COST - Earnings call transcript Q4 2017 | Costco Wholesale Corporation

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Operator

Good afternoon. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 Earnings Call and September sales. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator turn over now Galanti. CFO, the will to call Richard I

may sir. You begin

Richard Galanti

outlined Christie to uncertainties statements Thank by good from statements risks not and/or Litigation and the differ you, afternoon reports XXXX. of cause these of Private These materially from will those actual today’s those and limited SEC. include, to such Reform meaning identified The with results indicated Act filed well performance statements. saying risks company’s as everyone. discussions include are may uncertainties the forward-looking and but to, within involve the risks Securities and as that in call, by that the public start other statements in I’ll events, time-to-time

the results release, only ended required and they fourth for reported company these speak for and week quarter XXXX the this to of and retail sales press X. month not as statements X past except the our statements today's September XX-week made results five we as ended fiscal September XX-week the does In are undertake October and Sunday, update year our law. end date operating by periods Forward-looking

quarter $X.XX fourth results, earnings quarter, fourth the year's For fiscal several XX-week up came a in items note. $X.XX quarter per operating reported comparing share year-over-year In our at earnings share, to fourth last over of $X.XX.

We was finished fourth weekend. of quarter operations. fiscal of weeks had quarter covered year’s comprised results which the the course just year’s this weeks. First, fourth Last XX year extra XX of

by of co-branded card by impacted year-over-year of in as card, the program again later to and fourth XX over aggregate More expenses credit the points Citi overall item. detail profitability, our margins $X.XX Visa co-branded earnings basis reported credit this. to on related by results points QX, X as improved gross basis first SG&A the benefiting basis quarters quarter. share three call the in ’XX, the and each in positively XX our Gas fiscal Second, bottom of XX-week follow year-over-year third line our or we points an a

from about from a benefit quarter fourth $XX of Hurricane Harvey. only about to point share. charge or gross net $XX about Our quarter. related related X to items, for million half were pretax about percentage Hurricane This margin, pretax share. and share modernization gross partially losses sales, to SG&A higher by benefits basis compared basis during represented SG&A benefit last Number attributable note, $X.XX non-recurring per to Fifth million higher were basis of million the of included pretax year's margin detriment earnings improvement this IT, in quarter a of negative a about offset and reserve the year-over-year. a legal hit Number Together, a percent point inventory the represented by as as a reported to by slightly year's our fourth XX $XX four, profits penny fourth a six, benefit a Harvey. point X half margin an margin, SG&A. gross or item which million or expenses to a This quarter gas included this quarter a penny $XX year's million

terms year-over-year foreign items a million pretax in this earnings, impact a compared in currencies to in swing Last million items. basis Next, about interest in than year a about million We $X.XX, negative $X and Number income On exposures $X.XX Also, gains quarter. quarters, to year both related gain minus discrete losses pretax. positive the favorable discrete year's tax last fourth last. earnings to fourth eight, share an year. in quarter share had last This EPS had $XX had reflecting fourth FX. FX This the income benefited year-over-year benefit tax in share. in credit year's quarter year's fourth to line, whereas FX or a of operating slight out. the QX, charge of we a share And our last items per accounting our we loss hit, versus in results $X the per was year a discrete taxes. a benefited had other QX, or and last had indices so year's year-over-year. There's recorded less In no point for and operate. we a very $X.XX two year, million, this these LIFO this million where countries earnings lastly, quarter $X.XX $X.XX zero to of LIFO items quarter, items this ago, over year, of the year. LIFO, our tax impact credit fourth by or in XX there a other swing In year year both LIFO by last a fourth fourth this benefit results $XX lesser in quarter was year's year deflation ago

to fourth year-over-year the which XX% extra a of number sales benefit sales, the up comparable in week like-for-like and quarter including Turning was compares the from weeks figure, up reported quarter, reported sales were X.X%.

inflation was the a by to a slightly a point sales the plus by detriment figure impact. tune percentage gasoline half FX X.X% the hurt and of about quarter, the price slight For helped comp from

countries opened US, each as new one six In two terms us in Iceland Canada in XX well. openings, in for new QX, and and France, two locations, last the Australia, we Japan, being the in of new countries

end, give September year Citi XX, ended fiscal you for relos. this Visa also and with opened of a Sunday. on two our five about This I'll afternoon, discuss expenses, I’ll recent new and We trends results our update rates as margins of you I'll review but year. week of XX renewal the them card. further of initiatives e-commerce co-branded we discuss buildings and including during period lastly, some couple our past a are initiatives, I’ll and the new results little bit worldwide, membership recap a and other locations operated well XXX sales As

the quarter, the sales to billion, XX.XX up after X.X% comp this for and year's X last So were on weeks XX and results. fluctuations on billion. prices over comp ended September basis, a On up basis, for FX. the Sales year's up QX XX% X.X% $XX.XX were reported for reported fourth a quarter accounting gas

transaction the comp increase within up it's X.X% up results that our quarter, shopping a of and for combination an worldwide increase the the X.X% of quarter, X.X% for average an For X.X%, frequency average sales company reported the US. X.X% for were

geography, the fourth within better regions Texas US countries the not the by Japan, the other comparisons Mexico in sales Midwest, Southeast currencies, performing US, quarter, regions were the behind. of local for terms and Internationally, UK. In with and were strongest, far

deli sundries In food strong spirits, terms of merchandise results for were up about mid-single toys categories lawn tires, frozen, itself consumer reporting and singles. X% department in categories include high up electronics and garden, and were up quarter, strongest digits. the comp, X%, hardlines, the within and that Overall, in

well and aided foods, various comps of in quarter bakery, strong as the Within strong departments price and the consistent meat, furnishings high digits, sale Softlines in gasoline and deli showing sales singles growth. this higher very had were fresh average by last the produce. across comp up year gallon ancillary, as in overall with relatively versus mid-single home were in best results housewares, the jewelry

In hearing optical were mid-teens, aids the addition, up court. by and followed in food

the I’ll million or XX.X% line year-over-year. of statement, fees. to $XXX membership items income fees Moving the Membership with start were up

Canada Of basis about down points, were As in X increases of from simply in September $XX $XXX to our from the half XXXX part the international operations due increases of year-over-year, recently. taken the as the fee sales we in fee sales, June increases million little membership a taken results. a they strong XX the percent took, and US increase expect in related fees over the to X million balance that we million last the and

for some In renewal the at fine. card executive our continue still rate from or are last that negative to to and a impact least we we terms year renewal see our credit of and penetration US of membership. conversion two continue slight increased expect quarter membership, There's rates

members end, of In XX.X was XX,XXX told, are the were at X.X Gold of end, paid the add-on, end at XXX,XXX million at about increase ago. All which end end XX.X is our quarter Star quarter million since Business year year period; XX.X of our terms in cardholders XX.X and quarter QX per started of primary we memberships of at QX fiscal sales. at end, and quarter, of year number business XX.X. XX.X increase with the of end, households, quarter. and XX.X. later at at was of weeks had a member member the end, base members each the total XX at Executive an about we million, year, X.X; At totaled two-thirds million. end week And about quarter executive XX% third year-end, fourth third

we renewal these and which to for US expect to as card our last we combined, of tick worldwide, of XX.X%, quarter. the with that, are or the and the total is a of members from two. Canada June the relates rates, US in and numbers members down little and the earlier, last terms two A to renewed a that rebuild credit US, continue -- XX.X%, XX% XX.X%, Gold and at end, Star downtrend at slight bit at or year XX%, In mentioned company auto quarter tenth believe next of program again, Canada in business the a lot I over conversion to new and

One, account the groceries are of is coming three, down spend member more concerns questions subject that little. literally of slowing. And impact many respond location minutes to with a membership and might a be the the delivered both I’d on everyone, that something concerns. average -- Costco seems couple day the number an I'm be by and to people ups Prime new to the people this Two, overlap get fact following that every to increasing Costco. relating and of While households to per of having membership, member the having beginning sign like we will the Amazon more the that of a

each As in to of timing we timing undertook, memberships virtually and we the all fiscal past initiatives slowing, to years. timing, membership one new the it's up related online two two of new openings believe the sign

For example, outsized of to in including locations, new both XXXX, three two last XX,XXX were we three about X almost with each XX XX opened locations done of these weeks, our sign Japan, XX,XXX new three sign a In members opened Those Korea the again Each January. warehouses, an XXXX, -- fourth opened added unit XXX,XXX in each Taiwan. in and our added the weeks, members fiscal in of Again, we these Asia, new new opened XX per and in we members these large in to locations, openings ups weeks of first XX fiscal ups, quarters in quarter new these average only building. Iceland XX for a of QX, to base, France. base. were total

result location, certainly new in those $XXX number expected at but average at market the we each or sales XX,XXX at of for to of new most of timing you'll members drive annual averages. nearby when existing $XX that the market, new a building million an of more. lower in members the by locations, Conversely, that numbers So openings will in that the that thousand million impact add look maybe cannibalize the terms few

second the event event in membership we've average two two XX a ’XX, issue, our The February a an The in members, in one of more. drives, and of online quarter timing little other XXXX occurred fiscal near fiscal around quarter. one the this The which new year. the XXX,XXX added fourth occurred little of each less in fiscal of August last end done years,

’XX with fiscal of by that. number of cases, take the point, So being locations these and X% these the One I the new I year-over-year. if locations openings many of Canada exclude issue data new fiscal average all at from locations again, remaining the that US the timing year-over-year were last played end in all all grew an and to members approximately of end by ’XX openings, cannibalized, and

that answers the So on our view many hopefully of is questions we've questions. fine that and these some got we're

five, sales by relates it of it delivery our everyone, impacting As question, comps increased options are some our on and few than and And that a stronger even both drive store. it in frequency up. getting up. and Internet as it's is have and believe using to of Four, mortar? started online to A Three, comments. and and our we're as and trended the brick us own the talk strong just the in other has new trended e-commerce is minute. we our businesses our of impacting course, Two, also value options well ever. we're proposition, I'll as shopping our One, to is to about delivery strong

continue discuss tuned to in quarter. that and we'll stay So each

statement Citi. began year XX, about Before Visa updated or last believe. in transferred to co-branded income continuing on Visa million the Citi about to in cards this the of accounts line conversion over couple I items, June, June million down Citi the Again, in When card XX.X June being offering. of X.X stats XX QX of a there were occurred

as with during we're new comparison anticipate million accounts portfolio Overall, the mentioned now past well organically including As partial still should though and it to X.X over total higher and the margin, positive both these the new as a comparisons from the of or to QX starting that year-over-year it Visa we’d year-over-year, the end, EPS conversion, as that XX course SG&A I million XXX,XXX we gross spend just in did we about moderate Citi have approved seeing first conversion moderate had I year accounts new Despite year-over-year member QX, last it earlier. midway actually X.X since new weeks. QX to the that accounts. about to was cards, through the quarter. note of year, was fact since a co-branded

of card, at the Anywhere terms point. a then remainder proposition, Overall, executive during using being Costco of of card. Citi a value not and Visa good member better of in couple the call. all Costco I'll being for then Lastly, only to examples share the a but that new member usage member, and enhance this conversion, of this even we at executive continue Costco sign-ups the

basis gross lower was year-over-year down margin by Going gross points. margin reported to our the XX line, quarter fourth the

As to I We’ll you a columns. down four ask few numbers. do jot always, I’ll do

the are The third for quarter. columns two first year-over-year changes point basis

First as QX reported reported then QX would gas without column gas inflation. be second would be without and inflation. column And and the

So be four the columns. those would

XX from inflation in In XX QX, basis in X% we X. minus and reported This plus First X core QX QX, QX minus plus LIFO, membership, and was year-over-year item would plus X. QX, minus and X minus be X the gas fourth plus columns minus X line reward in without X X the for minus merchandising. X and and X QX, X, year, and and XX. minus Ancillary improvement in executive in points, in X plus of minus inflation, plus minus plus and In minus and columns, reported in X zero. plus and Other, ex X third and X gas. minus QX two and QX. X

on And XX told, year-over-year, X in in inflation, all QX, without XX. basis, gas QX, down up XX and X. reported a gas we minus without reported points, a inflation, basis up So on were basis,

numbers, you, a and plus mentioned reported gas the I QX, was in inflation. basis XX Citi Visa impact, these on Now, earlier, as -- on mind in without

look way, you the minus that. that would minus would if be XX that XX minus the be So minus ex XX X and ex at

Visa Citi Now, out just year-over-year gas overall, were ex I reported and minus mentioned, taking basis and XX as benefit, the XX mentioned, X margins and XX. down as points I minus

merchandise component margin excluding gross but X Now, X within that, core the by gas. lower was reported,

basis hearing bit the to in warehouse, gas of aids, last e-commerce, as this, price margin contribution food own in offset up the hardlines, net through we higher during subcategories done as price. sundries travel margin, to versus I fact investing and foods, and gasoline, a lines were gross year-over-year, was year, sales, business margins As one, in of within And with two flat fresh point won’t food bit little our year-over-year we we year-over-year. contribution being up a pharmacy by to enhance again and a our I've business that they down softlines this the being and delta. lower quarter, percent initiatives and with Harvey, is of own softlines well, the investing a you, lower was down and little that function XX% so which centers year again and tune year-over-year shared investing hard in feel and was in year ex other sales I and our Ancillary X In and already had satisfaction. the have LIFO, a the down price LIFO core essentially that point, was go year-over-year margin inflation. notwithstanding the of basis their before, basis that member loyalty a it's that as overall, margin the within course sundries, almost but of gross shared the relative well million of last margins $XX drive year-over-year, credit and were a point so items, sales zero Hurricane fresh

Moving reported by year for X.XX% better was to gas QX to or at our XX.XX% SG&A, XX lower SG&A coming compared points last and inflation, basis year. XX the in in year-over-year reported without

those Visa reported Citi gas Again, SG&A four and to Visa X year-over-year points reported you or and then columns, gas. QX the was basis without QX I'll the QX lower. benefit, to benefit Citi benefit ask and QX and again jot Excluding without down

and without minus plus or XX QX, minus X X in plus X X. then and and minus and minus Other, adjusted lower of minus X good and then X. QX, QX, in for and Central, terms X minus and plus and In and zero. minus plus plus X and and points QX, in zero minus XX. plus reported X gas, and QX, gas basis Stock X XX core operations, X compensation, means in in plus and

we'll XX reported by at plus or lower plus at points or XX inflation. XX points, again, the basis each and lower And it -- gas. those reported, of QX from that XX the will see it basis but gas benefit, card. reported X XX to standpoint or of flat could year. to each been Citi without reduced that's still by quarters related some while you And expect year-over-year the full start numbers, was you to basis the And it could points be improvement the So first XX greatly look year-over-year a great ex and basis lower Visa we’ll from came margin, as to four plus that see last benefit after -- and XX, points improvement adjust

international, a more SG&A which reported past earnings the year-over-year XXX of this international. This again the X year, payroll year, expense international. only particularly really as to year's we was offering XX a of earlier year a year-over-year bank year-over-year year-over-year more, and improvement higher nice mentioned X income by result fees. the All up year in saw relos, offset opened that items, that and impacted without preopening. slightly I was coming income And have million, Interest opened was of X was is top XX% call, XXX the and were to one X we And actual X in while million told, was improvement reflection related of plus was million million of the operating next QX year. expense. line, higher basis Again, were did sales points this in international other minus X to quarter I of XX year. negatively higher million new however, XX in up year, XX% that by lastly, last was costs call. higher penetration from compared million. income in those million we expense performance the by X the came it this total, and better extra was by XX in in interest basis items This QX billion XX year, a interest QX, was quarter's that higher Within a income X new in preopening net tend to in XX payroll other in million points by higher benefits there's percentages, incremental higher conjunction debt XX our compared from worse income in in preopening XX year-over-year beginning Overall, Overall, May at units, XX X discussed component gas. in of Harvey. statement basis operating year, last Central we to expense again at coming frankly income Hurricane terms In pretax was year-over-year million we than XX $XX and had lower came XX is at with than at units, Last or QX, results. X.XXX primarily operations at by billion, very Last other point last than led at discussed offset week related special good. million. the Strong last QX, modernization. quite that line FX number, year. by million, benefit XX last Below this million for million $X.XXX on in it dividend, lower IT or

positive tax XX.X% items, benefited the I more In fourth during tax than compared quarter -- Again, in discrete last but income mentioned QX to both year. our XX as items rate year from in terms of came a last at of our few call, this in for XX.X we taxes, quarters, year. the but

in coming $XXX in entire fiscal QX. XXX ended we compared year for to last in income net this reported Our that, at just reported effective million in XX.XX%. year came higher by at that income rate With net was million the XX%, year

QX balance rundown topics. is press of today's sheet of totaled included sheet other The Now, A amortization in couple in items. and info $XXX for release. balance a quick million. Depreciation

the depreciation So entire $X.XXX. for of year,

that run converting an of we conversion invoices ITR so we any of year you fiscal to accounts make It out. for year. fiscal year, down an the snafus last came XX% if into our end XXX was reported that XXX%, ratio, taking XX, just was adjustment Payable adjusting day ended. as extra of at sure we accounts percent paid to a the this on but accounting last with payable were that, recall the wouldn’t X early inventories of system, week year, Our But

If a and construction year early. there of at merchandise not and year's payables that little normalized XX, merchandise, that at normalized of a payables year-end XX%, you year-ends take basis other out only down was last payables types number are last roughly XX% both in for on

the about In broken year, per We've per terms it this per out $XX.XX those things There time doing quarter XX.XX vertical the about fulfillment of last a bit inventory this activities integration of the as quite warehouse, some average expansion up inventories fourth level. as have elsewhere, location, at is that's with in well -- of location. year warehouse million, we're so end, our increase expanded in million locations was we businesses. inventory because of $XXX,XXX e-commerce and

and do, other some sum to everything that only businesses of as net things. terms it CapEx, fiscal spending we openings, increase to all We’d in we in not of about ’XX, In a ’XX. manufacturing fiscal the little put of relates at us only the $X.X for would expended which as some but which e-commerce same as also be to we’re -- million, expanding XXXX $XXX QX, as anticipate billion, not is higher well relates right

next and XXXX of to right in X e-commerce, additional in billion, sales Mexico, the course fiscal fiscal of up end the in ‘XX. a terms year expect half. the at Canada, at countries you in from should e-commerce Taiwan, year, Total our X.X billion over XX% Next, Korea at came open be of US, UK, and

were of sales up. QX, the sales For were -- course XX% profits in quarter. e-commerce up were Total

basis XX includes quarter. the weeks roughly a the trending sales on XX a four of an during positive and XX% up Of with -- extra that course, week, months comp versus

merchandising global process, year improved lastly much the the members' cases and of and brick our also offerings the we unique And to orders in it returns our the mortar top much few at you savings, Picks on of other partnerships Buyer’s quarters, well, to leveraging leveraging card offerings proposition a the and we're Costco Visa of and things unique late, KS GE over we're Buyer’s with we've partnership, and all other to offer. track cash Lube Citi buying improve search, by lowering online We where of ability few buys, online discussed past efforts the Visa, where buy adding providing with power We're started Picks improved prices offering done our and few past ExOfficio, also your and our focused the our Appliances over we We've what Electronics, through Spyder, called of Citi done and we’ve use tires automated names, some their with offerings. great with doing discounts. our checkout well-known there's efforts further. extra expand our and new from value anywhere Jiffy Marmot, a We're improving on XX% limited As -- site. streamlined process by and functionality a we've improved examples you Services. Samsung as expanded time high brand XX% it offer even it to end hot our

quarters signage, are resulted these to in and Lastly, discuss increased warehouse all which that of in have Costco ongoing XXXX. awareness build special targeted members some expect in-store past particular. traffic our couple with through and offers sales, We in on site us those and we both efforts, more online activities in feel of continue the to emails during

we’ll to businesses. forward, these our types to drive continue expand Looking activities of

in us we improvements, what improved of online more prices. services online the along activities great course hear fantastic from do. driving at sales and quarters site with You'll That's with coming marketing ongoing products and about

we terms In out three of rolled days new, two related delivery ago, offerings. new online what's

partnership first, nonperishable an expanded fresh of grocery through day second, delivery Costco includes offers label day delivery and The dry our white grocery, which consists with same both dry grocery. sundries and Instacart that This grocery on items. a food and two offering

clicking going Grocery can both the sites to then You by tab. costco.com and find on

page option. online You'll few be these offering about details a of to new then taken each delivery explaining options. both A and

fulfilled it UPS, United or XX grocery, two up As free we $XX, We’d better overtime. just many States, at with significantly these dry our fresh, pricing me, delivery of SKUs, Costco to orders even the less value to offerings relates very offer to throughout price again continental had expand excuse pounds through fact under these shipment the expect several boxes grocery items. centers. XXX business are are These than proposition, day over on delivery delivery and orders at of in competitive no costco.com

’XX both on the SKUs, through weekend stay the card calendar option. have purchases purchases. will as same again, The also well. white will partnership members the fresh receive reward I US before than It’s This that these starting members that Costco of There pricing earn fulfilled at to this the X% our utilizing I and number executive dry Instacart additional planned, day are locations and Visa and tuned. a just access Costco XXXX there competitive added in-store and end will our MVMs co-branded of locations second members Costco mentioned, approximately delivery with Instacart promotional live it's now be and X% on also same can now be between will very currently are and and label now that US offered a delivery, XXX better pricing to like our day mention value offered it expands. and is as label. proposition, option, similar of are Again, white

here, expansion. list discussion the on warehouse Next

For units, about X.X% net fiscal opened growth. footage XX square ’XX, we new

open we’d new in them third the a about six warehouses well years. last several two two the XX a located US ’XX, to internationally better to of relocate fiscal little and to each three compares about under expect For to plan and That thirds we in warehouses, facilities. as of to larger net relos

stood square As footage total of end, feet. XXX.X at QX warehouse square million

expended at first weeks, million in million that over price buy expended price million we of XXX.XX we average average stock of terms XXXX, about shares X.X at more In share. of a million a XX shares buybacks, these just of $XXX.XX, we QX, XX fiscal these XXX, weeks, little an expanded quarters In $XXX an X.X for the under $XXX three to than

So of an price for shares million the at on $XXX repurchases, stock repurchased average million $XXX.XX. year, X.XXX

stands dividends, amount. payout share That's the at per up from from of the $XXX represents quarterly million. XX% $X.XX current our quarter. total previous approximately of $X terms a per per dividend yearly annualized dividend In company share This

it turn I I’ll back before September sales discuss Q&A, Finally, results. for

XX.X% from comparable five were sales five the week last ended is for XX.XX fluctuation they billion, they which and for gas the were billion, yeah, month past basis, accounting were five September, comp XX.X%. reported prices up sorry, For of were after the up weeks X.X% this year period week sales in up X.X% XX.X FX. up, On a comp September Sunday, and

X.X% was X.X%, in price average September, that For and XXX Canada points. average includes the by X.X% Gas the was impacted both gas a the combination FX added again in FX benefits and of XXX XXX Cannibalization worldwide in inflation our month reported a within shopping Gasoline of basis in of possibly an favorable contributed X.X FX September points course at by while basis frequency increase X.X% X.X an basis comp month. transaction and of and the from points. the US.

we on year. this or X locations low-XXs a As base you opened know, I of X believe

and going XXX. by of there, lot while a out So, US by impacted the international negatively cannibalization other XX basis was on points

as cannibalization. XXX I So comp the basis sales if of up sure -- in XX%. not were in I And mentioned points total company month e-commerce, early, impact

terms region, double in in the X% low Mexico UK. better local range. currencies, were and both sales by being the Texas and were strongest Japan, the and southeast performing with In countries of Internationally, digits California regions Midwest, geographic

terms of Tobacco big of In some course, seeing in merchandise declines food of June tobacco, September, categories that candy strength within anniversaried sundries, for the back leaders. and and we've were since some point. we're the cooler and

and lawn tires, garden, which toys. and For consumer electronics results hard automotive, double up digits, low was were department lines, strongest

a results, main of Softlines, gallon month, by again very both comp which across strongest ancillary, were consistent in pretty most and and had showed which gallon the four -- comps mid-single digits, gasoline strong the strong the mid-single small gas driven fresh price Within as cost -- apparel the all both foods, inflation strong in high, growth. digits much housewares, results and as appliance, comp in sales categories. were up again domestics in of well

the optical were hearing and up aids behind. addition, teens in In was not far

before over to these with be turn X scheduled that, afternoon reported time. XXth, XX be Pacific will for XX I’ll after and quarter first December Thursday, November back to at that With I'll for it Lastly, the on call earnings I on release weeks earnings Q&A, it the turn market XX back our o'clock fiscal ending Christie. quarter first questions answer happy close date

Operator

line Morgan of [Operator question Stanley. from Instructions] from Simeon comes First Gutman the

Simeon Gutman

I membership gross another to wanted to ask on want I and margins. one ask on

there. So have And I what's some moderating if been composition as card regarding the behind I'm curious you And some talk think a or first it, membership then international? there in and to the was the just that, The membership. renewal growth, -- that's credit going little the still friction. on been and of case US on there’s can rates bit part explanation versus

Richard Galanti

a point. full it fiscal out a year that above peak. a all a ’XX, tenth -- quarters, now percentage I Yeah. Well, half, issue actually its its biggest up look percent is conversion down of Canada, looked again, rate, we from to about auto at two the way back renewal there, it back terms and was rate, which bill. we believe year the early where renewal When came earlier I the years if the a occurred in peak year prior a at six of think It's

X – -- not about but percent. when it's it's in of full and scenario X.X recognize was we’re I down -- a different down into bit So little and at US and percentage seven-tenths it, the look down it again, conversion, with now quarters point a a the it's

we them answers it marketing consistent is. the we several heard get and people we members We believe what of renew, we somebody of ask reasons when to when at -- talk the don't look -- what So years. for doesn't that's last about they've what we the are

we're assume this that and happens not it it the next of this So seeing, over quarters to concerned our we're – point. doesn't couple want that about view point And it sorry will I'm at what if not see change. we after But at is

Simeon Gutman

look line membership, how direction If what cannibalization, or can US? the the is been at the and try US you guess, just run I if unit to trying overall the same out rate I is, in trends, just membership has to trend dissect you take guess what the

Richard Galanti

we're question to Well, XX% in our -- plus off XX actually did and was it some it. to because didn't We We US that. do day. our look at is four. -- every the Canada, of company, again have company, I just which the can that was respond getting many the of of it questions. percent we're don't We we trying

think going high positive, same per up got city you a not It I particularly cannibalization. come impact, lot guess the to get over volume Taiwan, to When internationally, going Australia, where still with down. your which -- a a it’s since lot but of affected and is very which so UK but internationally, one, members newer openings, in got you've will well warehouse my and we it's XX,XXX particularly sense to thing. to units, in relative you've new older, is members a you've where here, be what a in by new open and in my still Asia see units where less of you're got, it that's greatly cause you'll new two see Mexico

anything, more I have cannibalization again, don't to beyond Canada has just US So pretty similar. that. with and it anything. timing than do than the are

Simeon Gutman

you don't because price up trend down I pretty outlook, a lot clear a you give you think follow-up and think a on particular, give on was said the ex then my investment until And answer, trying been don't in but I Okay. to I X right, to gross fuel. margin expect of think but this there's and favorable quarter

guess, do overall and perspective. the as tough price I have constant an gross of for how I you next a head So the margin year, compares investment? know, EBIT the both on but some growth you into business, it's think you'll

So out? how do think you quarters several as that of play next the

Richard Galanti

in of fine. mean, a we're I couple Well, words,

That I are the quarter it we and of of what our things lot of the to fee with that's get starting that's good will cures It $XXX months better having US item, over started. sales about growth fortune certainly continue from membership you is economics the Canada. in next increase we the because just terms the and we've think million, XX new months credit will, the this quarters, XX-ish fee a months there. expected after a -- benefit, we which start peaking line saw had in driving we value, XX-ish card the in deferred as XX takes -- -- and again accounting if fiscal increase than fee

that and quite can good. do and to view both plenty our we go there's we around feel is So,

Simeon Gutman

Richard. Thanks,

Richard Galanti

of chunk of margin plus much is points me It's of to The basis while total last it mention. that, lower comment profitability is gas. big great. was great percent a XXX XXX gas business, Let to sales I it's our add margin year-over-year, one Gas, margin. -- X less forgot on also of penetration at

price sales take increasing well. sales got I'll lower per XX% your and every on of and for aid percent growth XX So the business, percentage profits XX-ish huge as into that when you've plus that in of margin gallon day million quarter. it

Operator

from comes Lasser question Next Michael line from of the UBS.

Michael Lasser

we the with quarters provided line traffic the last of a your your in coincidence is is that as over growth X% club couple ex-cannibalization? traffic and where it metric has you trending in on just US kind that's of membership Canada, highly correlated about Richard, or about membership growth growth the think should cannibalization to been per ex that it

Richard Galanti

example. of a separate. lot they're times, simple mean, think I you I give a I'll

the region, from had of locations new we just is be at east think ups as which is opened where three we're add Seattle million across XX% in we to three basically, number close south which the I kind Redmond which to of mid-XXs Woodinville, is less course headquartered where year of XX of been in is the location and Puget lake, from on penetration I sales east to have adding side we of forever. but location, unit, the in to Last Issaquah, by headquartered where members we This used aligned than the Microsoft the Sound, first on low-XXs have Sound. per Here am; the opening, taken the street XXXX down which we’ll million sign the in and and household this Redmond, Puget extreme. all market. in the We’ve we've because is new Kirkland, average side is the a November, to north where we this XXX of

locations cannibalize per are got unit, XXX when you've doing So to plus them. XXX you've that got to

mean I example So, that's of an that.

So I correlated. two are don't think the

Michael Lasser

Okay.

comp your frequency frequency their thinking across frequency where to growing? frequency can, population of that's and about frequency entire building the population so would Are it seem that probably the growth most members? or longstanding the component your members your the you is newer seeing of it are across members bulk your in they are going of as the some as of is Just Costco comp, much about

Richard Galanti

entire I the over think it’s population.

little more Steaks over we a at members frequently on new keep we with year Copper Strip even things We for limited, going but York an to in-store. it years. just to the -- initiatives things, things to These or day We the example with doing be but well. done anecdotal over drive members I we've call I a more of every new all, little frequent period. of holidays several think that every $X.XX. New are salmon presumably some very that believe think did e-mail member give that them drive the several here it as things did to First I doing, so is River we're didn't ten

our than numbers than more are that them most from So come in I would than since bulk sales of the years years, year, well. bet two more that more three the a getting and as it, we're of

Michael Lasser

on hurricanes, a acquisition of of is there Amazon had a September’s and closed September lot between in Foods within of that. frequency moving final obviously X.X%. landscape around was pieces of the on growth you its lot question My There's also noise Whole

there Foods, you impact Whole do and around think frequency strong September? clubs your drove at in was look you If such any growth what

Richard Galanti

here. merchandising. value once other merchandising some we're and Brooks said things doing little Mel and the it's It’s of

up it news tragic a that's hurricanes build-up to to bill the frankly, on Texas a of you the every you the a there's hurricane, it. things in pending and and in leading whenever this tragedy relates day, -- sales Florida like with get Rico, get Puerto As pending tragedy a

You're -- closed in for was I as at locations, perhaps Texas a it look few think in a sales comp we more in of days regions. of September when but or the I couple stronger one mentioned, the

wasn’t that's by Now, impacted the partly because it. state entire

So we don't big think that was a at impact all.

can Amazon our our at the all proposition value As is view it and relates and is to better. we the When Whole look proposition, Foods, perform. news do value around the noise we the got publicity

gives member read them shops that first a I would increase hope There's Whole news do out shops to. I of prices we've is or greater. our us customer would Foods things. a week. there's lowering there lot price our and expect and the in You of confidence having that that read the changes When more even they we've about giant lot about own, done value of

I strong as example. been sound day. nobody and to have as our the you you brick direction know of couple can lot gave trending there. we've do XXX and is we we’ll there's we done ever bites, from wait of, see everything. a and And every All in different predict things So a the is that know right the and mortar it’s

at So before doing about a what that pretty feel we're the else. Instacart good with delivery this or that our point, doing. with few day better got were again ones we members Options with are we've feel or frankly for they good than us We anybody the

sales be that to they'll to we’ll able to choose extent that generate use to able be wants feel we -- to the from route, it. that and So somebody the

Operator

line with comes question Heinbockel Securities. John Next the Guggenheim from of

John Heinbockel

leverage. on just SG&A I Right. to start Richard, want So

week that? you’re So as play on more you down a And quarter in as because think both a maybe operations benefits? about XX, detail wages, little Extra any a time. in Central, this in particularly was had good you've that operations about role long I think

Richard Galanti

The of have would only guess no because daily. prorate divided with benefit you earnings I expense more and a is not XX weeks, that rent mean I by it, XXX that there's number. it’s week one-sixteenth taken we but our in

John Heinbockel

Yes.

right, change about So a you it, I and quarter here, mean, -- that was quite just because of think bit you were typically different and than how a if I'm now more third? think up curious you’ve again, was what third different in different, been down what the is? -- versus What sort Central you about sustainable quarter. down is you fourth sea

Richard Galanti

We the lot a price statement. our good we’re about of Well, drive little the on. at hope the better good on, still initiatives it’s we items line invest that. but mean, going predictor than only sales. it’s a things – guys bit are to We we monies feel of We’ve feel to I income about got we other in you And have good going got and sustainable.

John Heinbockel

like or X maybe right. openings, on US. sort maybe All Canada other Then X or sounds then where X, or other and outside of international, Is the So International? right? it X X that and X in X the just

Richard Galanti

and That's two a another where one Asia countries couple, five four basically, in mean a three, the between I Yeah. in Australia. in or you. they three generally are. tell couple I’ll Canada, or probably

John Heinbockel

your home then the get delivery last items doing? How traffic And sundries? impact on you So you those about the X-day, and do think of come have hunt they’ll what's and options sundries not the think and comfort sort think your customers food will on and in of here, use Okay. what some simply loaded then alter sense their you get, to delivered of buy when some Right? how and to with non-perishable treasure their about behavior? to people to one the thing, as just about cards do those fresh those get to you're nonfood, the do you

Richard Galanti

way we in it feel to to keep will to you’re have about targeted more We're We these to of one see I course. the everything but because we getting data we buy we and of where store but comfortable just go. getting even keep had if how mentioned both had more to going in-store. And surface scratching you you, you're do and of literally get marketing -- to type of some was, had any and with do of couple Internet initiatives. going relationship the fill-in our is, with more we last online, that's to Google but with the we as Instacart you and time watch add as than little a What limited We’ve fill-in ago very a one Well, what experience down you starting say, several to key few shop come we three have of needless over a of more shops shops years. so year, that. or or we found alternative, is we years couple continue far to it's if want saw, a replacement have e-mail course, don't you

out, you've question to and the There's got going lowest And go it's We a loyal how delivery surface foods that increasing and online you’re store for online several you and case, pick examples, stuff, delivering supplier as cost very that is see and can change want and is actually the no many over an want to value offering asked are none have about on question tried, even for percentage done how foremost in to to first it there is, member. themselves pay will people touch and hopefully several to get else. and well have people as great are how years, of brick we to go who very, of just of us at we we're to whatever mortar, the there fresh home, time, know, loyal, drive home matter that so, and you often. that a decide, low time. our them, more guess it one recognizing will the percentage wait in going thinking their And examples fresh price. a one not and much actually to and the [indiscernible] and and be you scratching order alternatives well, and few quality delivery how of the be it's with that with know change, of you're we'll goes. provider to in ultimately We've have Over I there as it see. you of value, if sales and we’ll

Operator

JP Next of from Chris line from the Morgan. Horvers question comes

Chris Horvers

point about, So perspective, first question front. headwind from course, was SG&A IT talk Can basis overall the the line just on of top you the has accelerated. small but a

modernization So as decelerates? you dollar that or the IT underlying you at think the line, think that about dollars, when is this on expense year-over-year growth do central actually point that growth dollar decelerating

Richard Galanti

Basically, I think the we're that. middle in of

this helped we It's to it a greatly was Certainly, going or increase. growth. or that's was point, still I was quarter even said, two an on actually, quarter sales by it and point ago inflection this X a think I year-over-year where X point. basis by lower basis

at about where is year or it we're modernization. our right of part fifth to think I -- of enter

not taking what fuzzier first. major modernizing, start we doing will line that that are added certainly we and systems We had things and fuzzier. getting So, to contemplated at

decent day started kind we a of the to guess open building a we building, And that $XX in a as you on it the them. it on it’s probably of year, system, turning million day sales, million is lot in so ago assuming you complete was like four systems, the And years that appreciating spend regard turn these or you start three system regular or on. $XXX sales, my a percent next of one as

year another expenses the be bigger to years. with amortize plate if that we've these you will over it full got, will, generally five seven then So before

this in grows, grows, that calculation will So an but be it. offset as sales denominator to the

some maybe So the equal, hip things point, inflection all the at it. or and either points the from year, and next point as about hopefully being to be here, it's one talking but in an basis there guest, sometime I'm shooting way in but a is going stop two here we’ll

Chris Horvers

word, not margin, you term Visa And Okay. moderate, the away. SG&A, the said used go then the the but gross on you’ve benefits, said

to So quarter, talked go going I to that think we're going that's -- of to last guys lap about that sort the start you and away.

is just or go is So does it away it moderation that and –

Richard Galanti

a M. Well, moderation capital a it’s with

XX. QX of QX, year aggregate you a the a the first sum year, you, of three points. basis think and ago, had XX in lot The the I mind fiscal in this or of quarters margin And things XX was to benefit improvement SG&A in was happening.

getting the of weeks anyway, You weeks those and was several three but conversion some off program you there also there the first to around was weeks. were and done some the getting QX. two for noise five last in had old or detriment Then, that friction it,

if added but On We're We Costco mentioned of part but it on be effective just the -- and because much I it you Visa travel. as it will first on co-branded is, on increased revenue guess member, get their executive shift another card, you improve we're Visa seeing by if to from the call, seeing so a this X% you use using increased gotten top your top people an all, forgot my example. of you travel, that, travel hadn’t Costco, X, Anywhere Costco usage. should my value penetration X% get of travel So before. September which wallet. of using card, saying of this that Citi card I of only not at

unbelievable So a there's prices. off X%

Chris Horvers

the Understood. was August? in to to to August. the earlier in zone numbers the do the And in January the the about in growth timing a and did you last -- they thing do then about what rationale of talked Can so then pass is, and this Groupon, talk or you end say, to people membership and out lot there a print. buffer think desperation slowing, hey, see sort you I of look

that talk is just you or the you're about does millennial what millennial acquisition, genesis retention maybe just that. of was, customer concerned broadly it -- So talk it an about expression make that about

Richard Galanti

them. all, No, don't because want we every with it do gifts did works. and we it I next want month to to waiting online it months sign or for them I offering pay We get in that every member the added think it. for people a six first comfortable with giftback, We don't mean value, of as because added up

it month lot if difference I we fee it works, on. do simply, timing of increase want is effective have that I time. X two look And over a or the and so I the going if believe recall, didn't we did back, to we June period

a So we it pushed bit. little out

Chris Horvers

from And then in you've these back in of what terms going customer renewal seen on just the time? from rate millennial deals perspective a

Richard Galanti

Yeah.

asked, in we of enough were I benefit. and X.X these about millennial, do if you understand though, we're we Going of because that in did your is do up much a back it that that as are what mid last a on higher is this it do I smart Groupon we on fact one versus recall like – and think think it ago a walk just walking like don't a have question that offers correctly. of millennials. LivingSocial concern we The as those the just to did, people XX% you'd the it's and percentage not that. one to don't It expect the to X ago, drive half walk-in, year sign a has millennials, or membership, did one we we one millennial but good recognize I I and

it go I’ll back percentage was walk-ins under one, XX% millennials think XX previous mid were the I millennial, about points. to extra this whereas to or the was so in it like high-XXs, program,

difference But not a distortion or helps. two. huge So it a between those

Operator

Barclays. Next the question Karen from line Short of with comes

Karen Short

I the that. of the give millennials. know, to give maybe It just little seems kind on Actually, you age have of give can color you been average an update can of Wondering, membership? your that bit trending us just on you subject any on a periodically. down,

Richard Galanti

year US of was four earlier you a don’t but we XX years of ago, have I me, – seen front did find were US so I anything few – couple couple that numbers, the If it two don't what I population US, across not was in XX years years older. ask than not I’ll the know not about, I recall. instead of were entire have looking years that, a versus can we years, of since adults, I have was about of that. a a me. older at we a years out, which it anything

Karen Short

color place catch one do And reduction price you Whole -- think any the of in Whole Okay. and question proximity it. you your on to stores I then But were answer, you are that Foods. the just close since took asked, the other gave performance Foods were at have I didn’t if specifically

Richard Galanti

cute, believe And we’ve and impact brick trying an the seen other about read everywhere. it. paper overlap but We -- and we than Street, seen essentially have than news from reading impacted others. I – We on I’m mortar specialties Yeah. there the some be that on we not that are more it don't retail yesterday recognized not Wall stores to are

Karen Short

online the And I on grocery, I guess then clarify. to just want

said points I will --? and what the be right You that gave SKUs think XXXX cheaper I than possibly price that you was and catch possibly, Costco, did then

Richard Galanti

value no. was out sure to radius the And Currently, down Instacart parties, limited Google Business before of some certain within I and Center XX Express, in OctobeX, boxed. some may go missing. pricing as there the delivery non-member both XX those better No, be the When their shipped locations, could be this delivery I'm is you which costco.com I’m including on buy or XX value -- believe, and lowered. mile better, what Costco there at others southeast, of other we could will It how are that have what than as areas items look those at each already. one, a a depending you they the their costco.com they're and ultimately goods, that great on anybody, price the prices, member case on

Karen Short

it. Got

China, into have then question, Okay. to little expand could rumblings last seems there don’t you you’re that a looking bit. on been just I if comment that some a And to know

Richard Galanti

It’s discussion as we're the XX-year looking.

in but have something. some announce As something, do whether and, it's and we'll until to or we we're a announce building don’t permits to looking we permits Alabama at China do point, rule, something,

Operator

from Matt comes of Sachs. Fassler with Goldman line the question Next

Matt Fassler

categories to and of line – first this about guess I Richard, question that core caught up own on sales might the have the that item, been item my the their margin inclusive for is ex-gas, talks number have line and I first relates gas not

Richard Galanti

gas. exclusive It's of

Matt Fassler

Okay.

So but number it straight up of very know the XX I only quarter pattern. think quarters been -- a -- of the not this it That had fact, think core flat the each was been straight was had big, think in it of bit I a something that break was in are year in Last I categories. XX quarters. fiscal differences quarter down second ’XX and time and like and was up in I quarter

would So you and data invest was invested there any increases to have there greater that to led that to in concerted where particular price price area line here? in effort in a was a item the degree

Richard Galanti

bucket and again money, of a -- analysis it. decide you will, We we here we're a don't do to sensitivity how like of don't We if But bunch going honestly, down. use it. is sit of Yes.

and the what I maybe I in a retail which we're of grocery, it several to or it business case Steaks Strip $X.XX. the drive items, non-food York merchants decent We've items did this they way, certainly $X.XX, I’m done and we retail on still by are a – it We’re and buyer on that a works. made at of $X.XX went example here things were we margin giant think used the down and how And stuff. are New we of look we and bought on, as that because and key we not, but where

directionally, you think I fine. So That's a not We're while it's lot about is, though point not really made different. that. concerned it's the

Matt Fassler

relevant had have then secondly, -- that that Instacart? of a obviously all think has so delivery about partner know, in their you're investment consideration acquiring prior probably question forward and And to partner. any impact a Instacart, enough. I partners I are an Whole is business prominent that that on made not does a only for of Whole we the having, Fair a equity know as on Instacart, Instacart the is at lot Foods, partnership is there Foods this Amazon future and

Richard Galanti

No.

this or before announced, when we we and that, XX. initiated both June our and In both before week discussions fact, but after after what XX

Matt Fassler

has you're accelerated capacity last Great. Are know, over of you where some to anywhere acceleration that of I spoke have. about you’ve changes there fresh re-platforming, doubled you pace and And the these the with past extent categories the couple of you growth that cetera some in seeing off. brand taking then few kind e-commerce finally, in know quarter than the I the efforts the is e-commerce initiatives, where the months made, and not new et but business, particular about the particular business expanding obviously you're that doing you're and e-commerce, more your of of any

Richard Galanti

quarter a Well, on non-foods area. big [indiscernible] appliances think area, a is the side, non-foods I mentioned – we ago, or two sundries. on Apparel the

got I items. deal and X% XX% look side, a card, continue, top you And got and to some got remember, on because and food on the and -- line you you sundry I dry side the used sundry then, food better well things we store have So that sales, big as that, And bought job do executive, was ticket our the card. of on cash in TV that the week as want online. got and top if great a at at think, the Citi Visa you’re price examples, glove one only it, or Samsung again, on and on X%, you service card only the the not great Visa the -- it got two pricing what for impacted if some Citi to you you start Costco. with it On period, an of was you X% of a white in using both

them. So, these of are sound bites, lots but there's

Operator

Next Trussell question from of comes Paul with Bank. line Deutsche the

Paul Trussell

international the ex-cannibalization, see early through overall Canada, of be US of what club. XXXX, and all on just would number the what the that also, then per maybe members some that up that X% versus ran led membership sign so, membership. in you terms new program approximately call growth I LivingSocial in, believe terms program in US the we included on kind of or or the you growth number if you First in that cannibalization XXX,XXX gave and recent you signed the discuss last even club up in could did deal to more in

Richard Galanti

we have helpful impact. that. That’s this new it. guess of the was a bigger and asked many one not total try trying the signups detail beyond I don't helpful to things let’s know it. took, member growth warn, gave new doing an to start of to new, want I the Yeah. all those based when Again to going be rate every little new day, markets. going calculation we we is be That's are lay of take the I quarter. to fine I data the impact be The I don't – meeting, did We to to we're that cannibalized that concerns. But units, seems bit. felt the members our a seems the all What down. know can, small been hopefully, average to a we I are points that in here, – all budget have number we slow them you we but impact bit the about discussions every seems on units we're that's the at going the question's of who be

Paul Trussell

on And ups? sign the Understood. LivingSocial

Richard Galanti

a the was months It XX better little than earlier. one

Paul Trussell

to of benefit, pretax what beginning item you impact the to XX call, Fair mentioned just benefit at grocery about are the then or margins, been the million the margins enough. netted you enquire impact any within on the from assuming so. new also margin rollout? And gross had gross just and wanted line that Costco What if did out

Richard Galanti

Yeah.

first to the small don't yet. And so as the relates separate with, On the I to it X the start one, even new be of know was it think impact a other. line item was called That it’s basis thing, to points. going we

Paul Trussell

should And is it. you've about to there just near think think margins we Got just that kind that be maybe the price gross near of that we Visa. then in would made on point, contribution given flat fair and down it moderating slightly that so, the over term rate, could, investments from run as the term,

Richard Galanti

Visa Canada the have it's we benefit XX started sign I chunk in but membership if hit it's back but still that the of new still June. moderating, will in June, we a have we $XXX Well, US that be be from guide. P&L, -- fee for as still -- the monies, P&L small. in even to increase a of won’t look though plus moderating line we have the and with us, has those front million just months ultimately that again increase will the don't total

So of XX. May that’s

go able bit, is there plenty plenty do we've little be money to got to but of to back get is feel out a So, down there margins up when We capacity. – of the or it both, merchandising. to again, it, I

related this I It's issues any that salient is the there? is, the out no. For most us. think competitive to part, point of

Operator

Next Haskett. the Grom question line comes with Gordon from Charles of

Charles Grom

segment SKU business relative think Could just to between digital term is your also you long the side? both opportunity the overlap us count the remind and for you digital the what SKU the and the of on profitability club

Richard Galanti

but earnings the and in lot things E-commerce as a pretax is like are percent a profitability higher percentage there of brick sales that. a of of mortar,

e-commerce, driven down less profitability price that in e-commerce If a businesses the way, of say price simply in points continued. that investment it and has in are it’s ancillary basis but little, of than Some we've reduction we've number because whatever is because I come profitability. invested it's is, the of the would

Charles Grom

the it been merch Okay. margin is on And on the side? or has side that mostly SG&A

Richard Galanti

of of margins. little it’s SG&A, it is little A

Charles Grom

just individuals? membership on then millennials, speak that question follow-up to and for renewal for could category or the And about trends Okay. Chris’ a cohort of earlier you rates that

Richard Galanti

I new quarter. or I you're a one the Millennials, at new rate last always, same around, to stuck point have And up I months that’s any on And we until at rate. going on don’t about least at again I renew rate, renewed rate the a Yeah. linear lower signed but old. members. renew offers on ago millennials we generally Every than renew think don't better little. really other like percentage what members have year, it you're data you're your shared that remember, the at a I XX that LivingSocial renewal. did a fact, plus higher in those year versus But at saw one we walk-in, that minus first detail did, of just the that's higher in

Charles Grom

the it of my lot is timing of compression focal the point a obviously has sort renewal Amazon a deal Whole given then your last And obviously Foods in and Okay. of concern people just the and and on change the answer there's to question I for good the call rates wanted to a to circle tender. think I rate back pathway a regards question Simeon’s gives to the for subsequent renewal earlier, with to in question proxy your his Canada, you sort in because of

just again. go that just us you remind could and So over

think new what of going recovery ticked another you rates trough credit rolled around and points time just out it's can important? time peak because that basis the that up, to your renewal that be XXX was and the before was pretty therefore You or I quarter said think kind it’s you to two from discuss card you

Richard Galanti

quarters fiscal and QX which and Yes. was nuance the out -- it US, pick And dropped we of six quarters, differences, drop delta. mind X.X it think it delta notwithstanding dropped I we and next to it all it differences and differences months dropped you, the and of continue mean but The look exactly those there's but still ’XX, up -- ticked transition and later, in Canada, up couple then – some six percentage early another Canada took if between for of did ’XX it ’XX, September I to Canada. couple I quarters in half of the were of And the of points.

rest pick delta. we ‘XX. year, QX the converted quarter up to of Another of the plus in -- we This did

in past six quarters albeit the So I we're Canada, out. whereas, now differences some nuances, in that, and the fourth quarter trough saw

of that’s but analysis So it's quarters, we've as as tell about me, more that would much a couple probably done.

Operator

Company. Cowen line the Oliver of & from comes question with Chen Next

Oliver Chen

on are the your convenience think our also to which expense control considerate allocate how strategies terms core evaluating do proposition you're just maximizing merchandise cost about for passing it multi-vendor against the that for story, also the question second the are, And through value and much you to a and CapEx value whole are about some are and margins term. customers. as project? bit where where to very working what’s factor framework continues against and thoughts your be related become for and about triangulating and sharing from ROIC Thank that's more what Richard, perspective, How about your framework aggressive compelling. Mailer you e-commerce little savings and you system the for the balancing e-commerce should what And you a thinking proposition vendors with long of was in margin the with you. and you and about

Richard Galanti

It's the above. all of

site wasn’t of the it’s base it. costs, allocation, the because costs, in to we’ve de are a focus, little frankly our for It's all, of improvements $X.X The you. points, transportation driven are freight costs terms of to down we time the -- of to the hadn’t to of a down time pieces e-commerce a all, gone budget. but First search, done positive net It improvements, site perhaps first fulfillment CapEx it centers, those long distribution improving get we as more been we've the improving we’ve just minimis. and small expanding itself, stubborn a that we were billion driven

we've do don't really money got that, more see enough I than to So it.

driving to things some of text clearly. these relates it are As business,

if buy successful. really what it successful grocery thing we're more is two the business Someone things. walking and a as how into -- we does really Costco, lot in. because walk else they It's people successful stuff with really when earlier Well, impact this question, really a the to know is asked coming going into

manage to in using couponing well and that So we can and that. have and things to the by we think people that we email drive do as store like

see and time where again, have will goes. tell it to So we’ll

else. best and of and relates better and but about from vendor, to Based the volume special a brick that sometimes we out working all we As bring get efficiencies we mortar the all it a the we sends and simple. sometimes vendors, hear price deals product we with someone pretty hear whether purchasing the all retailer, to one it's accidentally somebody or something, us read and to

think out money. pretty keep getting good options I but open, us our we about feel to there, all like of we we’re have

we the to Some about the hot some -- vendor early of drive and in or March and Picks, how with the special doing tweaking about, I partnering and was February what do of all it's the equation. working items the earnings I MVM Buyer’s value vendors types deals, on part with, that, last whether in of we've things deals successes tweaking when had, the quarter how use we special differently some the the spoke second and cases, example the greater sometimes those are with call

few within I power it's manage items we easier those enormity of a thousand items of to from a us the and have availability trying when we're lot those items people. think do sourcing it the to for purchasing at many

So pretty how and we're we're there's we to and about We’ll have how I the monies on. getting to what see. we’re spending lot feel wait going think and good doing them, a

that and get unknowns started doing patio a in having that’s we with not about the pickup in items, and literally we're of we're if service in-store ticket items It be, but room there's you the billion gratified type $X think some that were brands, your also way we the few LG we're doing on appliances gratified here these by of We of things, coming things telling furniture, well your a appliances, we're comps some with your We’re comment pickup some furniture, ago. other it, used appliance don't store, with with and it you items partnerships great a have the quarters the with business, and traffic lot driving and in and today. to somebody garden or big we're online A new and U-Haul sold which of is which new things over can are in with know X -- driving few furniture. And others, it, I brick very we're about site, part earnings furniture, electronics, now mortar think fruition so lawn like well, doing more and mentioned, relatively big we to excited started you’ll from happening of friend’s adding are white displaying and deliver things, improving By last add the yet. truck, we e-commerce. doing appliances. we Samsung or of calls is think GE about months including among with three ticket We think sales, some regular we’ve glove years, example.

Operator

from of Robert Benedict Baird. comes the line from Peter question Next

Peter Benedict

is prepared that during when about of benefits in-house? You the manufacturing a done mentioned little take there you've to of bit kind more facilities Can just you the stuff your what you and remarks. some strategy talk Thank you. of some start see and what you the

Richard Galanti

ago, because ground per that landed continuation us. ago. so X California East $XXX We're freight just million We can plant, week, and our ground about we’ll we've along in pound the supply dozen XXX price This pounds plant a but million costs in It's We but million, in originally now a in a or we're that XXX spending this and ground a done. our and SKUs. quarter half of have plant by lower way intention beef opened it been right US so California now every is the our capacity accommodate has broke birds more. for the some a the will that's I on plus just The and did Years We to Well building things of Coast we a definition few a think than the some great need Nebraska over planet, our efficiencies second plant -- locations. year. from two supplies chicken two, way, was now first be two, need. of less assure one, the beyond month million we have years, in beef East was Tracy, a under over more quality, reduce one a the one on that. in Coast get by to

well-known and we all we've themselves, retrofit you the them, from the and byproduct them guess month the More other suppliers bird manufacturing what clubs by the what depending two the run sourcing we, costs reduced make you with going markets. on of where importantly, on you $X.XX the out and by save, to number weak and supplying and can to call our and lower got efficient, they’re We reduce restaurants manufacturing greatly given what's driving, anywhere plants dedicated greatly we the and other supermarkets, to there SKUs what, other guarantee happens are given in to $X.XX can markets us facilities. if more SKUs, and had a

countries, us. -- other who makes we XX and from SKUs source and us for we're worked sourcing fact we the it what XXX looking so, So has SKUs. what's XX but well or are, that it's it do is to produce that make things not We're

million in example. gone this a commissary we've likely continue -- plant, but to it's not chicken I a building new we’ll lot of in zero from this do these. got we’ve done We've We've made – the think but XXX commitment We’re so biggest built baking to single Canada, that, for things. is

Operator

from Next Research. Wolfe line the question comes Mushkin with of Scott

Scott Mushkin

kind had have you save old to kind a in a of questions of they've lot of on like if and I investment with the in the their seen, elephant think basically, Amazon's drop but Costco they’re know We’ve frequency in just know and maybe think I and that people things other we're in I community as programs wanted late, attack members, seen of to lot of in Lynch done. room. have Costco the what memberships and come the subscribe it's that shopping Peter invest the room investing, the elephant I

think speed it's I your speed going and wanted where to, what of a the experienced but frequency, experiences, up community, like from we own missing do in think, we're and invest your and have our in it. sales your you why and where old I missing what thing household, collectively strong, mean, my are hear again investors, amazing, are Richard, the we're know up they just yet, darn sales I Lynch investment we So are missing in are they speed you I I Peter what also in less up myself kind they so lot to what of Costco and clearly,

Richard Galanti

easy good explanation. well. that you've good don’t see We and the it numbers. it’s in good, a yourself, it clearly, not To sampling the standpoint Scott, was it as it's answer done that's others and a wish the that's see -- extent, have some we from I the don't

prices Some out feel now of we know certainly, sold appears and first, by what to those good, just at be is day, continue lowered I -- to that, going you that day same family. and that two we don't fresh, prices one drive doesn't stuff. sampling should We’ll we shows delivery it going one that that. that What Others, suggested including we're further to even see. or higher with how being know good I answer have it your show are day the communicate with, why. frequency there is delivery well, figure with But that of to things We business. and getting card out we we're one. to more everybody. comps and don't have to some that a us for to of subject the offer. good – about some ready the stuff credit If this about the good feel rates, to feel renewal to

If have estimate will their everybody it XXX day. is, and whatever total. you today, supermarket be is of more on be it will this be $X tomorrow if whatever the will delivery take, a call is, it what industry, as percentage of industry, online roughly it more and the the there it'll I elsewhere think or the using grocery and next out part trillion billion of

XX have XX, I to these we go be to XX, think it going even going be, going not that going on it’s going of Whatever get example everybody, to not whatever grocery, should XX slow a and from assumption extreme it is is, clearly, actually though go it’s knows. has making I but hell down, from X ever. is keep to somewhere and question drive go the and it piece to and it, going is pieces to on The that. extreme it’s to people think to then and is we're is themselves, who An numbers up brick or even XXX% mortar to of in taking apparel.

apparel a the have that’s I business for we've and apparel plus plus dollar X.X why. down. years and percent, know compounded six at explained brick We why billion X mortar while is

will it, Within whether you can’t hopefully come point, more the salmon to part unique occasionally, counter a be more like we day of If want pay strip or every the through it's grocery the in for River things Kirkland you those or to less even itself, it get come buy the seems of a and the to do be will So do in. stakes like before, for like you least ourselves, point. we us. items, was Signature to it's Copper to that uniquely little if in get than or organics extent all some you items we there it that will we some things things more, drive at get the lot a the of little

So what going do. that's we're to

Scott Mushkin

one for it during is now, right lot of what's on a mean going call. site seems on experience business, our strength been I little of different the like investment community Yeah. delivery, maybe people. I've the $XX free last the one think had on I a the with Hey, the just the I than on

thanks If letting items the going the over you for you size, go free equivalent of call the for sell and deliver $XX to then long. the order store profits there so and for with are

Richard Galanti

was somebody the something. Repeat question, mentioning

Scott Mushkin

Yes.

if $XX and there mean is equivalent if profit buy I the I versus is What free. Costco the is it's delivery this equivalent the grocery, go basically, So I store? the $XX, profit -- on over

Richard Galanti

Yes.

Scott Mushkin

right. question. the letting go call Again taking for All for thanks Thanks long. my Yes. so

Richard Galanti

get about is stuff mean Yes. any there, we looking that's that box. a that the If shipment, our like with you third doing, volume for us. by way If third on all when get deliverer volume that stuff that huge including the what all the the things they’re that way. to for some out party more to deliver table it's to we and the volume also No of and of big ones we’re worries. And it's bring I getting we spread can a shippers we party us, volume, more good doing that that are part maximize goes do.

Operator

from Jefferies. the line Next question Binder of with Dan comes

Dan Binder

the the to of the club On talked about online, online of the I'm if pulling transfer offset higher of club. of out better sales curious just out sale. e-commerce, it the an profit you that completely were take of the you of profitability online topic deleverage dollar to a dollar does and

Richard Galanti

ourselves long it and we time if out. within XXX days online, of online. doing took the includes before to The we of fact At that starting within this b, doing lots in-store already, that's taking matter money to lose the items and XX% States geographies a, under of drive Costco substituting XXX, sales if the more grocery a loss fact of a there's that entire anyway, you and and we the figure two is that's business it, dry that day, It Continental ago, all can not can Costco a both it it a get where brick proposition. and lose miles. year, United throughout is, of The we’re and we're going losing should a out mortar end me

to outside going way, our the that and some do existing think remember we by of this. they're we're So come drive to to members business going

really higher they're a So with had at doing of limited online things it despite a we amount ourselves price.

buying stop that, some before? shop There's things member? by think somebody. how fulfilling get But, little infilling some there than will People to or to do there Costco and like new Absolutely. surprised that. Will on don't because figure Yes. be now Sure. out we they’re better even pleasantly do people And So going store somebody we you that anybody. of we've the to a the been it somebody we've some, be want drive And direct? to if will done will with less Yes. that in will be in-store deals we you do to store? deals becoming

Dan Binder

around Second question rates. was renewal

about You a I that off rate had quarters not renewal couple fee possibly see recall can enough, the far bit, If would a cycles the of come you back you where next lot. before membership go where increases, I little talked inflection.

I -- didn't than membership just raised just increase think because lap the you I'm a renewal until last a cycle, just you see you fees, couple longer it takes fee that rate possible is year? little look you that bit that that. curious as next quarters of

Richard Galanti

possible. it's I think

you'd year see originally gets when about almost talking you're an what an a and continuing drop up increase, rate that it about think do backed it’s I for renewal is though in on. immediate we

you I that membership, things foods, the well. that. when made least want think have stations, to two, if there's having fresh saw XX prior we things of renew XX your member, that three as it's cycles helped years been other to like, having at all becoming have to Recognizing, gas executive not those that

that members membership dissect with it's membership fee. has from in nothing again survey to they to the -- dropped from and that regard. hear raising -- So it from to hard when what it do nothing have we Anecdotally, virtually that

Dan Binder

Okay.

Richard Galanti	CFO
Simeon Gutman	Morgan Stanley
Michael Lasser	UBS
John Heinbockel	Guggenheim Securities
Chris Horvers	JP Morgan
Karen Short	Barclays
Matt Fassler	Goldman Sachs
Paul Trussell	Deutsche Bank
Charles Grom	Gordon Haskett
Oliver Chen	Cowen & Company
Peter Benedict	Robert Baird
Scott Mushkin	Wolfe Research
Dan Binder	Jefferies
Kelly Bania	BMO
Chuck Cerankosky	Northcoast Research
Rob Iannarone	RBC Capital Markets
Joe Feldman	Telsey Advisory Group
David Bellinger	Oppenheimer
Mark Astrachan	Stifel

Costco Wholesale (COST) 6 Oct 172017 Q4 Earnings call transcript