
Operator: We'll take our next question from John Heinbockel with Guggenheim.
John Heinbockel: So Richard, I'm wondering if one of the things you may do differently here, we've talked about this before is leaning into personalization more and where you are on that journey, particularly with Ron coming in. |
1,611 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Right. Well, we're -- first to our business was fixing the foundation. We're in the middle of re-platforming our e-commerce. It's not a big bank where we're going to put the switch one day, we're bringing things over and that's in progress. It was, I think I mentioned last -- probably last quarter, it's a two-year road map on that, and we're halfway through that. And so I'd say very little so far. If we're in the second inning, maybe we're in the third inning now. But we -- a lot of the focus has been on, first of all, making sure doing small improvements. We certainly got the -- on the 5 star rating, it got up north of 4.5 on that, and we're getting better at the site every time. But I think you would see personalization and, first of all, targeting and then personalization more over the next couple of years, honestly. And we're fine with that. We're the first to our business getting the foundation right. And we've made a lot of progress. I didn't spend a lot of time on this call talking about the new things, the enhancements we've made to the mobile site and the e-com site, but we've done a lot.
John Heinbockel: And maybe as a follow-up, you talked about the international opportunity and it's still very well underdeveloped. So what's the hindrance to getting to -- because you're in a lot of countries now, 15 to 20 annual openings, maybe that's a big ask. But is it just quality of real estate because I would imagine operationally, it's not a human resource issue. Is it purely a real estate issue? |
1,612 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: I would say it's a combination of issues. In some countries, I mean, if you look at Korea, Taiwan, where we have whatever, 15 or 16 locations in each country, very successful. It's a little harder to find the next location just from a real estate standpoint. We -- if you look in Japan where we have plenty of future opportunity, we've got 30-plus now. And -- but again, it's a little bit of real estate. If you look at places like China or Spain, one of the challenges is you want -- you like to be able to ideally bring over more than a handful of people from the existing locations in the new one. It's a very hands-on operation. I think one of the things that we felt we mentioned that we had success when we first opened our first unit in Shanghai is we had at least 60, 70 people move there from Taiwan for promotions and for interactions, not just in the office and the buying offices, but even in the key supervisor and manager positions within the warehouse. And so it takes a little longer. And -- but we're working hard at it but it's a very hands-on experience.
John Heinbockel: Thank you.
Operator: We'll take our next question from Kelly Bania with BMO Capital Markets.
Kelly Bania: Hello, Richard. Thanks for taking our questions. Just wanted to kind of follow up on Scot's question. I think your average sales per club in the U.S. and Canada is around $300 million at this point. And just curious on the status of how many clubs are doing kind of well over that and are maybe in some need of relief in the form of self-cannibalization and more clubs nearby. And a follow-up as well on International. Just as we think about the next maybe three to five years, are there any countries that might be disproportionately getting more of the growth here?
Richard Galanti: Okay. What was the first part of the question, again?
Unidentified Company Representative: The average sales. |
1,613 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Average sales. I don't have the numbers in front of me, but I know in fiscal '23, we had something like 25 or so locations that did over $400 million and another 160 or so that did $300 million to $400 million. Those are huge numbers. And certainly, as we get 350-plus and one of them, by the way, they did over 400 did a few million over $600 million. And so generally, when it starts getting -- when it starts having a three in front of it, certainly at $350 million, we want to start looking to see what we can do to cannibalize it, frankly, and to have more growth in that market. And so hopefully, that's our -- one of our bigger problems and challenges that we have more of those each year. So I think that will continue. Again, if I look back five, eight years ago, even assuming whatever inflation number you want to assume, I think we've done a little better than that in terms of the sales volumes. And so that's good news for us that we'll continue to do that. Internationally, again, I'm just looking at the map of where we are. Certainly, we only have four locations in Spain. We've actually added a few on a base of 30-plus in the U.K. We think we have more opportunity in Mexico. In Japan, where we have something in the low 30s, certainly, it's done well there, and there's many more markets and population there that we can go to. Australia is, whatever two-thirds -- a little under two-thirds of the size of Canada where we have 105 or so locations. And in Australia, we have 15. I'm not suggesting we're going to have two-thirds of 105 there anytime soon. It takes us 35-plus years to get there in Canada. But we think that those are the opportunities. It's not like we're looking for a lot of other new countries at this juncture. We've done a few new countries, those single locations like in Sweden and Iceland and Auckland all being somewhat managed buying wise somewhat operationally by host country in the case of Scandinavia by the U.K., in the case of Auckland by Australia.
Kelly Bania: Thank you. |
1,614 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Kelly Bania: Thank you.
Operator: We'll take our next question from Scot Ciccarelli with Truist.
Scot Ciccarelli: Good afternoon, guys. So Richard, last quarter, you talked a bit about Costco Next. And I guess my question is, how big of an impact is that program having on your e-com sales at this point, number one? Number two, kind of related to that, any change in your betting of what vendors operate on that program, just thinking about the quality control aspect? Thank you.
Richard Galanti: Well, first of all, it's still very small relative to our company. And the fact is, is that the Costco net sales currently are not in our sales. It's -- we got to commission, so it's kind of like 3P, if you will, 3P sales. And at some juncture, some of their rules -- accounting rules where you can include it in sales based on what risk and what ownership level you have in the items. But at this juncture, those sales, it's more of the market value and just the commission in our number. In terms of how we vet, we do it the same way we vet items. We want items that make sense to provide value, and we have a team that is here that are vetting every -- each and every one of those. I think we're up to about 70 -- about 65 current suppliers on there and we'll certainly have many more as we go forward.
Scot Ciccarelli: So presumably, if that program keeps growing, should that be a natural gross margin driver for you over time? I know it's small now, but if you're just collecting the commission, presumably that's kind of 100% margin, right?
Richard Galanti: Essentially, yes. Much like the travel business.
Scot Ciccarelli: Okay. Thank you.
Unidentified Company Representative: Mostly.
Operator: We'll take our next question from Greg Melich with Evercore ISI. |
1,615 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Unidentified Company Representative: Mostly.
Operator: We'll take our next question from Greg Melich with Evercore ISI.
Gregory Melich: Hi, thanks. Richard, I want to follow up on the membership fee hike as I think now we're in extra time. And I wonder how much does the growth in mix and Executive membership driving that high single-digit growth. Is that what it means that you don't have to increase it and you could keep waiting or is there something else?
Richard Galanti: I think it's just us. Again, if I look at the -- if you ask the question, what are the variables we would look at, we would want to look at strong renewal rates, strong new sign-ups, strong loyalty, and we have all that. So I think it's a question is, we haven't needed to do it. We like providing extreme value. Certainly, while we've gone a little longer than the average increase, we feel we certainly have driven more value to the membership. So I'll use my standby answer, my answer, it's a question of when, not if. But at this juncture, we feel pretty good about what we're doing.
Gregory Melich: And a follow-up on inflation. I just want to make sure I got that right. You said 0% to 1% for the quarter. Did it trend towards 0%? Did we exit near the bottom? And you mentioned some categories that were deflationary, which ones are stubborn in terms of inflation where it's hardest to get it out?
Richard Galanti: Which inflation -- which categories are stubborn in inflation?
Gregory Melich: Yeah. Where you can’t get that?
Richard Galanti: CPG, obviously.
Gregory Melich: All the branded packaged stuff?
Richard Galanti: There wasn't a big trend. I think at the end, it was a little lower than the beginning, but not a big trend.
Gregory Melich: Okay. So it's not like we exited 0%. We're still slightly positive.
Richard Galanti: Right. But recognize, the LIFO charge is an inventory cost of sales charge. [Multiple Speakers]
Unidentified Company Representative: Year-over-year number. LIFO [Multiple Speakers] |
1,616 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Unidentified Company Representative: Year-over-year number. LIFO [Multiple Speakers]
Richard Galanti: Right. The 0% to 1% is from the beginning of the fiscal year. Now it's from -- I'm sorry, the beginning of -- the 0% to 1% is versus a year ago.
Gregory Melich: Year-over-year, got it.
Richard Galanti: Yeah.
Gregory Melich: Great. And then just last, what is the auto renewal rate now?
Unidentified Company Representative: Around 60%.
Richard Galanti: In the U.S., it's around 60%.
Gregory Melich: Perfect. Thanks. Have a great holiday guys.
Richard Galanti: You too.
Operator: We'll take a next question from Rupesh Parikh with Oppenheimer.
Rupesh Parikh: Good afternoon. Thanks for taking my question. So I just want to go to operating expense growth. So operating expense growth is still high. Would you expect the growth rate to moderate once you lap that March wage increase? And then anything unusual within that line item that's still driving pretty high growth? |
1,617 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: There's not a lot unusual. I think it gets back to the question of low inflation, which creates a little bit more of a challenge, right? My extreme -- and again, that was a very extreme example I gave you on nuts. But when you had a slight 0% to 2% decline in sales and a 14% increase in units, you got more labor involved, more hours stock of the shelf. I mean that's at the 40,000-foot level. And that's an extreme example. But I think overall, it is sales base. You should also remember, if you remember going back to fiscal '19 and the first part of fiscal '20, before COVID, our SG&A percent was -- for all of ‘19, it was at 10 04. In the first quarter of 2020, it was a 10 34, And for the whole year, it was a 10 04 for both of those two years. And we used to think to ourselves will we ever be able to get it back below 10%. And in 2022, which was the kind of month seven through 18, if you will, that 12-month period after that full fiscal year for us of COVID, we reported an 8 88 for that year. So even at the 9 45 that we just reported, we're still quite a bit lower than we had been historically, a function of a lot of things, including higher sales productivity and all that. So I think we're doing pretty well. I think certainly, that's the challenge. How do we reduce that and how do we manage that? And certainly, the biggest way to manage is driving more sales.
Rupesh Parikh: Great. And then maybe just one follow-up question. So just curious how you're feeling about the healthier consumer. So it was interesting to hear that TVs did well this past quarter. |
1,618 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Look, I think when we're asked that question, we're fortunate to answer it that we're, first of all, looking at the consumer through somewhat rose-colored glasses here. The we have enjoyed great value. And again, we're convinced it's value. We've got -- I think on the margin, there's a few extra things that we've done. We've improved the site of the website. We've gotten a little better communicating stuff, not completely. But I think overall, it's -- and we've been good merchants. I think the merchants have done a great job of bringing in new stuff. And not being shy when we see an industry category down a lot, that we can still -- if we're driving people in, we've got a better chance of getting them to buy something.
Rupesh Parikh: Thank you. Happy holidays.
Richard Galanti: Thanks.
Operator: We'll take our next question from Oliver Chen with TD Cowen.
Thomas Nass: Hi. This is Tom Nass on for Oliver. Just a quick question on the trend of Kirkland relative to last year. If you could just remind us how that's trending maybe across categories. And then if you have any notable callouts, any recent innovations? Just curious if this is essentially driving any efficiencies and supplier negotiations that can position Costco for stronger gross margin ahead. |
1,619 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Well, I would say, allowing us to get better deals, which means lower prices. But look, I think we -- Kirkland signature (ph) relative to non-gas sales is in the high-20s. And I think it was probably a good year ago when inflation was in the 8 and 9 range, if you will, if you remember. And we talked about that year-over-year, we saw probably the biggest increased penetration of KS at Costco. It was 1, 1.5 percentage points, when historically, it has been 25 basis points to 50 basis points a year. I think we're back to that, but we've maintained that higher level and we're back to seeing smaller increases in penetration every year, but nonetheless still driving that business. But we've got -- yeah. I think that helps with some of the deflationary certainly with KS stuff, we're closer to the supplier. We're not the only -- we're the only customer buying that item and we can drive a little bit more business. So I think it just continues to work that way for us.
Thomas Nass: Great. And then just a quick follow-up on any notable behavioral trends you've seen in consumer shopping this holiday season?
Richard Galanti: Some colleague in my room said they're buying gold. But no, that's actually online mostly. But no, I think -- again, I think the traffic thing is the thing that we're happily surprised about that we're continuing to drive people in on an increasing basis. We know we benefited during those, call it those two years, kind of March, April of '20 to March, April of '22, the kind of the two years of COVID, we benefited in many ways from more members and more volumes. And we’ve not only kept it, we’re continuing now to add to those levels, so we feel very fortunate in that regard.
Thomas Nass: Thanks. |
1,620 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Thomas Nass: Thanks.
Richard Galanti: One of my colleagues here just mentioned that discretionary merchandise trends are getting a little better. And that’s not only on big ticket but in general, nonfood stuff. I think that corresponds with my comment earlier that we feel good about the seasonal -- how we’ve done seasonally.
Thomas Nass: Great. Thank you.
Operator: Thank you. We'll take our next question from Mark Astrachan with Stifel.
Mark Astrachan: Yes. Thanks and good afternoon, everyone. I guess I wanted to ask on the Kirkland products, specifically maybe on the CPG that you mentioned. How has pricing or how has prices trended on those versus the branded products? Have you seen any deviation there, given you're closer? Are you able to lower prices? I suppose to the extent that, that has happened, do you notice any more market share changes within those CPG categories?
Richard Galanti: I think it's slightly -- it's deflationary. It's a little more deflationary in the KS than in the CPG, which drives more value to KS, frankly. But we're seeing some -- our ability to work with our CPG suppliers as well, but just a little stronger ability to do that with KS.
Mark Astrachan: Got it.
Richard Galanti: And it is, again, a comment in the room here. We've had -- it's allowed us to do some new item introductions on the KS side as well.
Mark Astrachan: Great. And then just following up on the last question. Anything you can call out amongst the newer memberships cohorts in terms of renewal rates versus the average? |
1,621 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Generally speaking, if you compare, everybody was always concerned. I remember 10-plus years ago, people would ask you, how are you going after millennials? And then it's how you go after the next gen or whatever, the Gen Zs or whatever? At the end of the day, when we look at the different cohorts, if you just change the names, the curve seems to be about the same in terms of getting new younger members. They buy less, they buy more as they get older into that 40- to 55-year-old sweet spot. I don’t know in terms of renewal rates. I think the rates are – our overall rates are improving so I think we’re probably doing a better job there. Certainly, things like, frankly, auto renewal helped that as well.
Mark Astrachan: Got it. Thank you. Happy holidays.
Richard Galanti: Same to you.
Operator: We'll take our next question from Corey Tarlowe with Jefferies.
Corey Tarlowe: Hi. Good afternoon. Thank you for taking the questions. Richard, you mentioned about the wage increases that you've taken recently. I'm curious to get your thoughts about the wage increases that you've taken within the context of now the lower inflation that you're seeing as well as what could be potential deflation further ahead. So curious about the ability for Costco to maybe maintain a more nimble margin structure amid what could be some volatility on the pricing side. |
1,622 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Frankly, we look at the wages in a vacuum, and we want to do as much as we can for our employees. And certainly, there were several increases starting with the frontline worker premium during the initial year of COVID. We kept half of that in there, which we kept $1 of those $2 now in there, which was like $400 million a year. Again, we've also benefited from stronger sales and productivity so we're able to afford that. But we look at them independently and we'll continue to do that to look at it. To the extent inflationary pressures are down, that means there's probably a little less inflationary pressure on wages. But we give -- over half of our employees are top of scale and they're getting increases irrespective of some of the extra things we talked about every March. And then as you go from a new employee over the first 9,000 or 10,000 hours, you're getting constant increases that are more -- significantly more.
Corey Tarlowe: Understood. And then just piggybacking off of that, and I understand it may be difficult to attribute a cause and effect relationship to this. But do you think that perhaps the moderating inflation that we've seen in the need-based categories like fresh and food and sundries may have unlocked a little bit of extra wallet to spend in the non-food category? And they have driven some of the momentum that you've seen in categories like TVs and others?
Richard Galanti: I think it can't hurt even with gas prices have come down a little bit. That's top of mind every week when somebody fills up their tank. So those things help. I think I'm sure on a macro basis, that's the case but it's a guess on our part.
Corey Tarlowe: Understood. Great. Thank you very much and best of luck.
Richard Galanti: Thank you.
Operator: We'll take our next question from Dean Rosenblum with Bernstein. |
1,623 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Thank you.
Operator: We'll take our next question from Dean Rosenblum with Bernstein.
Dean Rosenblum: Hey, Richard, guys. Thanks for taking my questions. There's really two big debates that clients are asking us about. First one is on gross margins, and in particular, the potential for a gross margin impact from mix shift back toward things like appliances and TVs, which are notoriously lower gross margin, at least in the marketplace versus fresh and food and sundries. As you see the sort of big ticket discretionary starting to come back a little bit, do you expect any overall impact on gross margins from that mix shift away from food and sundries to big ticket discretionary?
Richard Galanti: First of all, our margin range is so much more compacted than traditional retail, different categories of traditional retail. I mean, if you think about it, we have, what, 12%, 13% gross margin, 11%. I'm thinking markup, and in theory, it ranges from 0% to 15%. In reality, it's -- there's very few things that are below 5% and a lot of things hover around the 8% to 12% range. And so I don't think it's as big of an impact to us in terms of those mix changes. And I got to say it's always all saying it's always something. There's always something that hurts you and there's another thing that helps you. And it's a really -- it's a mixture.
Dean Rosenblum: True. And then the other big debate that's contrasting about is the relative profitability of new stores versus existing stores. There's sort of two themes there. One is new U.S. versus existing U.S. and then the relative profitability of new stores internationally. I was wondering if you could speak to that a bit. |
1,624 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Well, first of all, when you look at like at an ROI, the eye on the denominator on an older building is a lower eye (ph). If 10 years ago, the typical building in the United States property equipment and building fixtures, I'm shooting from the hip here, was $30 million to $35 million and now it's $45 million to $50 million. So you've got a different eye. But generally speaking, when we look at the ROI of each of our eight U.S. regions, our two Canadian regions, new units come in, start a little lower and get up there over time. You'll have some outliers because of some units that are 30- and 40-years-old even with eye (ph) increase because we expanded the unit and upgraded it and remodeled it. The fact of the matter is the higher volume is really shine through there. On an international standpoint, we've always, I think, talked about the fact that there's a few different things that the ROIs in some of these other countries tend to be a little higher. The return on sales tends to be even more -- even higher than that in some of these countries because a combination very little related to gross margin, some related to membership fees, some related to wages and some related to benefits, health benefits. U.S. health care costs dwarf every other country that we're in.
Dean Rosenblum: Got it. Thanks so much. Appreciate it. Good holidays and thanks for the pie.
Richard Galanti: Thank you.
Operator: We'll take our next question from Joe Feldman with Telsey Advisory Group.
Joseph Feldman: Hey, guys. Thanks for taking the question. Wanted to first ask on Executive member penetration seems like it continues to inch higher. And I was just wondering how you guys think about that. And like how high should that be? I mean presumably, you want everybody to be an Executive member. But is there like kind of a natural level where you think it can still go from here beyond the 46%? |
1,625 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: I think -- well, there's always going to be another country or two we add. You need a certain number. In our view, we've always done it after there's 15 or so warehouses in the country. So that will add to it a little bit. But no, I think some of the increase -- it's kind of like getting up to that asymptotic line when you -- one of the things that drove it in the last few years, one, we've done a better job in the last several years of selling it to you as well as auto renewal. When people come in now or sign up online, they're signing up to they want to put their credit or debit card in there and they can opt in to doing it online -- doing other renewal. So I think those things have pushed it along with us being so wonderful. But I think you'll still see it come up a little bit but probably that rate of increase will slow over time.
Joseph Feldman: Got it. Okay. And then maybe just a quick follow-up. Anything to talk about on shrink because I know that there was an issue with shrink even for you guys at one point. And I know you guys have cracked down on making sure members are showing their cards when they walk in the store. And obviously, when you leave with your goods, you're checking your receipts. But anything we should think about with regard to shrink going forward and recent trends?
Richard Galanti: Thankfully, nothing at all. It's really -- I think what we already talked about was a combination of, as we went into some self-check out over the last several years and then perhaps more recent things that you read about in the paper, we get less impacted by the latter as well. Maybe we saw a couple of basis point delta upward on a very low number of basis points to start with. So we're fortunate in that regard.
Joseph Feldman: Got it. Thank you and happy holidays, guys.
Richard Galanti: Same to you. Thank you.
Operator: We'll take our next question from Laura Champine with Loop Capital. |
1,626 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: Same to you. Thank you.
Operator: We'll take our next question from Laura Champine with Loop Capital.
Laura Champine: Thanks for taking my question. I wanted to dig in a little bit more into some of those numbers on the column. The ancillary profit improvement, I think that's where you're -- I'm just wondering what drove that. And on the operations line, it sounds like that pressure in SG&A didn't come mostly from wages and I'm wondering where it did come from.
Richard Galanti: Yes. On the ancillary line, it's gas and e-com and it's a combination of increased sales penetration and increased margins within those businesses. The thing about gas is I think everybody out there that has gas stations, what we have found is we've been able to see improved profitability not just in the last quarter or two, but over the last few years -- last three to five years, improved profitability in gas because others are making more, and we're allowed to make a little more. When we do our competitive price shops on gas, which we do weekly at every gas stations, we operate with our neighboring competitive gas stations. On the e-comm side, I think driving more sales has helped us in the margins there as well.
Laura Champine: Thanks. And then just on the operations...
Richard Galanti: Yeah. On the wages, while we pointed out – I pointed out on the call, I think there was like four or so basis points in total from those two distinct increases, we do other increases like over half of our employees are top of scale. They get an increase every March that’s significant as well, significant relative to basis points. When you have lower sales figures. I mean, and – the rest of it is all the other lines like energy costs and the like.
Laura Champine: Got it. So most of the pressure is probably coming from wages, not just those two discrete callouts you had?
Richard Galanti: It’s more than half. I don’t have the exact figures with me.
Q – Laura Champine: Got it. Thank you. |
1,627 | COST | 1 | 2,024 | 2023-12-14 17:00:00 | Costco Wholesale Corporation | 92,817 | Richard Galanti: It’s more than half. I don’t have the exact figures with me.
Q – Laura Champine: Got it. Thank you.
Operator: Thank you. And there are no further questions at this time. I’d like to turn the call back over to Richard Galanti for any additional or closing remarks.
Richard Galanti: Well, thank you, Lisa, and thank you, everyone on the call. We’re around to answer questions and have a happy holiday. And I think this is a record time of finishing this call. So enjoy the holidays. Thank you very much.
Operator: Thank you. And that does conclude the presentation. Thank you for your participation today, and you may now disconnect. |
1,628 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation fiscal second quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer section. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Gary Millerchip, Chief Financial Officer. You may begin.
Gary Millerchip: Good afternoon, everyone, and thank you for joining Costco's second quarter 2025 earnings call. In addition to covering our second quarter financial results today, we will also review our February sales results. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into the numbers, I'm delighted to say that Ron Vachris is joining me for today's call. I'll now hand over to Ron for some opening comments. |
1,629 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Thank you, Gary, and good afternoon, everyone. Thank you for joining us today. As we wrap up the second quarter of fiscal 2025, I'd like to make a few brief comments on some of the highlights since we last spoke. While we only opened one new warehouse in the second quarter of fiscal 2025, we have big plans for the rest of the fiscal year. Tomorrow, we will open up in Brentwood, California, followed by an opening in Highlands, California the following day, and four additional US openings next week, including our Sharon, Massachusetts opening on March 12th, which will be our 620th US warehouse and the 900th Costco location worldwide. We're projecting 28 new openings during fiscal year 2025, of which three will be relocations, for 25 net new buildings. In addition to adding warehouses to serve our members, we're also extending our gas station hours in North America during the quarter to make filling up at Costco more convenient for our members. Generally, our stations are now staying open an hour later than they did previously, with some opening earlier as well. Our updated employee agreement took effect this week in the US and Canada. This agreement reflects our continued commitment to provide industry-leading pay and benefits for our employees. Highlights from the new agreement include an immediate $1 per hour top-of-scale increase followed by an additional $1 top-of-scale increase in March 2026 and again in March 2027. The top-of-scale wage for US service clerks is now $31.90 an hour. Additionally, on March 3rd, our bottom-of-the-scale wage increased by $0.50 an hour, taking our minimum wage to $20 an hour. The average wage for US and Canada employees is now a little more than $31 an hour, including hourly employees, with the majority of our employees at the top scale based on tenure. Paid vacations for new employees are now offered during the first year of employment, and a sixth week of vacation is available to US employees after 30 years of service. Our operations and merchandising teams did a |
1,630 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | a sixth week of vacation is available to US employees after 30 years of service. Our operations and merchandising teams did a fantastic job delivering strong operating results despite the uncertain macro environment. In particular, our Canada and other international business had an outstanding quarter, delivering record results on a constant currency basis, although reported results outside the US were negatively impacted by foreign exchange fluctuations year over year. As we look ahead to the remainder of this fiscal year, headwinds from foreign exchange look likely to continue. Given events over the last week, it is difficult to predict the impact of tariffs, but our team remains agile, and our goal will be to minimize the impact of related cost increases to our members. About a third of our sales in the US are imported from other countries, and less than half of those are items coming from China, Mexico, and Canada. In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices, and our teams will continue to rise to this challenge by leveraging our global buying power, strong supplier relationships, and innovation. With that said, I'll turn it back over to Gary to discuss the results of the quarter and February sales. I'll jump back on during Q&A to field some questions. |
1,631 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Thanks, Ron. In today's press release, we reported operating results for the second quarter of fiscal 2025, 12 weeks ended February 16th. We have once again published a slide deck on our investor site under Events and Presentations with supplemental information to support today's press release. You might find it helpful to have this presentation in front of you as I walk through our results. Net income for the second quarter came in at $1.788 billion or $4.02 per diluted share, up from $1.743 billion or $3.92 per diluted share in the second quarter last year. Last year's results included a tax benefit of $94 million or $0.21 per diluted share, related to the tax deductibility of the special dividend paid to 401(k) participants. Excluding this discrete tax item, net income and earnings per diluted share both grew 8.4%. A couple of additional data points that may be helpful relative to our reported net income. Operating income in the quarter increased 12.3% compared to last year. This was partially offset by a $70 million year-over-year headwind in interest and other.
Ron Vachris: And I'll share more detail on these items a little later. |
1,632 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: And I'll share more detail on these items a little later.
Gary Millerchip: And foreign exchange rate movements negatively impacted the translation of international net income to US dollars, $57 million or $0.13 per diluted share. Net sales for the second quarter were $62.53 billion, an increase of 9.1% from $57.33 billion in the second quarter last year. US comparable sales were up 8.3% or 8.6% excluding gas deflation. Canada comp sales were up 4.6% or 10.5% adjusted for gas deflation and FX. Other international comp sales were up 1.7% or 10.3% adjusted. And this all led to total company comp sales of 6.8% or 9.1% adjusted for gas deflation and FX. Finally, e-commerce comp sales were up 20.9% or 22.2% adjusted for FX. In terms of Q2 comp sales metrics, foreign currencies relative to the US dollar negatively impacted sales by approximately 2.1%, while gas price deflation negatively impacted sales by approximately 0.1%. Traffic or shopping frequency increased 5.7% worldwide and 5.6% in the US. Our average transaction or ticket was up 1% worldwide and up 2.6% in the US. This includes the headwinds from gas deflation and FX. Adjusted for those items, the ticket would have been up 3.2% worldwide and up 2.8% in the US.
Ron Vachris: So |
1,633 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Moving down the income statement to membership fee income. We reported membership fee income of $1.193 billion, an increase of $82 million or 7.4% year over year. Membership fee income growth was 9.4% excluding FX. The recent membership fee increase contributed approximately 3% of fee income in the quarter. Due to the effects of deferred accounting, the majority of the benefit from the membership fee increase will come over the next four fiscal quarters, with the largest impact in Q4 fiscal year 2025 and Q1 fiscal year 2026. In terms of renewal rates, at Q2 end, our US and Canada renewal rate was 93%. The worldwide rate ended at 90.5%. As cohorts of new members move in and out of this calculation, there could be one or two tenths of volatility in the reported number quarter to quarter. The biggest impacts come from digital promotions and Asia warehouse openings, both of which generate outsized membership sign-ups but also have lower renewal rates. We entered Q2 with 78.4 million paid household members, up 6.8% versus last year, and 140.6 million cardholders, up 6.6% year over year. At Q2 end, we had 36.9 million paid executive memberships, up 9.1% versus last year. Executive members now represent 47.1% of paid members and 73.8% of worldwide sales. Turning to gross margin, our reported rate in the second quarter was higher year over year by five basis points, coming in at 10.85% compared to 10.8% last year, and up four basis points excluding gas deflation. To simplify the gross margin matrix provided in our slide deck, starting this quarter, we have incorporated the 2% reward as part of the business area which generates the reward. This is split between core and ancillary and other businesses. Core was higher by five basis points and higher by four basis points without gas deflation. In terms of core margins on their own sales, our core on core margins were lower by eight basis points. This decline was due to investments in supply chain to support higher inventory and some mix changes in our |
1,634 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | eight basis points. This decline was due to investments in supply chain to support higher inventory and some mix changes in our non-food categories. Ancillary and other businesses' gross margin was higher by one basis point and flat without gas deflation. E-commerce, again, showed considerable strength year over year, but this was offset by lower gas profitability. LIFO was lower by one basis point and flat without gas deflation. We had a $12 million LIFO credit in Q2 this year compared to a $14 million credit in Q2 last year. Moving on to SG&A. Our reported SG&A rate in the second quarter was lower or better year over year by eight basis points, coming in at 9.06% compared to last year's 9.14%. SG&A was lower or better by nine basis points adjusted for gas deflation. The operations component of SG&A was lower or better by seven basis points and eight basis points without gas deflation. Higher labor productivity and great cost discipline by our operators drove this improvement. Central and stock compensation were flat both with and without gas deflation. And preopening was lower or better by one basis point both with and without gas deflation, driven by fewer new warehouse openings in the quarter this year. As Ron mentioned earlier, our new employee agreement went into effect earlier this week. While there was no impact in Q2, we estimate that this will create a headwind to SG&A of 13 basis points from March 3rd. However, we will also lap a smaller increase from the same point in the prior year, so the net year-over-year basis point headwind from this wage investment is expected to be mid-single digits. Below the operating income line, interest expense was $36 million versus $41 million last year. And interest income was $109 million versus $147 million last year. As indicated on last quarter's call, interest income faced headwinds due to lower cash balances, subsequent to our $6.7 billion special dividend in January 2024 and lower interest rates. While we expect interest rates will continue to be a |
1,635 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | $6.7 billion special dividend in January 2024 and lower interest rates. While we expect interest rates will continue to be a year-over-year headwind for the remainder of the year, we have now lapped the lower year-over-year cash balances following the special dividend. FX and other was a $33 million gain in Q2 this year versus a $69 million gain last year. In terms of income taxes, our tax rate in Q2 was 26.2%, compared to 22.1% in Q2 last year. Recall last year's rate benefited from a $94 million discrete item related to the tax deductibility of the special dividend paid to 401(k) participants. Adjusted for this benefit, the tax rate for fiscal year 2024 Q2 would have been 26.3%. Turning now to some key items of note in the quarter. Capital expenditure in Q2 was approximately $1.14 billion, and we estimate CapEx for the full year will be approximately $5 billion. Taking a deeper look into core merchandising sales, our non-foods category led the way this quarter with comparable sales in the mid-teens. Our buyers continue to bring in new and exciting items at great values. This included big-ticket consumer electronics products such as 98-inch and 100-inch TVs, Stern pinball machines, and gaming computers, all of which performed very well during the holiday season. For the quarter overall, gold and jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings, and small electrics were all up double digits. Fresh in Q2 was up high single digits. This was led by double-digit growth in meat; we continue to see a shift toward lower-cost proteins such as ground beef and poultry. Bakery and produce also performed well this quarter. Food and sundries had low to mid-single-digit comps, with cooler and international foods showing the strongest results. We continue to look for ways to increase the value for our members both with national brand items and our private label offerings. Our goal is always to be the first to lower prices where we see opportunities to do so, and the last to increase prices in |
1,636 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Our goal is always to be the first to lower prices where we see opportunities to do so, and the last to increase prices in the face of rising costs. A few examples of lower prices this quarter include KS refined olive oil single three-liter from $29.99 to $27.99, KS organic peanut butter from $11.49 to $9.99, and KS Tortilla Strips from $5.69 to $4.99. Another way we have been able to lower prices is by continuing to expand the local sourcing of our bulky private label items across the globe. In Q2, we introduced a KS purified water SKU for the China market that is produced in-country. By moving production into the region, we were able to bring members savings of greater than 20% versus the prior branded water offering. Our merchants also continue to drive innovation with Kirkland Signature. Most notably this quarter, we worked with a new supplier to rework our Kirkland Signature diapers. Improvements versus the prior offering include a longer and thicker absorbent layer, softer outer cover, and two times more stretch in the waistband. As well as improving the quality of this item, we were able to increase the value by 11%. Other new KS offerings this quarter include KS French fries, KS vodka and soda, and new KS Lager. Kirkland Signature continues to grow at a faster pace than our business as a whole. Within ancillary businesses, pharmacy and food court departments led the way. In the food court, we have introduced a new strawberry banana smoothie, and are excited to announce the fan-favorite turkey provolone sandwich is making a return in Q3. Gas comps were negative low single digits during the quarter, driven by the average price per gallon being down slightly. Now a few comments on inflation. While there was a fair bit of variability across departments, overall inflation in the quarter was low single digits. Fresh was the most inflationary of our categories, driven by meat and bakery. Food and sundries inflation remained relatively low, as inflation in eggs, cocoa, coffee, cheese, and corn were partially |
1,637 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Food and sundries inflation remained relatively low, as inflation in eggs, cocoa, coffee, cheese, and corn were partially offset by deflation in commodities such as sugar, butter, and flour. The supply chain continues to be relatively stable, albeit shipping delivery dates are still less predictable than they were pre-COVID. In non-foods, our buying teams have been proactive in ordering higher levels of inventory over the past year, which has helped support our strong sales. Turning to digital and e-commerce, we continue to make progress with our technology roadmap. The new warehouse tool in our app, which allows members to view local warehouse item availability and prices, had over 43 million visits. On personalization, for the first time in Q2, we sent out multiple versions of our digital MVM, differentiating the message for members based on their previous shopping behavior. We still have a lot of work to do in this area, and are excited about the potential to improve the member experience through more relevant targeted messages and experiences. While strength in bullion was a meaningful tailwind to e-commerce sales, home furnishings, small electrics, hardware, and sporting goods were a few of the other departments that grew double digits year over year. Costco Logistics had a record holiday season, with over 500,000 deliveries, as we continue to grow share in big and bulky items. And Costco Next, our curated marketplace, also had record holiday sales. We are now approaching 100 vendor sites and significantly grew average order value in the quarter. |
1,638 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Shifting gears to alternative revenue streams, |
1,639 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: we made some improvements to our co-branded credit card this quarter. The card is a great way for members to increase the everyday value they receive when shopping at Costco, offering attractive cashback rates with no annual fee. Executive members who use the card can double their cash on the majority of purchases in warehouse and at Costco.com, from 2% to 4%. And last quarter, we increased the reward on gas purchases at Costco locations to 5%. On retail media, following our first off-site retail media campaign in Q1, we have entered into a number of additional similar campaigns with roughly ten different partners. Turning now to our February sales results, for the four weeks ended this past Sunday, March 2nd, compared to the same four retail calendar weeks last year. Net sales for the month of February came in at $19.81 billion, an increase of 8.8% from $18.21 billion last year. Comparable sales for the month were as follows. US comparable sales were up 8.6% both with and without gas deflation. Canada comp sales were up 3.2% or 8.7% adjusted for gas deflation and FX. Other international comp sales were down 0.6% or up 6.5% adjusted. This resulted in total company comp sales of 6.5% or 8.3% adjusted for gas deflation and FX. Finally, e-commerce comp sales were up 19% or 20.2% adjusted for FX. Our comp traffic or frequency for February was up 5% worldwide and 5.8% in the US. Foreign currencies year over year relative to the US dollar negatively impacted total and comparable sales as follows. Canada by approximately 6%, other international by approximately 7%, and total company by approximately 1.8%. Gasoline prices were flat year over year in the month. Worldwide, the average transaction for February was up 1.4% including the negative impact from foreign exchange. In terms of regional highlights, US regions with the strongest comparable sales were the Midwest, Northeast, and Los Angeles. Other international and local currencies, we saw the strongest results in Mexico, Taiwan, and Korea. Moving to |
1,640 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | and Los Angeles. Other international and local currencies, we saw the strongest results in Mexico, Taiwan, and Korea. Moving to merchandise highlights, following comparable sales results by category for the month exclude the negative impact of foreign exchange. Food and sundries were positive mid-single digits. Cooler, frozen foods, and sundries were the strongest departments. Fresh foods were up high single digits, better-performing departments included meat and produce. Non-foods were up positive low teens, better-performing departments included jewelry, gift cards, and housewares. Ancillary business sales were up low single digits, pharmacy and optical were the top performers, and gas was down low single digits on lower volumes. And finally, in terms of upcoming releases, we will announce our March sales results for the five weeks ended Sunday, April 6th, on Wednesday, April 9th after market close. That concludes our prepared remarks, and we'll now open the line up for questions. |
1,641 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asked. To be able to take as many of your questions as possible, we ask that you please limit yourself to one question. Again, it is star one if you would like to join the queue. And your first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.
Simeon Gutman: Hey, Ron. Hey, Gary. It's Simeon Gutman. I will ask one question. I want to talk about sales impact and the consumer broadly. Curious if consumers' willingness to purchase either discretionary or non-discretionary, you know, as egg prices are booming, or is the consumer cutting back at all? And then it looks like your results don't show an impact, especially in Canada, both in the quarter and in February. But curious if there's any slowing in any places from, you know, tariff backlash, etcetera. Thank you. |
1,642 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah, thanks, Simeon. Yeah. To take the first part of your question, and the state of the consumer, I guess, more broadly, I think you're right in the way you described it. We're not really seeing any change in what we've seen around our members over the last really few quarters. We believe that the member is probably as much focused now on quality, value, and newness as they have been for quite some time. But they are still showing that willingness to spend; they're being very choiceful where they're spending their dollars. And we think that's likely to continue and maybe even become more choiceful as the impact of some return of inflation and the potential impact of tariffs could flow through as well. I'd say we're also seeing a continued sign of what I mentioned last quarter where there's some indication that members are spending a little more on food at home versus food away from home overall. So they're kind of, I guess, the macro themes that we see. When we talk about individual categories, I would say on non-foods, again, I think you characterized it well for us. Our merchants have done a great job of really focusing on those three key themes that we hear from our members around bringing in great items, great quality, and great value. And while there's examples of that with newness around things like gold and some of the large electronic and gaming items I mentioned, we're really seeing it being fairly broad-based across all the categories that I listed on the call earlier. So, generally, we're continuing to see strong trends overall in non-foods. There are a couple of categories generally that have been flatter, I would say, over recent quarters. Consumer electronics and apparel. We believe we're performing relatively well on those compared to the industry, but they are lower trends on those items than there would be in some of the other categories that I mentioned earlier. And we're seeing, as I mentioned in some of the prepared remarks, we continue to see great trends on fresh products |
1,643 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | earlier. And we're seeing, as I mentioned in some of the prepared remarks, we continue to see great trends on fresh products overall, and it's really a bit of bifurcation there. We're still seeing really good growth on the more premium meat items, but we're seeing even faster unit growth, I would say, on some of the lower-cost cut items like ground beef and poultry and pork. So overall, I think the trends that we've seen, we're not really calling out anything significantly different, but, of course, we're watching very closely and making sure we're reacting to what we see from our members. On Canada in particular, as you mentioned, really, the results that we reported in February are very much in line with the results that we saw year to date. They actually had the strongest overall comp sales when you adjust for FX and gas out of the three reported segments that we talk about within international, US, and Canada. But they had a phenomenal Q2. They did come down a little bit from the trend that we saw in Q2, but still very strong results overall. |
1,644 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Simeon Gutman: Guys. Good luck.
Ron Vachris: Thank you.
Operator: And your next question comes from the line of Michael Lasser with UBS. Your line is open.
Michael Lasser: Good evening. Thank you so much for taking my question. With core on core margin being down modestly this quarter, can we take that as a sign that the recent string of margin expansion that Costco's been able to achieve is coming to a conclusion or at least a pause, especially in light of what seems to be a much more inflationary environment and a difficult dynamic with having to manage through the tariffs? Thank you very much. |
1,645 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Thanks, Michael. Thanks for the question. Yeah. I wouldn't really read too much into the individual results in the quarter on the core on core margin. Overall, we were pleased with the fact that the gross margin rate was up four basis points, so a slight improvement while we're still investing in more value for the member. And, you know, when we look at the breakdown of that core on core, it was down, as you mentioned, eight basis points. To give you a bit more color on that, food and sundry was actually up slightly. Fresh was up slightly. Non-foods was down slightly. So there was a sort of a mix change in there somewhat that impacted the number as well. You may have heard me mention in the prepared remarks, but one of the things that was an increased cost during the quarter was higher supply chain costs as we had been continuing to buy more inventory, which we think will be helpful as you think about some of the unpredictability that we've seen in supply chain timing and also with the potential risk around tariffs. And, really, when we looked at the overall results of the quarter and saw that the core margin overall was going to be up slightly, we have that ability to be able to invest and ensure that we're continuing to take care of the members. So we were quite deliberate on that this quarter. But again, I wouldn't read too much into the individual puts and takes. We feel good about the overall margin and our ability to keep investing in the member while at the same time continuing to deliver the results that we delivered.
Michael Lasser: Thank you very much, and good luck. Thanks. And your next
Operator: question comes from the line of Christopher Horvers with JPMorgan. Your line is open. |
1,646 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: question comes from the line of Christopher Horvers with JPMorgan. Your line is open.
Christopher Horvers: Thanks. Good evening. So one quick follow-up and then an additional question. Other retailers are talking about weather having a negative impact on some of their more weather-sensitive businesses. So I guess turning the question upside down, do you think about the 8+% core comp that you saw in the month of February? Did you see any weather headwinds on your discretionary businesses, or was it just simply offset on the egg side? And then on the tariffs, historically, foods, you know, for things that come from, like, Mexico that are fresh foods, historically, you know, that stuff gets passed through directly to the consumer. How do you think about, you know, Costco's stance on that? You know, there's opportunities maybe with eggs where you're vertically integrated and you can absorb some of the cost. But as you think about stuff like fresh food that's more commodity-based, would you just pass those price increases along? Thank you. |
1,647 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: This is Ron. As far as the weather, we experienced the same weather everybody else did the last month. And, you know, we tend to capture a lot of that back if that's not an extended event and if it's not tied to a holiday. So, yeah, we saw some hits here and there, but we recovered most of that. And there probably was a little bit of the edge on sales taken off due to some northeast and the Midwest. So we feel pretty good about, you know, how we handled through those storms. As far as the tariffs go on the grocery items, you know, our buyers deal with those like they would any other cost increase. And, you know, sometimes the margins are much tighter in those categories. But they're prepared to work closely with the suppliers and see how efficiently we can bring goods to market and if there is anything we can mitigate in those categories. So, you know, the tariffs are very fluid right now, so it's hard to really, you know, give any predictions on what we can do. But we are prepared. Our people are very well equipped to, you know, lower prices and defer any cost increases that come our way. We're going to do what we can should that happen.
Christopher Horvers: Great. Thanks very much.
Ron Vachris: You're welcome.
Operator: And your next question comes from the line of Scott Ciccarelli with Truist Securities. Your line is open.
Scott Ciccarelli: With your Treasure Hunt structure, you guys have a lot of merchandising flexibility. So I guess if we get tariffs rolled into China, Mexico, Canada, would the strategy be more focused on, look, it is what it is. Costco still has the best value for those products relative to others? Or would there be a more aggressive effort to find goods from less tariff-impacted countries? |
1,648 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: It would be a little bit of both. I mean, you're exactly right with our flexibility of the treasure hunt. There's not many items that we can't find something to replace or something else to bring in in that category. But it's going to be a little bit of both of those strategies that we can. You know, as we say, when it rains, it rains on everyone, such as a tariff that we're all equal there. And I feel like our people are very well equipped to deal with anything coming our way with our reduced SKU model. And we have great partnerships with our suppliers, and those items are very important to them as well. So I feel like we are well equipped to deal with whatever is coming our direction. And not knowing what that's going to be, I can't really tell you what the outcome will be, but our people are nimble and they're ready to go at it if they need to.
Scott Ciccarelli: Thank you.
Operator: And your next question comes from the line of Jiang Ma with Bernstein. Your line is open.
Jiang Ma: Hi. Thank you for taking my question. So a bit of a follow-up on the international term question in terms of the February sales result. Is there any timing shifts between January and February to lead to this sequential slowdown in the other international segment? And longer term, can you just provide an update for us to understand how do you think about the long-term international growth runway from here? Thank you. |
1,649 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. Yes. On the first part of the question, there is some impact from particularly on the Asian markets, the Chinese New Year. We generally because it didn't roll up to be a meaningful enough number at our total company level, we didn't call that out in our results. We didn't call it out in the January numbers specifically either. But, yes, I would say you have to kind of look at the two months and combine the two really to understand the trend because of the impact that we would see from the Chinese New Year impacting particularly Korea and Taiwan and China. And then in terms of the long-term prospects for our international business, Ron mentioned it in the prepared remarks, we had a tremendous second quarter. We were thrilled with the progress that we saw across those international markets overall. And as we think about new store new warehouses, and the plan there. As you may recall, we talked about 25 to 30 new warehouses a year. As we look at our long-term plan, we would think just over half of those would likely be in the US, but just under half would be in our international markets, including Canada, Mexico, Asia, and Europe. And we look at all four of those as strong markets for us and opportunities to continue to expand our presence because we wouldn't see any of those as being fully penetrated today. And we're fortunate in that our international markets have similar or in some cases better profitability as a rate of sales than we have in our US market as well. So we still see plenty of opportunity, and they remain an important part of our growth strategy.
Jiang Ma: Great. Thank you.
Operator: And your next question comes from the line of Oliver Chen with TD Cowen. Your line is open. |
1,650 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Oliver Chen with TD Cowen. Your line is open.
Oliver Chen: Hi. Thanks, Ron, Gary. We had a question about general merchandise and electronics. Would love your thoughts on what you're seeing with respect to those categories and the health of the consumer. We've also thought that you've done a great job with UPTs and innovating with international product. It'd be great to hear prospects there. And then a follow-up is on the more targeted and strategic multi-vendor mail as well as digital promotions and deals. What's happening there? It seems like there's some nice traction, and is it driving traffic or how are you approaching the next ending of that? Thank you very much. |
1,651 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. Thanks, Oliver. I'll just quickly rattle through. I think there were three different components there. So on the consumer electronics, generally speaking, we believe, from what we see, we're growing market share, but that area would still be relatively slow. So we're flat to slight growth there as the market overall though still seems to be pretty sluggish, and I think we're still looking for that next wave of new innovation to really spark extra growth in that category. We did see some really nice sales around the holidays on the just TV screen is the 98-inch and 100-inch TV screen. I think that created some new excitement, and visually was very compelling in the warehouses and our operators did a great job in merchandising those, and we saw some nice lift at that time of the year. But overall, relatively flat as a category, especially compared to many of the other non-food where we see double-digit growth currently. On the international products, I think was the second comment you made. Yeah. We're really excited about that the about monthly budget meetings when we have all of our operators come in. They're sharing examples of products that are resonating in each of the markets that we operate. And very quickly because of the ability to share those ideas across the teams, we're finding ways to bring those and bring our global buying to bear and finding even better ways to bring them to our markets, but also a better value for our members. And seen some great growth in those opportunities, and we think that'll be an important part of our continued growth in the future as well.
Oliver Chen: Ron, anything you want to add there as well? |
1,652 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Oliver Chen: Ron, anything you want to add there as well?
Ron Vachris: No. And I think Gary is a hundred percent right. And then on the multi-vendor mail and the promotions, you know, that it really is excitement in that product mix. And it's a good balance of everyday low prices that our buyers work towards, on ensuring that key commodities are at an everyday price that our members can count on. But also bringing in some newness and excitement and partnering with our suppliers they want to drive some sales, and we can deliver that through the multi-vendor mailer. So I think the key to the success there, it is driving traffic. It can. And I think the newness and keeping it fresh has been the key to that success.
Oliver Chen: Thank you. Best regards.
Ron Vachris: Thank you. Thanks.
Operator: And your next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open.
John Heinbockel: Hey, Ron. I had a couple of holistic questions with regard to KS. When you think about new item introductions, KS versus national brands. How does that kind of compare in most years? You know, when you think about categories where KS is a lower penetration, right, which is a lot of non-foods. Where can you kind of make breakthroughs there right, and introduce KS items that don't currently exist? And then what would you think a very high percentage of the KS introductions, you know, end up in permanent fixtures in the assortment? |
1,653 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Okay. Yep. You know, the greatest opportunity we have would be in non-foods, and it was something there's a category that we always felt brand loyalty was extremely strong, which it is. But, you know, the motor oil was a great example of it is now our top-selling motor oil in all of our warehouses across here as Kirkland Signature where that was a very brand-related item before. Golf balls was another example of when we entered into an extremely brand-loyal category that we were able to break through. So we see great success there. You know, our buyers continue to look at where are those opportunities that we can improve quality, from the brand, or meet the quality of the brand and bring a substantial value to it. So we're not in a race to develop hundreds of Kirkland items. We look at it more of a strategic item-by-item basis that when there's an item with opportunity, that's when they will go after that. The recent sandwich bags and storage bags that we did in our sundries department are a tremendous value, supreme quality, and really doing very, very well. And, yes, you're right. We do have a very high success rate of Kirkland items. I mean, but there are failures out there. There are things that we always say, Claudine and myself, our head merchant, we can't fall in love with our own stuff. And so we hold Kirkland Signature to the same standards we would at any branded item. If the sales are not performing, our members are not resonating with that item, it is as quick to go out as any branded item would be as well. So there's no annuities to a Kirkland item. It has to meet the same standards, but I'm very proud of the buyers that they do have a high success rate. They do their due diligence on those items, and they really deliver great value to the member when we launch a Kirkland item.
John Heinbockel: Thank you.
Ron Vachris: You're welcome.
Operator: And your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open. |
1,654 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.
Rupesh Parikh: Good afternoon. Thanks for taking my question. So I guess, Gary, just going back to a 13 basis point headwind on the wage front, I think starting in March, is that headwind larger given it's the first year of the agreement, given some of the other changes? And then just related to that, given that it is a significant headwind, do you guys see any new productivity opportunities to help offset some of the increased wage pressures? Thank you. |
1,655 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Thanks, Rupesh. Just to clarify to answer your question, you may recall, we had a number of wage investments that we made back in March last year or a wage investment, I should say, we made in March last year. And then we had another wage investment in July where we introduced a dollar increase at the bottom of the scale and the top of the scale and a $0.50 increase in the intervening points between those two. And then we just announced the wage increases that we've implemented this month with our new employee agreement. So overall, what you're seeing is that the investment from this time last year will drop off. Well, we won't drop off, but we'll have cycled it. So we've made that investment now, and that's embedding the numbers that we're operating with. So the headwind that we'll see in the current quarter will be the investment from July and the investment that we've made in May. As you think about it quarter on quarter, it's about a mid-single-digit increase in the basis point of investment because we're essentially cycling last March's and replacing it with this new increase. So think of it as adding about your mid-single-digit basis point increase on our wage investment in the new quarter. And to answer oh, I should also say that there will probably be a sort of one-time catch-up in Q3 as well that'll be the accrual for vacation for the full year because we're implementing that now, but we have to go back to the start of the fiscal year with that change. So there'd be an adjustment in the quarter for that as well. Outside of that, to your point, you know, we were very successful in the current quarter. Our operators in Q2 did a great job of continuing to drive productivity and continuing to improve efficiency. So that we actually still were able to achieve SG&A leverage as you heard me talk about earlier, of nine basis points actually on the core. And so, you know, our goal will be exactly the same is to continue to find ways to be more efficient because we are committed to continue |
1,656 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | know, our goal will be exactly the same is to continue to find ways to be more efficient because we are committed to continue to invest in our employees as part of our code of ethics is to make sure that we're delivering industry-leading wage and benefits for our employees, so that'll be a continued part of the strategy. But that also includes being more highly productive and finding ways to fund those through labor productivity and continuous improvement. That's certainly the expectation we set for ourselves. |
1,657 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Rupesh Parikh: Great. Thank you. I'll pass it on.
Operator: And your next question comes from the line of Greg Melich with Evercore ISI. Your line is open.
Greg Melich: Hi. Thanks. I have one clarification than my question. Clarification was on inflation. I heard up low single digits. Is it fair to say that grocery was slightly above 1% and then maybe general merchandise was deflationary? Then if I wanted to ask about alternative media,
Gary Millerchip: Yeah. On the inflation side of things, so fresh was our highest at the three categories and particularly in meat was the highest there. Food and sundries would have been very low single-digit inflation, but still inflationary. And I would say important to know, I guess, that the trend was a little bit of an increase during the quarter because if you recall last quarter, we shared that inflation was flat. So we did see some increase in inflation as the quarter progressed, and I'd say meat was the largest of those. Food and sundries would have been next, and non-foods have been deflationary relative to recently. That's sort of evened itself out now as we cycle some of the deflation from the supply chain about a year ago.
Greg Melich: Got it. Thanks. And then on the alternative media, you talked about building that out. Could you help frame it a little bit, Gary, and the strategy behind it? I mean, some of your peers have shown 4-5% of digital revenues can be, you know, their advertising business. How do you guys think about that? |
1,658 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. You know, I think overall, I know I've mentioned this previously well in discussions, but we do have an alternative profit stream today where we generate significant value through our large co-branded credit card program, the travel business that we have, and we have an e-commerce ad revenue stream that comes from many of the suppliers that participate on our website today, and that's a few hundred million dollars. So there are a number of areas today where we generate value in that space. Having said all of that, we do believe that the new sort of retail media theme, which is really going after the marketing dollars that the CPGs are spending, is a significant growth opportunity for us. We are, though, in the very early stages of that. We need to continue to build out the infrastructure and the capabilities. And I would say not only building those out to deliver on a retail media platform that we want to create for CPG suppliers, but also to build out more of a sort of personalized capability for our own membership experience. So delivering more targeted and relevant messaging, and sort of think of it as the right offer, the right communication through the right channel to the right member at the right time. And this is really a capability that we're building for ourselves today, and it'll take some time to do that. So it's likely to be a multi-year roadmap as we build those capabilities, I would say. But we did, at the same time, launch this sort of offers media channel so that we can start to really test and learn and grow capability with our CPG suppliers. And there's been a lot of interest and appetite to really build that capability. And we, as we mentioned on the call, we now have ten campaigns live, and we see a lot more in the pipeline. From our perspective, though, we've also mentioned this in the past is that I wouldn't think of it as Costco really coming out and declaring a new revenue stream with a new margin profile. We'll think of it very much as being, how do we generate |
1,659 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | out and declaring a new revenue stream with a new margin profile. We'll think of it very much as being, how do we generate our share of that value so we can reinvest it in our members and continue to drive our overall loyalty, member engagement, and drive top-line sales. So a little bit of a different approach for us than you probably hear from some of our peers and others. |
1,660 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Greg Melich: One more reason for a bigger executive rebate.
Gary Millerchip: You got it. Exactly.
Greg Melich: Alright. Thanks, Gary. Good luck, guys.
Ron Vachris: Thank you.
Operator: And your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.
Edward Kelly: Yeah. Hi. Good afternoon, guys. I wanted to ask you about throughput in the stores. Maybe you can talk just a little bit about, you know, like, where you are from a standpoint of initiatives to drive better throughput. I know you're scanning now when people are coming in. I'm sure what you're doing with that data. But then when you think about, you know, checkout and exit, and obviously, it's a high-class problem, but it's very busy. And then, you know, you did mention extending hours on the gas station. Is that something that you maybe could take to the stores that would help with that problem? Thank you.
Ron Vachris: You know, that is a very good question. The speed of the checkout is one of our primary focuses right now, and what uses of technology we have. Scanning at the front door was very, very helpful for our operations. Really kept our people informed on what traffic looks like and they can adjust to opening up registers and closing registers and we've seen some great improvements in productivity from that as well. That was just the foray into the whole technology thing. So we see many things going with self-checkout, how we can improve that. And so that is indeed one of our biggest areas of focus for technology in our warehouses is how we can get members through quickly and turn parking spaces and do those types of things is a big push for us. Yep. Yeah. The scanner works. Very big one for us.
Edward Kelly: I'm sorry?
Ron Vachris: Yeah. I'm sorry. Would you consider extending store hours? Is that I know that's probably the, you know, a lot harder than it sounds. Just curious your thoughts there. |
1,661 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: That is something that is not off the table. We do look at that. I mean, we, you know, our gas expansions, we have 60 US gas stations going through different they're at a different phase and expansions now. We did see some demand from the commuters both at their early hours and the evening hours. So I think that that's going to be a real benefit to those folks as well. But we will continue to look at the warehouse hours. No plans in place at this time though.
Edward Kelly: Okay. Thank you.
Ron Vachris: You're welcome.
Operator: And your next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open.
Chuck Grom: Hey. Thanks very much. Wanted to just go back to the digital MVM and was curious how vast that effort has been at this point in time. I guess maybe how many members received the digital MVM, and are you replacing the paper MVM? And then I guess the ultimate question is, I guess, what have you learned so far in terms of elasticity or response rate? |
1,662 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: You know, it allows us to do different things that, you know, you can imagine the print process is quite extended. So our merchants are two months out they're putting together the mailed MVM which is still very effective. I mean, it's still very effective when these arrive in people's homes. The digital MVM gives us quite a bit of nimbleness that up till the day before we put that out there, we can, you know, if a vendor wants to jump in and wants to drive some sales, and it really gives us a lot of flexibility. So our buyers have taken some items out. They run the digital MVM for ten days compared to the 28 or so that we'd run the regular MVM. And you may be able to let other vendors now get into this type of a communication to people, and it really drives a lot of sales, but it has been incremental to the mailed MVM that we have out there. So we found it to be very effective. And it's, you know, we're talking, you know, 40 million people are getting this kind of an imprint in their email on what kind of activities. One of the biggest open rates we have in our email is what's going on in their warehouse nearby. And so when members get to see new items that are arriving and items that are on a special deal from the supplier, it's very effective for us in driving traffic. |
1,663 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: And, Chuck, maybe just to build on the part of your question that was tied to more of the targeted element of the communication. Yeah. Think of it as our first sort of alright. And do we be a little bit more targeted by using our membership data to make the message more specific to how you shop with Costco as a member. So how frequently you're visiting us, what are the type of products that you're buying, and then kind of reprioritizing the way in which the individual items are messaged on the communication to reflect more that's relevant for you and also the messaging that's really driving the communication to the member at the top of the email that's sending out the message as well. So it's really that first step for us into saying, rather than one size fits all, how can we start to adjust that without changing the way we go to market, but just making the communication part of that more relevant. And the early signs were encouraging around the level of engagement and the change in behavior that we saw as a result of that. So certainly more to come on that front.
Chuck Grom: Just a quick follow-up, Curtis. I guess, when did you guys start that effort?
Ron Vachris: That was this last month.
Gary Millerchip: The digital MVM using the terminal now has been for years, but the more personalized was this month.
Chuck Grom: Right. Right. Okay. Cool.
Operator: And your next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is open.
Kelly Bania: Hi. Thanks for taking our questions, Ron and Gary. Wanted to just ask about membership fees. Obviously, you've had the increase in the US and Canada that's flowing through, but any update on where you are at with other international countries and if it's the right time for any changes there and maybe just also an update on the other international countries' executive programs, if there's any plans for any additional rollouts there. |
1,664 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Thanks, Kelly. So on the membership fee, first of all, yes, we increased the membership fee in Australia in fiscal year 2023. Mexico actually increased last year as well. That was in September. And, actually, we just announced in Japan and Korea a membership fee increase as well. So we are we don't have them all on the same cadence. They tend to be tied to their own individual plans. And when the membership fee was introduced and when they've previously had changes. So it doesn't always follow the same cadence as the US, but we are changing membership fees in those countries or have already, and other countries will continue to look and review on their own sort of cadence. So continuation of previous strategy there is very much the plan. And then on executive membership, typically, we look at it from the basis of when we reach a scale in an individual market. We have executive membership in a number of the Asian markets. We have executive membership in Australia and the UK as well because, again, they've reached a level of maturity and size. But the exciting part there, I'd say, is that if you look at Canada and the US that have the highest level of executive membership penetration, you go down that maturity curve, Asia would be next, but would still have a meaningful opportunity to continue to grow. Executive membership more towards the US and Canada conversion rates and Australia and the UK would be further behind Asia as well. So they go through the maturity curve, it's one of those areas where we see opportunity to continue to increase executive membership penetration. And as we grow, some of our newer markets and smaller markets into larger numbers of warehouses, we'll continue to evaluate the opportunity to introduce executive membership there as well.
Operator: And your next question comes from the line of Robbie Ohmes with Bank of America. Your line is open. |
1,665 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Robbie Ohmes with Bank of America. Your line is open.
Robbie Ohmes: Oh, hey, Ron. Gary. Thanks for taking my question. I was wondering, excuse me, if you could talk a little bit about the average ticket trends in the USX gas and give a little more color on mix versus number of items versus inflation impact. And if anything is changing there in terms of how you're getting to average ticket X gas and maybe related to that, I was just kind of curious if sugar and butter and flour are deflationary, why is bakery inflating? |
1,666 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. Yeah. Yeah. Sure. I'll take the second one first. It's easy. It's really eggs that's causing that major pain there. It's kind of a lot it's offsetting, unfortunately, just the percentage growth that we've seen in eggs has far outweighed the deflationary situation on those other items. In terms of mix in the basket, you know, I'd say we've been really pleased over the last twelve months because if you looked at our results twelve months ago, we'd have seen consistency in the visit growth, which has continued to be the case, and that's been something that, you know, has been a trend that for the last two or three years that we've been extremely pleased with and seeing that continued frequency of increasing visits. But about a year ago, we would have been flat to negative on the overall sort of basket size. And as you look at the change that we've seen over that last twelve months, partly, I think, because of the improvements that we've seen in non-foods growth over that period of time. And as we've continued to deliver great assortments and great quality and great value for our members, we've really seen our merchants and operators do a really good job of turning the corner in that situation and growing the number of items in the basket and the overall basket size. Up until this quarter, as you know, inflation has been relatively flat for us. So any improvement that we were seeing at that point would have been largely driven by items in the basket versus the or upselling in terms of better or bigger products by the member. Versus inflation driving that growth. But, obviously, that could change this year depending on what we see with inflation and also with the potential introduction of some tariffs.
Robbie Ohmes: Got it. Thank you.
Operator: And your next question comes from the line of Joe Feldman with Telsey Advisory Group. Your line is open. |
1,667 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Joe Feldman with Telsey Advisory Group. Your line is open.
Joe Feldman: Yeah. Hi, guys. Thanks for taking the question. I had two kind of quick ones for you. First, on gas volumes, I think I heard you guys say that volumes have been down, and we heard that from another company you know pretty well, Gary. And I was just wondering what is driving that? It's a little surprising to me to hear that the volumes were down. The other question was about stores. If you could just remind us, you know, the kind of new versus existing market balance of stores and also US versus international. For the year. Thanks.
Gary Millerchip: Sure. Yeah. On the first part of the question, so the comment that we made about gallons being down was very specific to February. So if you look at our year-to-date results, we would be positive in gallons on gas. I would say that, you know, there isn't a huge amount of growth and I suspect the market generally may be flat to down, but we've been growing our market as we look at the year to date. It's a little bit difficult to talk about one particular month because, as Ron mentioned earlier, certainly weather can have an impact on those things. So we'd look at probably the trend over a slightly longer period of time and say, generally, gallons are up. But it's, you know, it's low single-digit growth in gallons versus, you know, compared to the growth that we see in other parts of the business today. On new stores,
Ron Vachris: I've got that one. This year, we'll open 15 locations in the US, three in Canada, and we'll have seven in the other international countries that will open up. And that's pretty typical for a normal 25 warehouse year for us.
Joe Feldman: Got it. Thanks, guys. Good luck with this quarter.
Gary Millerchip: Thank you. Thanks.
Operator: And your final question comes from the line of Mike Baker with DA Davidson. Your line is open. |
1,668 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your final question comes from the line of Mike Baker with DA Davidson. Your line is open.
Mike Baker: Okay. Thanks. First, as a lifelong resident of Sharon, Massachusetts, I'll just say that the entire town is really excited for your 900th store. The buzz is high. My question, also on gas, I'm just wondering if the extending the hours has led to incremental gallons? Are you seeing customers take advantage of that? And then a second question, just periodically, we ask about your price gaps versus others. How do you see those right now, particularly with some inflation creeping back in? Thanks.
Gary Millerchip: Thanks. Yes. On the first part of the question, yes, we've been pleased so far with the member reaction, and we are seeing an improvement in overall usage of the gas stations. So that's it's early days, of course, but so far, we've been pleased by the member response. And then sorry. What's the second part of the question? Type gaps versus compute. Yeah. So, you know, really, this is something that we tend to look at it. We really tend to view ourselves as our own biggest competitor. You know, we have a every peer we have our budget meetings, and we look at our prices. And our goal at every meeting is to find where can we find ways to lower cost and lower prices for our members. So I would say we feel really good about our price gaps. We generally the price changes that we're making are proactive versus reactive to others. But if we do find any area in those meetings where we believe we need to adjust, typically, the operators in those markets have adjusted those prices before we've even gotten to the meeting. So overall, we believe that the focus on delivering the best value and quality and pushing ourselves to always get better is what's important, and we think that certainly reflects in our overall value that we're offering today.
Ron Vachris: And we hope to see you next week in Sharon, Mike.
Mike Baker: I will be there.
Ron Vachris: Alright. I'll say hello. Alright. |
1,669 | COST | 2 | 2,025 | 2025-03-06 17:00:00 | Costco Wholesale Corporation | 92,817 | Mike Baker: I will be there.
Ron Vachris: Alright. I'll say hello. Alright.
Gary Millerchip: Thanks, Mike.
Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect. |
1,670 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: Good afternoon, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation first quarter fiscal 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Gary Millerchip, Chief Financial Officer. You may begin.
Gary Millerchip: Good afternoon, everyone, and thank you for joining Costco's first quarter 2025 earnings call. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into our financial results for the quarter, I'm delighted to say that Ron Vachris is joining us for today's call. I'll now hand over to Ron for some opening comments. |
1,671 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Thank you, Gary, and good afternoon, everyone. Thank you for joining us today. As we wrap up the first quarter of fiscal 2025, let me make a few brief comments on some of the highlights since we last spoke in September. In the first quarter of fiscal 2025, we opened seven new warehouses. This included one relocation and resulted in six net new buildings, of which four were outside of the US. Additionally, after the end of the quarter, on the day before Thanksgiving, we opened our 897th warehouse in Pleasanton, California. That opening had the highest ever opening day sales for a US warehouse at $2.9 million that day. We continue to project 29 openings during fiscal year 2025, of which three will be relocations, and so 26 net new buildings. Ten of those warehouses will be outside of the US. Gary will speak to a more detailed review of our results in a few moments, but I wanted to share some fun facts regarding our growth across the business. Our US bakery division has reached new records of 4.2 million pies being sold the three days prior to Thanksgiving. In our US food courts on Halloween Day, we set a new record of 274,000 whole pizzas being sold. That was an increase of 21%. Our US pharmacy business has prescription growth exceeding 19% for the first quarter, setting new volume records for that business. And lastly, we continue to gain market share with our e-commerce big and bulky fulfilled by Costco Logistics. Costco Logistics completed nearly one million deliveries in Q1, and over 196,000 deliveries last week alone. That was a new record as well. The majority of these deliveries were completed in four days from the members ordering their merchandise online. All of these milestones reflect the continued strength of our business across the membership offering. These great results are a reflection of the outstanding work done by our over 330,000 employees around the world. Their commitment to our company and the Costco experience for our members is truly inspiring. I'd like to thank all of our |
1,672 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Their commitment to our company and the Costco experience for our members is truly inspiring. I'd like to thank all of our people for their outstanding work this year and especially during the busiest time of the year. As we approach our annual shareholders meeting in January, I also wanted to mention that our annual update to the Costco sustainability commitments was just made available online today. This report provides a comprehensive review of the progress we're making towards our sustainability objectives, and I would encourage all of you to take a look. With that, I'll turn it back over to Gary to discuss the results of the quarter. And I'll jump back on during Q&A to field some questions. Thank you. |
1,673 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Thanks, Ron. In today's press release, reported operating results for the first quarter of fiscal 2025, the twelve weeks ended November 24. We have once again published a slide deck on our investors.micron.com. You might find it helpful to have this presentation in front of you as I walk through our results. Net income for the first quarter came in at $1.798 billion or $4.04 per diluted share, up from $1.589 billion or $3.58 per diluted share in the first quarter last year. This year's results included a tax benefit of $100 million or $0.22 per diluted share related to stock-based compensation. And last year's results included a tax benefit of $44 million or $0.10 per diluted share, also related to stock-based compensation. Excluding these discrete tax items, net income and earnings per diluted share grew 9.9% and 9.8%, respectively. Net sales for the first quarter were $60.99 billion, an increase of 7.5% from $56.72 billion in the first quarter last year. US comparable sales were up 5.2% or 7.2% excluding gas deflation. Canada comp sales were up 5.8% or 6.7% adjusted for gas deflation and FX. And other international comp sales were up 4.7% or 7.1% adjusted. This all led to total company comp sales of 5.2% or 7.1% adjusted for gas deflation and FX. Finally, e-commerce comp sales were up 13% or 13.2% adjusted for FX. In terms of Q1 comp sales metrics, foreign currencies relative to the US Dollar negatively impacted sales by approximately 0.3% while gas price deflation negatively impacted sales by approximately 1.6%. Traffic or shopping frequency increased 5.1% worldwide and 4.9% in the US. Our average transaction or ticket was up 0.1% worldwide and 0.3% in the US. This includes the headwinds from gas deflation and FX. Adjusted for those items, the ticket would have been up 2% worldwide and up 2.3% in the US. Moving down the income statement to membership fee income. We reported membership fee income of $1.166 billion, an increase of $84 million or 7.8% year over year. Membership fee income growth |
1,674 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | membership fee income of $1.166 billion, an increase of $84 million or 7.8% year over year. Membership fee income growth was also 7.8% excluding FX. Remember that the recent membership fee increase doesn't have much impact yet, due to the effects of deferred accounting and represented less than 1% of the fee growth in the quarter. In terms of renewal rates, at Q1 end, our US and Canada renewal rate was 92.8%, down one-tenth of a percent from Q4 end. The worldwide rate came in at 90.4% also down one-tenth of a percent primarily due to the US and Canada. As we mentioned on the last quarterly earnings call, our renewal rates are seeing some impact from higher growth in digital sign-ups, which renew at a slightly lower rate than our base as a whole. Underlying renewal rates and membership growth remain strong, but this mix shift is likely to have a continued effect on our published renewal rate for the remainder of 2025. |
1,675 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: We ended Q1 with 77.4 million paid household members, up 7.6% versus last year. And 138.8 million cardholders, up 7.2% year over year. At Q1 end, we had 36.4 million paid executive memberships, up 9.2% versus last year. And executive members now represent 46.8% of paid members and 73.1% of worldwide sales. Turning to gross margin. Our reported rate in the first quarter was higher year over year by 24 basis points, coming in at 11.28% compared to 11.04% last year. And up 7 basis points excluding gas deflation. Core margin was higher by 31 basis points and higher by 17 basis points without gas deflation. This was driven by mix and our credit card co-brand program. In terms of core margins on their own sales, our core on core margins were higher by 3 basis points. Ancillary and other businesses' gross margin was lower by 12 basis points and lower by 16 basis points ex gas deflation. This decrease year over year was largely due to gas partially offset by e-commerce. The 2% reward was lower or better by 5 basis points, 6 basis points without gas deflation. And LIFO was flat for the quarter. We had a $19 million LIFO credit in Q1 this year compared to a $15 million credit in Q1 last year. Moving on to SG&A, our reported SG&A rate in the first quarter was higher year over year by 14 basis points, coming in at 9.59% compared to last year's 9.45%. SG&A was flat adjusted for gas deflation. The operations component of SG&A was higher or worse by 15 basis points and higher 4 basis points excluding gas deflation. Higher employee wages that went into effect in July drove the headwind for the quarter, partially offset by sales leverage and productivity gains. As always, investing in our employees remains a key part of our strategy, and we will continue to focus on driving top-line sales, improving productivity to mitigate the incremental costs. Central was higher or worse by 5 basis points and 3 basis points without gas deflation. Stock compensation was lower or better by 2 basis points and 3 basis points |
1,676 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | points and 3 basis points without gas deflation. Stock compensation was lower or better by 2 basis points and 3 basis points without gas deflation, and preopening costs were lower or better by 4 basis points both with and without gas deflation. Below the operating income line, interest expense was $37 million versus $38 million last year. And interest income was $96 million compared to $154 million last year. As mentioned in our Q4 earnings, interest income faced headwinds in the quarter due to lower cash balances, subsequent to our special dividend in January 2024 and lower interest rates. This will continue to negatively impact year-over-year comparisons in Q2. FX and other was a $51 million gain in Q1 this year versus a $6 million gain last year. This gain offset much of the headwind we saw in interest income in the quarter and was primarily due to FX. In terms of income taxes, our tax rate in Q1 was 22% compared to 24.5% in Q1 last year. As mentioned earlier, this year's rate benefited from a $100 million discrete item related to our annual RSU vesting. Adjusted for this benefit, the tax rate for the quarter would have been 26.5%. Turning now to some key items of note for the quarter. Ron talked earlier about our continued momentum with new warehouse openings. And capital expenditure in Q1 was approximately $1.26 billion. We estimate CapEx for the full year will be approximately $5 billion. Taking a deeper look into core merchandising sales, Fresh led the way in Q1 with comparable sales of high single digits. Meat was up double digits and demonstrated strength across the department, with members continuing to purchase high-ticket premium cut selections and others gravitating more towards lower cost per pound options. As always, our focus remains on delivering exceptional quality and value across every item we sell in fresh. Our non-foods category was also up high single digits, despite some impact from the calendar shift. As our buyers continue to bring in new and exciting items at great values, gold and |
1,677 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | some impact from the calendar shift. As our buyers continue to bring in new and exciting items at great values, gold and jewelry, gift cards, home furnishings, sporting goods, health and beauty aids, luggage, kiosk, and hardware were all up double digits. This quarter, we were able to add several new high-quality brands across a broad range of categories, including Peloton, Wrangler, Springfree trampolines, and Ruggable. Food and sundries had mid-single-digit comps with our cooler and frozen food departments leading the way. We continue to see strong momentum with new and exciting international food items, such as Saneer Pork Soup Dumplings, Sona Missouri rice, and hot pot beef sliced chip rolls. Kirkland Signature continues to grow at a faster pace than our business as a whole. Our goal is always to be the first to lower prices, where we see the opportunities to do so. And just a few examples this quarter include Kirkland Signature organic peanut butter reduced from $11.49 to $9.99, Kirkland Signature chicken stock from $9.99 to $8.99, and Kirkland Signature Sauvignon Blanc from $7.49 to $6.99. Our merchants are also driving innovation with Kirkland Signature, most notably this quarter, we introduced new Kirkland Signature oxy powder, and Kirkland Signature food storage bags, both offering significant value to the national brand alternatives. Within ancillary businesses, pharmacy had the strongest sales growth. Our focus continues to be on keeping prescription and OTC prices low, while also leveraging technology to make it easier for our members to use our pharmacy. Recent examples include the introduction of new prescription inventory management software to better stay in stock, enabling delivery of prescriptions via Instacart. Our food court and optical departments also performed well in the quarter. Gas sales were negative low double digits due to the average price per gallon being down low double digits. Costco travel is another way we deliver unique membership value and these services continue to resonate |
1,678 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | down low double digits. Costco travel is another way we deliver unique membership value and these services continue to resonate well with our members. We offer a wide range of vacation packages, car rentals, cruises, hotels, flights, and other travel-related services. And in addition to highly attractive rates, many of our offerings include a Costco shop card as extra value for booking with Costco. A couple of fun facts about our travel business. Last year, we sold enough rental cars to fill every US Costco parking spot 8.5 times. We also offer great value to members on cruises. And our largest cruise booking last year was a 150-day around-the-world cruise, starting from Fort Lauderdale and making stops in places like the Galapagos and Easter Islands. The total price was $293,000 for two, in the owner's suite cabin, and added value on the booking included a shipboard credit of $13,000 and the Costco shop card worth $25,000. Members who use Costco travel spend approximately twice as much as members that do not use these services. Inflation was once again essentially flat in the quarter across all core merchandise. Food and sundries and fresh foods were slightly inflationary and this was offset by deflation in nonfoods. In the supply chain, while egg suppliers have been negatively impacted by avian influenza and the recent East Coast port strikes led to a spike in paper and water product demand, overall product supply is generally being good. The predictability of on-time shipping delivery remains below pre-COVID levels, and items are generally spending more time on the water. Our merchants have adapted well to this change, and we are in a great position with inventory for the holidays. As we head into Q2, we continue to monitor potential port strikes in India, the East Coast, and Canada. And our merchants are adapting plans as necessary to ensure we remain in stock for our members. Turning to digital and e-commerce. We continue to make progress with our technology roadmap and enhancements made to the member |
1,679 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Turning to digital and e-commerce. We continue to make progress with our technology roadmap and enhancements made to the member experience like the ability to check warehouse inventory via the Costco app, are resonating well. Our US app was downloaded 2.9 million times in the quarter, bringing total downloads to approximately 42 million. E-commerce traffic, conversion rate, and average order value were all up year over year, helping to drive another strong quarter of comparable sales growth. While strength in volume was a meaningful tailwind to e-commerce sales, hardware, sporting goods, gift cards, and home furnishings all grew double digits year over year. As Ron mentioned earlier, Costco Logistics also had another great quarter driving growth in big and bulky items. And Costco Next accurate marketplace achieved record sales over the Thanksgiving Black Friday, and Cyber Monday sales period. In closing, let me provide a brief update on retail media. To use a baseball analogy, we are very much in the early innings with retail media. But we continue to believe this represents a significant growth opportunity in the future. This quarter, we completed our first targeted media campaign through third-party media channels with one of our largest CPG partners. The campaign achieved two to three times the return on ad spend typically expected, highlighting the value we can create for our members and suppliers. Our retail media team is now working with over 25 suppliers who are eager to participate in our next wave of off-site campaigns. And finally, in terms of upcoming releases, we will announce our December sales results for the five weeks ending Sunday, January the fifth, on Wednesday, January the eighth after market close. That concludes our prepared remarks, and we'll now open the line up for questions. |
1,680 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many of your questions as possible, we ask that you please limit yourself to one question. Again, it is star one if you would like to join the queue. Simeon Gutman with Morgan Stanley. Your line is open.
Simeon Gutman: Hi, everyone. I hope you can hear me. My one question with a couple parts. Actually, diagnosing the health of the consumer. Can you give us some sense of how you're clearing some of the seasonal inventory, maybe apparel, bigger ticket? And then once in a while, we talk about market share in some discretionary categories. Can you share your perspective on that? Thank you. |
1,681 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. Thanks, Simeon. And, yeah, we can hear you well, and thanks for the question. So maybe taking that question in a few parts. As we look at the consumer, I think we're seeing a lot of similar trends that we've talked about in the last few quarters. What we're seeing with our members is that now, probably more than any time in recent history, that combination of newness of items, quality, and value are really important to the member. And we're seeing the member being very choiceful about how they're spending the dollars. All that being said, I think we're finding that as our merchants are doing a great job of finding that newness and quality at great value, we've seen some great strength in our nonfood categories and certainly, as you heard me say in the prepared comments, we're seeing really strong performance across many of the categories around things like gold and jewelry, gift cards, home furnishings, sporting goods, health and beauty, hardware, all up double digits during the quarter. So we're pleased with the momentum that we're seeing there, and I think it reflects the fact that our members are willing to spend as inflation comes down as long as those sort of three key ingredients that I mentioned are there for the member as well. I think in terms of overall what we're seeing with the member on food and grocery, I would say that we are seeing what we think is a little bit of a shift from food away from home to food at home, and that's certainly reflected in strong meat and produce sales that we've seen in our own business. We are seeing, I think, a little bit even more of a trend that we've talked about in prior quarters of bifurcation with the member where we have high-quality premium cuts. They're selling well. But we're also seeing a gravitation towards those lower price per pound items across categories like poultry, cup cuts of beef, and pork as well. Ron, would you like to add? |
1,682 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Yeah. I guess, Simeon, another part of your question seasonal sell-through appears to be very strong. It's a unique retail calendar with the shorter period of time after Thanksgiving, but our buyers have been through this before and they've responded properly with that as well. So that feels good. Seems to be a very foundational Christmas, though. As you see, furniture driving a lot of our e-commerce sales, appliances, sporting goods, hardware, and so just people are very, very basic buying this year, but good trends.
Gary Millerchip: And I think, Simeon, I guess I didn't mention specifically, we tend to focus on our member and how can we deliver that great value. The data that we do see would tend to suggest that we're growing our share across most of the categories that I mentioned.
Operator: And your next question comes from the line of Oliver Chen with T. B. Cowen. Your line is open.
Oliver Chen: Hi, Ron and Gary. Happy holidays. Their traffic continues to impress a lot. As we look forward, what are your thoughts and key drivers and mix opportunities as you think about ticket and UPT? Also, you highlighted retail media, which is a huge great opportunity. How does that intersect with your important multi-vendor mailer and also as you think about the incrementality of that opportunity, that would be great to hear. Thanks. Thank you very much. |
1,683 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Thanks, Oliver. I think the first part of your question, you've probably heard in some of the comments that we made that we have been pleased with the traffic that we've seen and the continued frequency of shop from our members. What was nice to see at the end of last quarter, we did see when you adjust for foreign exchange and gasoline that we started to turn positive on the items per basket. And then this quarter, when you adjust for those items, we're up about 2% on the US and 2% worldwide. So we have seen some improved momentum on the items per basket, and I think that's a lot of great work being done by, again, our merchants making sure that we've got great product offerings in the warehouse and then our operators really executing those campaigns exceptionally well when the members are in the warehouse as well. From a media perspective, I think we look at it very much as an incremental opportunity. Our goal is to continue to maximize the value we can put into everyday product quality and pricing. And where we're seeing a lot of the interest in retail media is really coming from the marketing agencies, which gives us a lot of confidence that this is an opportunity for us to tap into new. A lot of our national brand suppliers are going to those media agencies to invest those marketing dollars to really make sure they're getting a good return on that ad spend. And so where we're seeing a lot of the traction and again, I would emphasize it's very early days with retail media for us. It's something that we're just really embarking on that off-site journey. But really where most of the interest is coming from is from retail media agencies, which we believe is the way for us to make sure that we're driving incrementality and growth in the model.
Oliver Chen: Thank you very much. Very helpful.
Operator: And your next question comes from the line of Christopher Horvers with JPMorgan. Your line is open. |
1,684 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Christopher Horvers with JPMorgan. Your line is open.
Christopher Horvers: Thanks. Good evening, guys. So can you talk about what drove the core on core margin performance this quarter? You have the MFI now rolling through. How do you think about, you know, reinvestment of price either, you know, in terms of price reductions that you see coming down the supply chain or maybe even going above and beyond that? And just as a side question, can you define what's in the hardware category? Is that consumer electronics? Thank you.
Gary Millerchip: Sure. Thank you for the question. Yeah. In terms of the core on core margin first of all, which I think was the first part of your question, if you break it down between the sort of three main categories that we see within the business, that's Foods, Fresh, and Nonfoods. Foods would have been essentially flat. Nonfoods would have been down slightly, and Fresh would have been up slightly. So those three kind of, you know, obviously, overall, we were just up three basis points. So there really wasn't a tremendous amount of change overall, but they would have been the sort of key puts and takes in the overall number.
Ron Vachris: And then the description of the hardware category really is just that. It's storage, plumbing, lighting, power tools, batteries, those types of household goods that you would find at a typical hardware store.
Christopher Horvers: And then on the price investment side, your thought process there? |
1,685 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Christopher Horvers: And then on the price investment side, your thought process there?
Ron Vachris: That's something that we've done for the history of the company. We're going to continue to invest in price and some of it may come in holding certain prices as some commodities are starting to increase. But if investing in items like Gary described, I'm leading with Kirkland Signature. I mean, we feel that we're gonna be asking our members and our vendors to contribute with lower prices. We've got to set that example and start with Kirkland. So we're gonna continue to look at those opportunities and invest where we can and keep driving sales.
Christopher Horvers: Thank you. Have a great holiday season.
Ron Vachris: Thank you. You as well.
Operator: And your next question comes from the line of Jiang Ma with Bernstein. Your line is open.
Jiang Ma: Thank you for taking my question. I have a two-part question. One, I think Gary you mentioned the difference in renewal rates from online sign-ups and then offline sign-ups. Can you help us break it out and understand the difference in online behaviors? And the second part on the retail media side, how do you expect Costco Connect to the third-party marketplace to contribute to the growth of retail media going forward? And will that impact the membership loyalty in any way or regard? Thank you. |
1,686 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Sure. Thanks for the question. So first of all, on the membership rate, you know, I'd maybe take a step back and just say overall, we're feeling very good about the underlying membership metrics that we're seeing. So renewal rates in general, sign-up activity, and then the membership growth remains very strong. As I mentioned in the prepared remarks, really what we're seeing is that over the last few years, we've seen some shift in more of the members that we're acquiring coming through digital channels. And that's helping with the comment that we made last quarter where we're also seeing slightly a reduction in the average age of members because of that change in shift as well. What it does mean is that often when we have new members being recruited through that digital channel, they're renewing at a slightly lower rate than the historical base that we have. And you may recall that when we talk about membership renewal rates, it's effectively an eighteen-month lag that we see that we report out on that renewal rate. And so as we look forward and see that trend continuing as we build more of that new digital member into the base and it slightly affects the mix, we expect it will have a slight impact on that overall membership renewal rate that we report. So we wanted to make sure we gave you visibility into that. When we look at individual cohorts of members, we feel good about the ability for us to be able to continue to drive improvement in renewal rate, but we are gonna see that impact through as it becomes a flow through from the continued growth in digital members.
Ron Vachris: And then this is Ron. The question on Costco Next, Costco Next is our exclusive Costco member-only marketplace. It's fully curated by our buyers. So everything that's on that site has been reviewed by our buyers but is exclusive to Costco members. So we think it's just gonna enhance the relationship we have with our members and give more options for their shopping needs. |
1,687 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Jiang Ma: Got it. Just to clarify, I was wondering if you were gonna have more 3P marketplace vendors using the retail media service and whether there's any implications on the member's side.
Ron Vachris: That and that again is, as Gary mentioned earlier, we're in the early stages and we're gonna look at where we feel the benefits will be to our members. So that is to be determined yet.
Jiang Ma: Thank you.
Operator: And your next question comes from the line of Karen Short with Melius Research. Your line is open.
Karen Short: Hey. Thanks very much. I know this is maybe a little out of left field, but just curious. There's kind of been a trend in retail for some for stock splits generally. And I'm wondering what your philosophy is on that because I know you want your employees to have an opportunity to buy stock, you know, below the store manager level. And the second question that's kind of unrelated is just tariffs. Any thoughts on that? And thoughts on what that could do to inflation?
Gary Millerchip: Thanks, Karen. Yeah. On the stock split, you're probably aware that Costco has done stock splits in the past. It's something that we'll continue to evaluate and discuss with our board, but there isn't a plan at this time for a stock split. I think for us, the way we think about it is the economic arguments were showing the rep past are a little bit less clear because retail investors and employees both have the ability now to buy fractional shares, but we do also recognize that there's a benefit of the stock feeling more affordable for our retail investment employees. Were very important constituents for us. So we'll continue to evaluate over time. |
1,688 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: And then I think the second part of the question was on tariffs. I think from a tariff point of view, what I would say is that, first of all, there's a lot of uncertain timing and scope of changes. So it makes it difficult for anyone to predict what the impact will be with confidence. And in general, of course, tariffs raise costs. That's not something that we see as a positive in general. With that being said, I'll quote my predecessor, Richard. He'd say, when it rains, it rains on everybody. And I think for us, we face tariffs in the past, and we believe that our merchants and buyers are equipped as anybody is to sort of work through and navigate and manage that situation. We have a plan over time where we have done that in the past, and typically, we'll look where we can to pull forward inventory buying. Actually, we've done already because of some of the less predictability around shipping and how much time product spends on the water and also because of the risk of strikes that we've seen in the past as well. Of course, try and work with our vendors to make sure we're looking for ways where we can to mitigate the cost. And we also consider alternative sourcing locations where that's practical as well. I guess the final sort of string in our bow would be is if we didn't see the value in an individual SKU, then we could always pivot to a different SKU item for the member. If we felt the value just wasn't there and it was more effective for us to move to a different item in the warehouse. I guess in context for us that the amount of business that's affected. We're about a quarter of our business is nonfoods, and then a subset of that is imported. So remember, it's a minority of our overall business, and then it's a smaller part of that as well we actually import the context.
Karen Short: Great. Thank you very much. Have a great holiday.
Gary Millerchip: You too. Thanks.
Operator: And your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open. |
1,689 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of Edward Kelly with Wells Fargo. Your line is open.
Edward Kelly: Yeah. Hi. Good morning, everyone. I wanted to ask you about CapEx. You know, CapEx has kind of been inching up over the last couple of years. But taking a step back and thinking about the evolution of your business, your goals, growing them out. How are you thinking about, you know, the outlook for CapEx? Any meaningful changes ahead? And as part of this, you know, anything different sort of in the pipeline from a project or priority standpoint?
Gary Millerchip: Yeah. Thanks, Ed. I wouldn't say there's really any major change. As you mentioned, we have been gradually increasing capital expenditure, more reflection of the continued growth of the business as we've opened new warehouses seen some inflation in those costs over the last few years. And we have, of course, been investing a little bit more in technology as well as we sort of modernize the platforms there and look to build the right capabilities to support growth in the future. But I think philosophically, to focus on the warehouses and invest in continuing to maintain the quality of athletes and invest in new growth warehouses in that twenty-five to thirty range, updating our supply chain and depots to support the capabilities there and both digitally. And then also, as I mentioned, sort of technology investments. But I wouldn't indicate at this point that there's any major change in trajectory. It's more just continuation of the growth strategy that we've had and executing on that strategy.
Edward Kelly: Okay. Thank you.
Operator: And your next question comes from the line of John Heinbockel with Guggenheim. Your line is open. |
1,690 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Operator: And your next question comes from the line of John Heinbockel with Guggenheim. Your line is open.
John Heinbockel: Hey. Hey, guys. Two quick things. Philosophically, you know, price investments get a lot of publicity. But when you think about reinvesting the MFI increase, price, product quality, right, IT, labor. There are a lot of things to invest in. You know, where do those other things rank relative to price? And then what does the international Club pipeline look like? I'm thinking in particular, where you control sites you know, even though they may be years away, is that you know, I don't think it's over a hundred, but how big is that pipeline today?
Gary Millerchip: Yeah. Thanks, John. I'll in the first and Ron may add some color as well. I think overall, we look at the reinvestment of the membership fee holistically. So it's partly where is it that we can lower prices, of course. Part of it's where can we mitigate the impact of inflation to maintain the value for the member even if costs are increasing. It's how can we improve the membership experience including investing in our employees' wages as we've done recently as well. And, of course, innovation with new products through Kirkland Signature. So I think we tend to look at it holistically and say, how do we make sure that when we think about what our members are paying for the membership fee each year that we're delivering more value and showing them that they're getting greater value than they're paying by a meaningful margin for the value of being a member. Ron, anything you want to add on that? |
1,691 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: No. I think that that's accurate. And then expansion around the world, I think you'll continue to see an equal amount of thirty warehouses opening up over the next few years for sure. A good portion of those being out of the US, we see some great opportunities in Canada and Mexico have been strong countries for us. We continue to see growth opportunities both in Europe and Asia as well. So some of these projects take a lot longer than other ones will, so they'll come on at different times. But I think the outline of thirty a year seems very realistic. And a good portion of those not quite half to be outside of the US. Thank you.
John Heinbockel: You're welcome. Thanks, John.
Operator: And your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.
Rupesh Parikh: Good afternoon, and thanks for taking my question. So I just wanted it to Gary, to go back to your comment to core margins ex gas were up seventeen basis points, and you called out mixed in credit card co-brand program. There any more color you can provide in terms of what's driving that? |
1,692 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Sure. Yeah. Thanks, Rupesh. Overall, as you mentioned it, you know, we were pleased with where reported gross margin rate came in. We tend to look at it ex gas deflation, as you know, and that was up seven basis points. And then core on core was up three. So I think the overall message is that things were stable. When we look at the gross margin rate. There are a number of puts and takes in that that largely offset each other within the overall results. The main headwind as we signaled potentially could be the case, was around gas, which was impacted by the fact that we had a major event, obviously, twelve months ago or so in the Middle East that created volatility, and often that can create some strange margin performance, and we were cycling that. So that was the large headwind. I wouldn't say overall that we've seen in the long term gas margins be unpredictable. It just tends to be more unpredictable on individual quarters when you have that volatility. So that was the sort of biggest headwind. And then offsetting that in the quarter, we had some benefit again this quarter from e-commerce as margins improved there and the rate of improvement in e-commerce would have been largely similar to what we saw last quarter. So we were pleased with the progress we continue to see there. And then as you mentioned in the call, had a couple of offsets that we saw in some benefit from mix. As we look at the business. And then secondly, we saw benefit from the co-brand credit card program, as you mentioned. But, essentially, the way the credit card co-brand works is that we fund a portion of the rewards that are paid to members, and then we receive various incentives and payments from our issuing bank and all that flows into gross margin. And, essentially, the net effect of that was favorable for the quarter, which offset along with mix and the e-commerce benefits, the gas headwind. So as I mentioned, overall, I think there were no major takeaways from the puts and takes, but we're pleased that gross margin |
1,693 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | So as I mentioned, overall, I think there were no major takeaways from the puts and takes, but we're pleased that gross margin was up slightly even though we continued to invest in lower prices and deliver more value for the member. |
1,694 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Rupesh Parikh: Great. Thank you for all the color. Happy holidays.
Gary Millerchip: You too.
Operator: And your next question comes from the line of Peter Benedict with Baird. Your line is open.
Peter Benedict: Hey, guys. Thanks for taking the question. I wanna maybe, Ron, for you on the runway for growth in the US. You said thirty new clubs per year next handful of years here. Most of those are gonna be in the US. You guys are just over six hundred right now. I think it did include the other two players, we're talking about fourteen hundred plus clubs in the US. They're growing as well. How do you think about maybe the capacity for the club industry in the US and maybe for Costco in particular? What are you seeing that gives you confidence in your ability to keep growing at this pace in the US?
Ron Vachris: I think the one thing I see is continued success of operations like I spoke of Pleasanton, California, that we opened the day before Thanksgiving. Right in between three high-volume Bay Area locations in the East Bay, and we opened this warehouse up not long ago and even finding incremental business significant incremental business from our members. As we relieve the pressure off of those high-volume warehouses, we see the existing member base coming more frequently and the build-back is quite nice for us. So we see incrementality of the new warehouse, and then we see very, very quick build-back on those as well. So not only do we still see some opportunities, you know, Scarborough, Maine, we building has had a tremendous first year in a smaller market like that that we see. So we see some runway for a few years ahead of us yet. We have a combination of new markets but we really are focusing on how do we continue to improve that member experience by relieving pressure off of some of these super high-volume warehouses and we're finding it to be incremental to the business.
Peter Benedict: Thank you very much. |
1,695 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Peter Benedict: Thank you very much.
Operator: And your next question comes from the line of Greg Melich with Evercore ISI. Your line is open.
Greg Melich: Thanks. I wanted to circle back on e-commerce, the growth there thirteen percent. Could you update us on what the penetration is now and also how if you add on Instacart and, I guess, the Uber Eats start, where we're getting up to on that.
Gary Millerchip: Yeah. Thanks, Greg, for the question. Yeah. We were pleased with the growth that we saw in digital. I think important to remember as well as we shared in the November sales release that there was some impact of timing of calendar as well. So the thirteen if you think about I think we shared the team shared that we're, like, a fifteen percent headwind in our November sales results. And so clearly, if you take about a third of that, you wouldn't be a million miles out with the impact that it but it would have had on our sales in the quarter as well. So we were pleased overall with the underlying trend and the metrics that we saw around downloads and traffic and average order were all up as well, which was encouraging. If you think about the mix of the business. Would be in the sort of from the numbers that we disclosed publicly as being part of our digital business in the sort of seven percent to eight percent range of our total sales. So as you know, it continues to outpace our overall growth, and we expect that trend to continue. You're exactly right that when you recognize how we define it compared to how others define it. We wouldn't include some of those third-party sites that are delivering, and there's a few other business parts of our business that we don't include in there as well that would fit in under other businesses. When we add those in there, and when you sort of strip out gas, which I think most companies do when they compare, we'd be north of ten percent in terms of total penetration of e-commerce sales. |
1,696 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Greg Melich: Got it. Thanks. And then maybe circling back on private label, could you just update us now on the penetration, especially given some of those great new items you've come out with that you highlighted earlier in the call. And what that could eventually be.
Ron Vachris: Yeah. I think it's up about thirty-three percent at this point in the US. Is where we've now hit. And that's primarily the food and sundry side of things where we see the majority of our private label. We're just bumping up against thirty-three percent and it's growing a little faster than the rest of the business.
Greg Melich: That's great, guys. Have a great holiday.
Ron Vachris: You as well. You too. Thank you.
Operator: And your next question comes from the line of Scott Mushkin with R5 Capital. Your line is open.
Scott Mushkin: Hey. Hey, guys. Thanks for taking my questions. I just wanted to maybe ask a higher-level question around your business, the traffic growth which is the lifeblood of a retailer, has been very strong given the size of the company. You talked about the Pleasanton opening. But I was wondering if you could kind of give us an idea of what you think is driving this. Is it the club format? Generally, resonating consumer life, okay. I should have been how do we think it's, like, two or three years? And the numbers just time.
Ron Vachris: You're right. We've lost you halfway through the questions. I'm sorry?
Scott Mushkin: I apologize, but I don't know why that's happening. You guys are clear as well. Actually, just to set this type of traffic growth is your initiatives, the industry, Kent said, and what your thoughts are about keeping this type of going three years. |
1,697 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Ron Vachris: Okay. And I think we got most of your question. That really regards around traffic growth and why we what we see that happening and if we feel that can continue on. And that's what I'll try to answer, and hopefully that was what you're talking about. I think from some of the comments you made, I think it's all of the above. You know, and some of the fun facts I gave out there was just really to point to the growth success we're seeing in several parts of our company. Be it the pharmacy, the food court, our fresh foods area, I've gotta contribute a big part of that to our buyers and operators and the work that they're doing in keeping relevance to the member needs and being reflective of what, you know, are we we're focusing on some of the lower-cost proteins for some of our members while we're focusing on the Wagyu for the members that would like those goods as well. So I think our people are doing a tremendous job knowing our customer, but it really is all parts of the business are contributing. Their tire business is very strong. Our nonfood business continues to strengthen. E-commerce is doing their part. But it just goes back to execution from the teams.
Operator: And your next question comes from the line of Robbie Ohmes with Bank of America. Your line is open.
Robbie Ohmes: Thank you. Thanks for taking my question. It's on the competitive impact, so it may end up sounding like more than one question. But are there any competitive impacts you guys are seeing, you know, worth calling out, you know, benefits or headwinds? So maybe remind us when, you know, a regional player you compete with raises their member, does that help you guys at all, retain or retention rates, things like that? And also, I know you've been asked this, but any pressures you're seeing on the fact that you guys don't do scan and go and Sam's seems to be doing really well with it and any other competitive impacts you can call out? Thanks. |
1,698 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Gary Millerchip: Yeah. Thanks for the question, Robbie. I think, you know, I think we're generally our own biggest competitor, honestly. That's generally how we approach the business. Maybe the couple of trends that add some color on that that I would call out would be we haven't talked for some time about cannibalizing our own business with opening new warehouses and as Ron mentioned, generally, we're seeing significant incrementality. But as we have opened more warehouses, we certainly create of that. We don't split it out in our numbers. We just flow it through our results, but it does impact the number because we are moving some traffic from existing warehouses when we open a new one. I think from a competitive point of view, I guess the biggest tailwind I would call out, and Ron mentioned it briefly in prepared comments, around our business is that, obviously, we're seeing quite a lot of disruption work our teams are doing to deliver great value for the member, and continuing to improve the experience and make it easier to engage with our pharmacists. As I mentioned in my prepared comments, we're seeing significant growth in that business today. I think that's partly the work that we're doing, and partly, I think there is some disruption in the industry currently as well.
Robbie Ohmes: And just any comments on Scan and Go or maybe remind us why that might not be on your agenda? |
1,699 | COST | 1 | 2,025 | 2024-12-12 17:00:00 | Costco Wholesale Corporation | 92,817 | Robbie Ohmes: And just any comments on Scan and Go or maybe remind us why that might not be on your agenda?
Ron Vachris: I mean, I think we've got you know, our job is, as Gary said, take care of the members and make sure they move through. Do we hear about Scan and Go? Yes. We do. Self-checkout has been a great option for our members, and we focus on that. Our job really is that we will continue to keep an eye on technology and how we can improve that front-end experience. That is the one pinch point. That was the focus of our door scanners as we took a lot of pressure off of the cashiers and moving lines through and saw some nice productivity enhancements when we did that. But at this point, it's not something we're hearing quite often. We do hear it randomly, but gonna keep an eye out there on technology and make sure that we're doing our part to keep the experience as strong as we can for our members.
Robbie Ohmes: Great. Thank you.
Ron Vachris: You're very welcome.
Operator: And your next question comes from the line of Michael Lasser with UBS. Your line is open.
Michael Lasser: Good evening. Thank you so much for taking my question. Given the recent sales contribution from categories like precious metals and gift cards. Have you, a, expanded the aperture of what Costco is now willing to sell or what the member is willing to buy from Costco? And b, have you changed your philosophy on the margin where you are expecting more profitability from traditional product vendors to offset the negative margin impact from selling these items that don't drive a lot of profit? Thank you very much. |
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