COST - Earnings call transcript Q3 2019 | Costco Wholesale Corporation

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Operator

Good afternoon, ladies and gentlemen. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Third Quarter 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 session. you. Thank Instructions] [Operator

pleasure Chief the is Financial my Mr. yours. over Richard Galanti, Officer, to it’s call hand to Now, the floor

Richard Galanti

indicated start materially XXXX. the cause and/or meaning such Thank everyone. the that Private by discussions good may and Reform of from involve include by Act performance risks Litigation will uncertainties of will within you, results, these statements stating to actual statements afternoon forward-looking those events, Securities differ that These Jerome, statements. I to and

The uncertainties those but other not outlined in and are in from as SEC. statements the identified risks well reports include, and the limited filed company’s public today’s to, call, risks with time-to-time as

not only statements statements, as by as these of law. speak required company except made, Forward-looking does to undertake they update date are the and the

operating press XXXX, fiscal XX quarter today’s we In release, for the third May of results weeks XXth. ended the reported

the or or This in net came at income reported per share million $X.XX to for compared last year. $XXX Our share. quarter $XXX per $X.XX million

the As tax $X.XX year's nonrecurring benefited a million from $XX of item share. this mentioned per release third quarter in or

billion, the Excluding came up XX% as the quarter. for earnings the quarter quarter in for third third were billion this Net over were sales follows. at last for item, year-over-year. the increase year and the fiscal a $XX.XX $XX.XX figure X.X% quarter sales Comparable sales

weeks XX the on For U.S. a basis X.X%. reported was

those seven a rec was at rev FX -- would ex gas Excluding Canada and X.X% a items, it reported have it inflation, a X.X%, positive. been X.X%.

positive. items to X.X%; reported Other ex the those X.X% International a

sales figure X.X% company total the for comp So XX reported a weeks. we

reported at on each those negated almost XX% E-commerce and items. ex excluding items X.X% those a XX.X% for items. the three other coming was those in quarter basis Excluding

or In U.S. QX third X.X% and worldwide sales, up terms traffic frequency in quarter the comp by shopping increased X.X% our of

a negatively U.S. relative the items rec, of impacted In points of impact currencies the about basis points. and price foreign FX XX points. benefited rec inflation XXX amount about rev terms to basis sales sales sales plus weakening dollar comp Gasoline rev basis small by the by and XXX by of gas, impacted

points. the about So XX basis three the a minus net of

was third excluding Our from rec, during our average up FX quarter. ticket X.X% approximately And ticket and the gas, X.X%. the or transaction average impacts was up front-end rev

reported X.X% Next higher than last on or in the impact negative We million that the a number under year's million quarter up had on have million income. X.XX% statement impacted of is about third membership income the would of from $XX sales. FX $XXX fee membership ex-FX. that or This just million $XX $XXX income $XX million. been that increase

to reported membership fee million or X.X%. was $XX revenue Our again up

fee two and benefit that those that the In XXXX have of addition negative that increases U.S. in it does years Canada. June to to the the the increases Really fiscal we in we last of took ago. almost the impacting FX quarter of took

QX We benefit The XX-month will to our million. be to the from now completed cycle takes in effectively small fee that $X increases. incremental P&L recognize have than benefit very less that the

of same figure renewal of the in membership worldwide as rate rates also our And U.S. quarter membership renewal the Canada the ago. at rates, XX.X%. terms In end. same XX.X% QX strong. rates remain QX rates In -- at renewal and the was a it That end, came was as

from end, of that's the million end, up at of members In XX.X was QX number weeks the households terms of earlier. number XX million had we QX member XX.X at

end. weeks In XX.X earlier at terms we in total from of million, cardholders, XX.X came XX up QX at million

an stood one XXX,XXX United of paid they which quarter QX at in or end warehouses Korea, increase opened Australia. quarter, each was States, we Executive At three during the week. XX,XXX members, per in the During XX.X of the terms and million new

in piece penetration Korea a small a so of well, we've increases continued good actually had Canada. U.S. very in increase, Member most other notably Executive that and was countries as

line, third six basis gross reported year's quarter gross margin Going at year-over-year versus down by lower the in margin was in XX.XX% XX.XX%. our points the last coming

excluding and an down revenue of XXXX inflation you for I've and number excluded a the items and basis here, recognition to third compared before both columns couple and jot as If be to basis rec. year actually rev of earlier. Now, ask plus I point numbers ex-gas two reported excluding would quarter the like inflation FX that six gas five the rec rev the lower points a

The would line item here first be merchandise. core

year-over-year reported Ex-gas businesses minus was one point; reported ancillary the it it and positive; nine reward, rev basis basis minus On quarter lower. minus rec minus points basis and and basis three three. one was X% a two in point

higher. have And six five reported and you'd lower something [along ex-gas the number [ph] those rec rev lines] basis and points basis points

in note quarter, component we quarter's second merchandise release. lower quarter had all last basis in again as last -- to increase The one margin the big here business the you thing out core ancillary One compared second earnings a point. pointed we by

year-over-year sales. softlines at third merchandise quarter categories The subcategories in quarter were will by the XX all foods subcategories food the fresh core relation you year-over-year and all if look named to year-over-year hardlines, own higher margins sundries, sales were in core-on-core you within up basis and in their on their If own four QX points. the

lower off in basis a rev really rec. It we've was to in seen by businesses up Nothing terms speak bit last And Ancillary little amount quarter. on down a than less one and margin other point ex-gas QX, there. of things that that and year-over-year. the that's trend gross again

SG&A. to Moving

QX-over-QX basis was SG&A five basis points and slightly this to rev Ex percentage sales rec year. lower coming gas better six This last or was it by at of reported X.XX% or X.XX% in worse Our higher compares year. points. inflation by

Reported and rec. gas columns. in Again in two a few the column and rec inflation down the gas second to rev inflation jot without here rev numbers

minus basis reported basis and on Central, rec a by better rev seven compensation zero operations one. two a and or five points on minus Summing one was better those basis basis worse reported up points. basis two. by two Stock points. core lower so other SG&A by was columns, basis seven. points and ex plus items plus again Ex Our minus six minus those

of we're negatively rev here the Now basis impacted the fact within increases of in well basis of quarter, points about points facing the as June XX hourly key SG&A wage minus the XXXX improvement that’s the employees seven to rather additional implemented thing the big ex XXXX. wage wage is two these representing headwinds effect increases the notwithstanding during gas rec, Both points went from that or as pretty basis U.S. increases still of our to of that variance. in into XX year-over-year March and

flat [again] rev what of basis XXXX. [ph] nothing Stock six is estimate to In to March QX, plus minus we the June from residual in and points, and tick and increases. to three basis points the XXXX then the two which points to was ex that's speak estimated Central, five gas QX It impact an year-over-year basis. out of higher on And compensation will minus basis be down four about impact rec one. XXXX there. we'll then by

year is ago. from up a million Next income into expense $X QX, on year came statement expense. in Preopening the preopening million this at $XX

later one additional two at chicken of year. the summer. have opening, expense of year production the we that about related $X was this There beginning last plan also number versus this We to opening in preopening in the million three to plant start

in some locations XX Qs Additionally to the expense higher of openings a these have first through in one three in new will of open quarters QX of XX we year, number weeks have in XX relates planned. of QX this our total we we

beginning So of the some the preopening there of there. was remnants in some

compared at just in told, operating this reported up coming All $X year-over-year the to or X% at versus million million expense in Below That's line coming difference amounts. year. $XX capitalized QX $X,XXX interest million operating $XX slight in in last lower income was reported million. $X,XXX was better a interest million year, income

was by income other was the $X and year-over-year. income year-over-year. million quarter higher actually for million Interest itself by $XX lower Interest

the pre-tax at year-over-year million also in $X,XXX the in items $X,XXX million amount a of impacted $XX Overall coming negatively FX last in X% versus up year was million various this QX comparison. income However, year. minus

In compared to XX.X%, terms XXXX of in income XX.X% taxes, our fiscal reported tax last was rate QX in year. QX of

in release benefited As was rate our a mentioned item. today's this earnings million tax quarter's and $XX nonrecurring from

We XXXX to total XX.X%. $XX would be quarter of QX XX% been our rate effective to XX.X% for fiscal more company our tax estimate fiscal in have million Excluding the that range. the item, third rate tax

of note. items other few A

opened so sorry a put QX, of we'll which should XX, relos, includes to-date opened two actually XX. terms openings open -- and of three In us that which at locations the -- XXXX. of XX I'm number we in fiscal the as units mentioned, XX includes units, net quarter had year In we've the opened relocations through expansion, terms total of but that net XX for I fiscal third net XX in same so new of

are anticipation Costco About the our quarters this about on scheduled year XXth to year opening before includes three fiscal of openings quarter of the the in This in ends. open in first our China, also August internationally. tentatively Shanghai U.S. right and

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

fulfillment, is chicken and remains low is IT in of our expansion both XXs, got In mentioned; e-commerce with and lot money expansion prior grocery in me; CapEx in we years. the terms infrastructure as spent what new of line a plant it's prior as openings line automation, while being well the which then as Excuse warehouse CapEx, as We've ongoing well modernization. years. with depot on the and

we we've a repurchasing XXX,XXX per average QX, $XXX.XX. shares during $XXX at price million expended $XXX of share at an expended price. third stock about buybacks the of terms To-date In quarter, $XX XXX,XXX million shares in or

new April reauthorization a As the They through remain meeting, Board a in $X program program. billion stock last Board a repurchase reminder, effect authorized approved will XXXX. the of that the

our XX.X% increased XX.X%; that point the and way the our and overall into out these a comp warehouse that do mentioned increases might e-commerce, purchases basis by ex-FX gas. and goes Instacart. numbers we're not comes warehouses XX%; as sales seeing we e-commerce that into I in include Instacart of terms with sales. In reported

automotive, products items as and furniture, appliances, brands as to from And of health top Apple well growth like. were Sony latest during optical. televisions new Samsung beauty iMax categories high include the generation and end The the online AirPods the and aids, the in from quarter electronics, quarter small and and

beauty Other that the for sold things Sales $XX,XXX and things for diamond like quarter included big-ticket during sold $XXX,XXX bare repurchases golf which the some each one highlights will simulators pay significant range cosmetics. in minerals like include the period. items fine we

in-line cross of like push warehouse initiatives. end and promotions. online We other of Mother's for Mayo. also our marketing A featuring continue start and suggestions de to hot improve E-mails Day notifications holidays for lot and items Cinco and

of During we centers our quarter, regional existing also completed the rollout six located grocery within the depots. distribution

the that our through previously that did when we XXXX business recall centers. You'll fulfilled we two-day grocery, we since had late began

As we'll it depot assortments. expands, we those pushed cases into in also have and regional our operations

An rolling we began up update pickup on terms buying and in in in online pick quarter, lockers. our out store, additional of the

the been process the we're next we've XXX out through months the season. holiday locations, five the Over several that last rolling additional months before of had four locations or to December September over in one but

app Continued our members. growth use among in Costco

shopping and experience photo in upcoming and and push planned We easier savings additional that are with pick notifications added continue pharmacy orders expect features thereafter. up on the months events, notifications, features new center, to recently like various July several ability new for member

on focus getting to faster. customers to merchandise continue We

where locate with operations. depot these merchandise in Some of do that we and ancillary to the other has

we As this operations summer in early will discussed late last and quarter, begin later Japan e-commerce Australia fall. summer;

is tariffs. I comments. the some that, for of sure be getting I'm so to want on thing we'll touch minute few a a questions on question Next whole

still of pretty ago moving getting we couple but parts indicated a to and the be of are although parts, quarters As fluid. lot some it our earnings continue in bigger moving of a is release, there

then cost to we take increased tariffs -- way tariffs in not and we The of a will shipments percentage might into there every and accelerating be we you see to worked actions continue to do to limited a We pull certain on how reduce We've item as to can that the able effect supplier do gotten as we're although suppliers. what is that. before where with every that. big to we out we're took potentially do or expect to ability figure both

lower and feasible, impacted look items U.S. ability of that We taken And reduced we've country sourcing where on certain way. amount items. again, certain have there's In some the do cases, limited although advantage we've commitments of at on order possible the other pricing alternative that. to a been

at and data to as continue we'll going it's into December we're interesting tariff list back -- exported items, XX% That of is for know to which biggest XX% of potential it that What's you see continue our the XX% to fact of moved are September tariffs at three summary, go react In XXXX. this. in move its meeting. XXXX after this of customers is -- those you I in competitors December now of to to XXst although lists listed believe were three items the if as

impacts. we're of So just some to starting those see

It vendor over on. and to some In a is goes. our with impact posted it's might of We expect to work our the that you terms increase does affects different when out of and we able we're our and our how terms it's all impact think it you to and size how in price being passed the move figure every keep ability the of vendors go good through. has then in position of the cases, how it merchandise we'll in cases, of some relationships In a different. sales. Board are As activity

it's it that vacuums, of for biggest of our items the the sales weeks market next includes that. last -- and includes lists terms the furniture, much will Wednesday This June things luggage, the pretty again Sunday announce releases, more like May in we three piece like and gross, banks, this on That's ending results closes. lastly Xnd, And four Xth after list June side. our upcoming

up Q&A Jerome. it And it with you. back open turn to that will for and I Thank

Operator

Instructions] UBS. live. of from the now [Operator our Michael, from you Michael Now, are first Lasser question line comes

Michael Lasser

comp going ring? question. year. Good to evening. Thanks my how to lot taking $XXX,XXX the you Richard, going for a next diamond tough It's are be

Richard Galanti

you do anniversary an up. have coming Well,

Michael Lasser

I did, as we traffic’s just this else I The My if reversion question should the Or bit, been comp. Even can't there's that mean? going do think to about something the on? you it. moderating a relates more afford think to

Richard Galanti

what a if it when don't Well, it was we've ago time different going fee -- answered traffic lot in the -- was, we we reminds it it of we go don't of few tax got They me those in each switch, a God, credit buying. bit. fee exciting over reform, new What look a and talked every in the we a oh cards little years it's membership whether on is is income we saw years things year away. about the last certainly We then normal. this moderation isn't. the my things our slight buckets of all or grow don't the know the know And know is for few fact money increases, the

keep good driving it. think so that And to I we're we a in that feel position

We not here, from than to goes if it where And stronger value our we'll strong out goes. to it ever think relates proposition where speaking there. is been have we'll have it as relatively see As it’s to see.

the Now about back headwinds questions and this called see. headwinds? what are word with the we’ll read things Recent new we that weather and in that February. started some there's every of Certainly a other there out capital Tariff day T included

good feel them last market earlier we XX% is, range were felt way feel up but know whatever know in we tariffs impact and that we're drive actually tomorrow, a little share buying Again XX% don't power it how do position ability recognizing range, value. feel a have with good year, not a picked the standpoint to We many what a some the from sales we we the to will of we in the we certainly the cases. happen in in

Michael Lasser

Or just earn sales? expanded less My in a a little rate follow-up that quarters. accelerate to doing a you're the competitive your bit couple question are what is able becoming is bit your and market margin as of proactively? of little last core-on-core it you gross result the more quite Is because that that from a

Richard Galanti

little of a it's everything. think I

its negotiating lot and I internal It's some We managing vendors. easier with do think of that. a still the spoilage and D&D, manage basics, to controls.

our Our a billion is is X,XXX strength given over and given given items $XXX per buying power, enormous our item time. at

buckets some think greater benefit. the -- that's had value. I those increase Certainly a and unit of show big sales get available. been other worked I back even those we've in in sees to to vendor the able our to drive -- use that We're we've we're we to able pick up also in We and able

Michael Lasser

very you much. Thank Okay.

Operator

Fargo. line are the Wells Your comes from next Edward of live. from you now question Kelly Edward,

Edward Kelly

I Richard. ask to hi wanted margins. you Yeah, about

on even as takes the there? remainder the that And which margin core the better. puts how was we to the be starts particularly Any Just of then should tariff about core-on-core, performance on accelerate? obviously and maybe the color year the and additional then thinking for

Richard Galanti

Well, cost obviously asked prices – want them. be be going are when afraid business. raise them. up we are of We're been monies going to some prices those to when to up, when look down use again going drive to want are last the we've to to lower first I mean, when we And not the

in of things favor lot quarter. worked our this a think I

get comfortable do when something else, with you Just we'll us right?

position really we and don't right there's good But value or pretty relative online about go both the -- line and to in the on guidance feel We -- competitive will that where provide bring. give we again in now direction future. it our proposition

it again and good are something as large relates merchandise And comments related in relates have competitive feel of whatever these though. buy and - quantities Overall, in prices. and things it's great that the related, the we our leg us it having there of some it go that cases, value. whether tariff can about to anecdotal position weakness In pipeline feel as great we the we it's to up fact, in good some a or all gives at great we

Edward Kelly

And just on maybe side. tariff a the follow-up

we generally how organization. associated we always we you then you've about potential about this of think been about risk four, any for your as guess and XX% there three that? about with And margin bit list think would As customer-first philosophy I a Is strategically think think a more that? a

Richard Galanti

work some where Well, origin trying can, of there's been of with you we're tariffs. We There's countries a not that. to [indiscernible] we risk. At switching can't one always town small vendors. other the some these amount point, although in all only to switching do

part end is. the day up prices the of to that there the bad of is seasons was weather in go because increases of slowdown on patio impact certain We've February furniture price in of patio hard is that furniture January, we predict because will At bit little it's seen strengthened What's tariff with things. even get the interesting and although into what early. a

one. it's to again, each analyze hard So,

key I of think what most we're cognizant point. is price a

If at say was needless if that. it's at to where new you're $XX.XX that $X.XX, on a worried to $X.XX, XX% to about you're $XX.XX. not above out it figure something calculation is you go got hate But to you've

including unknown And rest the done well. a we four, that's And new it's the ballgame whole from as you goes I see and into will, it list and here. electronics apparel last. the going again televisions. we'll And to to the of and extent real everything, everything can where if think phones we've how it gets long That's and is then

getting the flows of here that tariffs weather but start hopeful XX% yet. relations turn. although our while were we in also patio the And four, surprised we again weather. discretionary not ebbs little list a is is -- It a think if for you build -- item up to so list I the on four little conservatively the And we're that there have side, some And between that recognize on bit to the countries took the the improves because regard. more were and

Operator

Stanley. question next from Morgan from Your Simeon comes of line Gutman the

is now Your line open,

Josh Kamboj

that against this you our is the facing. same that Can bit can Thank you driving future what's go little quarter for increase wage the detail for headwinds Simeon. next was ignoring a in The you're you expense about saw to offset benefit specifically? Hi, expense in Kamboj from more those maybe tariffs? then encouraging the the leverage continue that you foreseeable especially areas leverage joined into question. for Josh drive year, to wage the lapping And taking

Richard Galanti

we're because sales. leveraging – as going sales relative things or driving thing the – biggest the depending are a and we good it's that. no. we've But lot, can very we're Look wage do. postpone level on biggest said, if increase things drive tariffs, not of we're perhaps not others going there to sales, like If expenses weakening at We're the always not to of is to

in March XX four June as earlier. now And every XX little in wages hourly on at both and six I – and XXXX every goes we five seven the with few a to be month said big of will literally, XXXX reduced now meetings sorry to work or of each of March – increase I to and we expenses an the our think whatever again, in next and that budget of or every week June quarters as and negative or day we saw there headwind XXXX – goes in those in

here there's sales none and we're of that things, extra of there's we sure – basis paramount. of the there out I here points new things half this is each is automation, smoothly. At other point go basis both and lot that hits fulfillment the that, these points goes And don't improve. and the points day half of the things like mean, is centers, some there one doing end I'm but the also there ways. A of completely Beyond stuff there – this

increase other Health – of think overall the next in as outside that. several but to care years United this thing than the points a higher not like the XX over is in XX care. is next the other higher I openings basis health tends year, percentages country over U.S. The things every extent things on have that that to like that to the States help we

percent And health expense so of every care United is in a lower sales – outside the I'm other as sorry, country lower, States.

is [after to when we end and opened time, it not other comps in we've our country years. will at to been the first gone over virtually a works] there, takes – there fortunate years get every few some So [ph] we've that take But tomorrow. the XX X a country. of that's to next going And help. the and That's help that day

Josh Kamboj

Okay. up Thank over next a as follow-up questions you. tariffs of as more if expand impact on business? bit the you your And Just Do quick little margin have continue following a few merch the other on it's the core-on-core your some one greater directly. can think to quarters

Richard Galanti

bit of stop. That's I to But the first last – extent say all, to that pragmatic we're should that we but drag. tariffs those be we a want a all. to why about Well, had to it, prices, net-net a don't be wait be look little it the to at guide. and not doesn't mean We've it would do of drag raise going

a plus grab it's a a drag from hopefully, a from Now X. minus XX not – a plus

Josh Kamboj

Appreciate it. you. Thank

Operator

next are you now Scot RBC from Ciccarelli from market. comes of line Your Scot, the live. question

Scot Ciccarelli

offering you with providing that your Scot Walmart I grocery for their Good afternoon, of have the had a grocery if process kind curious, pickup? quick-and-collect success guys guys. Ciccarelli. was given considered

Richard Galanti

like handbags. and doing simply as and small for we're is Not – mean, juncture. items collect jewelry and big-ticket more at this click electronics I that size the

it. at to look We continue

doing and scratch lot We heads in about We that our putting to continue a others are it. some this. commitment they of financial recognize to

life how do makes that for you're think find over still that I figure works. us what Costco we our going out it way time is to in to everything sense at like else

not of Google, scale those the the to to that well Instacart wants do Southeast, One growing are on footprint business get they're an a ways it's as which or going in its And And somebody to things into a hour, something get in all recognizing it geographic without smaller that big from probably if that reasons two-day. that's way. as is us whether shipped having in us.

slightly But what the is of the things see parties through third we've thing having we far see or drive one-day what to two-day small it still has is net want – been in additive. grocery and the the some and into us, that other we year bite-size so done, this of grocery we with warehouse, drag

number to it's figure of out well of little, cannibalizes work. are it. have not to the cannibalizing data warehouse business that the So so to some doing still points our over in we'll an see small hopefully of But it period -- sales. short will we -- it way is time, keep a These a increase how our and

Scot Ciccarelli

Got it.

nothing near really future. the in So,

Okay. Thanks guys.

Operator

you the Chuck Your Grom Chuck, live. next line now question from Haskett. comes from Gordon are of

Chuck Grom

you've last the some Hi, California. was just some some seeing good consumer? just things night. important market more your afternoon. Thanks. particularly concerns, in PVH change consumer and out volatility you're such of market the Richard, if your any in wondering I’m Curious light seen of on of the trade as anything war, in saying rhetoric behavior if and

Richard Galanti

haven't. No. We really

Chuck Grom

operating just I’m they margin decade dollar about of think thinking curious ago. do And say that. are a growth puts margins, many Okay, operating you look Ed’s the ahead, about in future? about not what and question you frankly some No? than stronger in you takes picture much on And can think great. when just bigger retail the

Richard Galanti

fall of and event slides we're four-day keep as things international can has beginning into over Craig from that I that tenure driving guess, the more. a company. been shown long last other year the eight sales managers as time years, more, or at we those And through Jelinek's every meeting for three all The place. line our top

what a and on have to The that been loyalty more fact convert successful card, people is get value we and we with will Membership, drive the things care drive will with to price, have the that price do. not great to longer Executive of else credit now continuing biggest the everything I sales those benefit piece the we take all thought right we than is recognizing the And on of still comfortable value just and value itself. feel pretty

Operator

are Your line Mandeville next from you from the Christopher comes Jefferies. of question Christopher, live. now

Christopher Mandeville

categories Hi, terms in Can greater in consumable I on eggs on just where it on competition good seen cost we've seeing deviations definitely curious overall are and a inflation? I And I significant notable you am greater side, some pork aggression anything willingness maybe pass evening. pricing, on be or guess the of about ask whether of to terms pricing? change like

Richard Galanti

But If I question fact gasoline over have not our has value really. us the example, make gas I using anything, make been mean, have think extreme understand. -- and is to an most board more that overall your more. as the a to as enabled I overall bigger gasoline retailers willing to on I pork little mean – has a and been the GAAP answer

so that us suited well. And

that traditional we the than Again I things. many the any given wars more of retailers fortunate there, think we're out are a lot category at those are price impacting are on

those So supermarket since yesteryears, that's the basics, watching we've to and beginning And I we've do week time of the call what continue been fortunate. every -- I think on ads of so. been

we're We're cheeses. think even and organic you antibiotic in those of show is basics something ourselves of areas name premium And everything organic items, items. up to to still stepped not specialty and to as or helped and as we quality and whether We're it's anymore. a able go margin. maintain just where you a savings cheeses. I we food or private areas we And do great selling basic cheeses label I into mean things decent show in and free a it. And the selling packaged

Christopher Mandeville

maybe fuel. the to is country? gallons I bit I'm to to the comments gap being on just Is Okay. across the to while you that a so of areas speak confined broad-based And brought little guess margin capture expanding up able more more And California? curious competition. the can all on quarter? that then it in like state you growth Or relative

Richard Galanti

think of where best As been some parts when on value from shown for that U.S. pricing, these Everywhere I we third-party and healthy millions it's out of websites Midwest else in that's region the there. the pretty be the gas gas country the at flows not continue is people -- understand And the us. only it across it ebbs as the of to there. value look the case I and collect geographic the you

Christopher Mandeville

for And the comps growth? anything on gallon

Richard Galanti

in be the believe gallons. We're lot. gallon U.S. single into to low driving the the they're Yes, the people continue quarter is think in they high I the in to consumption in continue this whereas single They I digits, still parking in digits. digits in single -- high be

Operator

Your comes next you Karen line of now from are live. Barclays. the Short question from Karen

Karen Short

margin little I is growth like core-on-core from wondering in may on more accelerating could then items increases any benefit I'm And of some there in terms because to maybe I -- that another core it to really passing structural be that? commit of timing delivery to mean price want -- on you I although, had a nature sounds it know don't be question.

Richard Galanti

really our mobility in down. because Not of kept cost we the

held cost We off. were product. sooner it higher went we Even held we or it up we as and price off until raising unit a into costs had

Karen Short

may something Okay. path? terms what would Or you of I more And go down guess structural core-on-core? us there then to are think in we saw be lead that to that reluctant that on then

Richard Galanti

use It's I XX. power. that. last quarters our Look. and it. and didn't to to plan the five and choose buying seven try look then world to was core-on-core down or year-over-year back up eight Again was be guess, strategically basis that reported or it about didn't or six we points pragmatic We like do now it's We ago whatever we quarter two I up with say

I cut manufacturer's value and bit bit. great label is and is product little Certainly is have a quantities mix huge something a even where these times can to it. private by volumes other apparel is and of certain really buy example. in the in little of people The weak We love and it greater -- customer. some merchants the private give go categories, been even an drive of in a think label little value a

Karen Short

China just calculating Okay. Or will be then imported on China? of what we do Or implemented, directly if four from actually that the what increase get have what's really? And you way list does no in -- percent from if is imported get totality?

Richard Galanti

to it. easy There's way really not calculate an

once else the somewhat list is and few four is process. else, knows that everything but everything First what through of people of it all, appealing exceptions process who titled goes months'

significant starting more categories we later certainly, didn't more it's look the although, it, in extent, that related and we furniture, getting season is sense little in electronics of nature. that the this just to there's discretionary some year. that some Again a off. that arguably And to are believe Apparel see people to put part back patio

Karen Short

question Okay. me. last then And from just

where you're how stores, to update And self-check-out those on testing rolled maybe just out? traffic on can stores think in give I then with stores what you many color any some that's been in that's been? an seeing respect

Richard Galanti

in the where best Of it's over the can it's by about in just move particularly high-volume for card if credit the it to order locations we're S. -- to lot several going in a rapid works XXX, where next XXX locations you easier, months. in XXX-ish way the works us got contactless. U. now have a It you

And it's customers very fast using it. and are

using the saving members labor And some are it. end. at Our front it's

XXX the As get our range in volume XXX recognize the is range you units, XXX the important, when in front helps. XXX, to getting units highest through a it's average which faster lot end they unit if people we that on get of -- the

Karen Short

Great. very Thanks much.

Operator

from comes Gregory, question next live. Evercore Melich Your you're from of the Gregory ISI. line now

Gregory Melich

how margin on that how front? the you it can And e-commerce is should from out standpoint as more that? into retail little Japan a about we think and still Richard Australia, profitable roll could than more us know globally? thanks. a give Hi change you Specifically,

Richard Galanti

size a Overall, everybody things the to like of There's charge our don't U.S. charge everybody profitable item. mind every that. portion company. accepting in doors extent and keep for Canada merchandise else the Well, more recognizing back it's gets some to else we warehouse doors that

at of the washers, is and the white limited categories -- I mean like meaning white it's it's a end sales, like. maybe more dryers slightly million XX certain we notable refrigerators, good the amount most gross think one in the there's the we lower day, ago -- margin. U.S., did And of in profitable At and goods. years Four

$XXX – in-store few something, be this year. million, display year's out XXX-plus, which we did was we three Now, able three over to years, last in fiscal a XX that – be fiscal $XXX double should to XXXX, and should a that go items we million little over go

double years. in few So that a

So And time pick have necessity this up I that's that lost kinds think have that us to we as has anywhere that and over the would else nobody by so in – business, a pick of well, those is was warehouse buy there anyway. helped going to category anymore. enabled have it of it up go things where in some

Furniture XX or Furniture regular January during Day to middle XX before -- period, sold Patio the we the that's the in after April predominantly and stuff. furniture Patio weeks weeks Memorial the or and in kind during summer, during weeks through back-to-school when the so of XX of that

Now, where more in sell we sun stuff the Furniture amount sell most that decent shines Patio we geographies that some often. online actually in notably of year-round year-round

Gregory Melich

Got it.

of that as is direct percent still merchandise-heavy? can or as And a that vendor you a it – so and sales? that e-commerce it fair how general what update is is business is us just to business on big percentage very And of say

Richard Galanti

shipped. shipped of It than big-ticket items all it's today When ago, started because years direct, Well, yeah. being percentage we vendor it was – That's solely smaller been. direct, was ever vendor it first drop mostly was big a lot ticket.

added addition years, in velocity one, food you costco.com, and returns, improve going things over it. sundries you the site that. some we like its and more as think to, for few we've about have greatly health or to all, whether to itself, and and last name gone create you But of of whether more its where the categories reasons to the beauty First search, aids

And fulfillment so reasons continue, automation these I think the one that that of some packages. we're you'll small of doing see for

now. just you Costco. at about And – the an in the both of will shop relative we I was percentage progression at greater has but store the done of level it. those. the suggesting that's and Internet increasing to we and If a things. we're online pretty end But better this as That's a want to getting small to do job think our And article members increased how reading a to others, natural writer morning and it's at was well, year of of use the good we of we again, this small each still get

Gregory Melich

three that the a than a went pick on if Is and a sounds clarification tariffs, theoretically just let's four came number would would just from year it. if fair? List of be bigger And Great. list less say China. it COGS half – that XX% it be on everything like

Richard Galanti

would List yes four be -- absolutely.

Gregory Melich

Yeah.

guys. you, Thank Good Great. Okay. luck.

Richard Galanti

Yeah.

Operator

from next John, Guggenheim Your John from question comes you now are of the line Heinbockel live. Securities.

John Heinbockel

where spend – thinking good where or about given be I XX? don't improvement productively? So then horse Richard, back let time do sense lot item-by-item secondly, a Is based real me that some broad to sequential start core-on-core, And with you? think a beat the don't again. right guys you the can that I'll the the And of of elasticity – X in where that fairly

Richard Galanti

if when price sell direction, plus price you we XX think broad-based not is and there if John one think a do you where elasticity we – ago years over It we know, about more, group stale. restructured price well, Right. – was Are about and think the years the three which a certainly elasticity. we a in had lot and we -- back in couple MVM, well or it two worked years little sequentially lower

didn't. up think raised on cases each. about we what on I But is we and units. don't a items think And values And if what of some it we the changed sell price found ever few it less it some cases greater we so X% worked, and

John Heinbockel

our cut can of on more the get just we or benefit, invest price, more we on the we pushing were some the I'm core-on-core if strengths? we're -- Yeah, thinking if share

Richard Galanti

more we We in value push And tried we the think of do don't more can't, we can extreme case. we saying of stubbornly example on volume. I most And a if string every that. out drive

John Heinbockel

China? the right? next All So secondly, openings have and net know gross get Gross think high stand both wanted year for higher pause up still you get openings obviously beyond for bit probably no but Does Shanghai, that a been. and right. looking where of we XXs what's you Or I any right. real openings to those give And you you're probably on for in you it's than then do you going a open estate? maybe with And Shanghai? additional

Richard Galanti

years almost that this two at we're go all well we have locations, and about summer, now. we late Well, a will opening one year one from -- two if juncture this things

opens. So different what plus countries. that other I should say we've not after X.X done That's than one in first years the

first opened think Australia years. the we three over I four in

five I We in Japan four Spain actually over we years. over years, two think opened opened we six open five. in

of item Each they're So That's that's not to registered they're inconsistent. But and the Craig to We'll hopefully sites. we continue; looking look there, country other a estate aside want not when -- at real be right now Murphy, get Head and now International issues and from separately. local unique managers, the any many China's Jim to a ways tariffs. right little long-term with in issue. has guys

we're if And five two years to what new have that we first from a have are some and in like five a really growing were But couple operation over is to hire country's very within four of we the it's in we sense or opened able said of our first, there. units with key very which perfectly but people. other successful we people do bring years to countries four we -- core total and also or from in that go want start internally. the if units, fortunate small we'll We're happy we or after successful, three expats a Taiwan, group

John Heinbockel

thoughts this coming opening year? on your And

Richard Galanti

Excuse me?

John Heinbockel

would net? of August XXXX Where coming to or and early year? XXXX, This gross goes on that this year, thoughts

Richard Galanti

think Yeah, year as we’ll about same the the next amount this I look year.

John Heinbockel

right. All

net? low and XXs So like mid-XXs growth

Richard Galanti

Yes.

John Heinbockel

thank All Okay. you. right,

Operator

Scott. from Mushkin Scott of comes line Your the next from Wolfe question Research.

You are now live.

Scott Mushkin

lot. a five takes similar did Hey, do company helped What centers I card or everything you key of blew if my see – add guys helped you even taking the I guess driving And the years back that's fresh, questions. as over out number you care two credit got substantial? a Richard, pretty of thanks The I see do two next sales or for out three, else expansion, a think type to the top When itself. potential? look sales line what the question. you year you last talked and about lot. so a the of over to look drivers that huge

Richard Galanti

Well and in fresh is grow. foods fresh and nonfood; think the and the there's to all I news shelf think stable continues -- lot one my -- of these both evolve lots first we view of to both of of giant good is that's not items continue think I -- see organic, thing. - different Specialty food within a again one things

It those mentioned, this other two add to I All year. countries add added other. in works. each as stations and countries U.S. We E-commerce more to things Canada. gas besides we on continue

have small of taking a performance this the a not bringing elsewhere very at of some and very good there. not done we're we of in extent them things size the historically to is, Canadian that terms and is One maybe changer -- been our items the game because items lot a up U.S. and overnight again that in we've were

with small that. We've that find do right at that and out been getting continuing and success it in are we we're thing but we're test countries end other to to step. very how high items bringing to and good a taking that figuring the unique next now, items some specialty It's

-- we're what price. that's best merchants continue more I anything the than think think And to us. I with see and you'll we're I and So you

believe better on We're of rewards we're converting in get loyal. those to credit more becomes that And sign-ups a good bigger as doing card. terms think people I executive. still membership job with the even we the site seeing number

areas fast a good we e-commerce that. it's internet whether of news the you some moved enough think I many there's to the in have out fruit over we're of and from low-hanging years benefiting we certain lot that So continue is concerns -- haven't had of that or see there and

to -- talk merchants the some every things I budget of got you tell I hear merchants every the doing. you other the to So about go meeting the we're some countries or and from come of to I that

Kirkland like in think paper from in the can another a cost. them both freight and value dramatically proposition, I size there's and the and now high-volume now goods the level items at we're We're we exciting. in where size a order same that's produce certain in quality lower country where

board of this that continue about. of do. of to across we Now feel drive our those shortage to trying but things around everything, a types stay not There's to we that not busy on is lots pretty opportunities there's here business good the

Scott Mushkin

going competitors follow-up question climate. the investing a what's year is just differently. a much ago goes your seeing not easier? Perfect. is that of little kind bit of And that Is one lot bit we're the may little of then a the tacked they to and Maybe competitors And so in biggest now. core-on-core on price Is competitive a were climate with part my gross margins? it -- really be competitive

Richard Galanti

as It's well. retailer with really board across the traditional

on seen direct traditional and basis, the haven't have been -- of that and be with any with We're this One dramatic an quarters than the we nature mentioned on side historically. because the the retailers of merchandise supermarkets. fresh think they they again competitor. And But one more beast. continue become competing on things I on competitive we're overall just side the to last That's few I competing change. not

Scott Mushkin

climate see better? stable, competitive not So you worsening not the getting is

Richard Galanti

I think fair. that's

Scott Mushkin

my Thanks it. taking Appreciate right. All for question.

Operator

from the live. Parikh comes next Rupesh you Rupesh, question of Your Oppenheimer. now line from are

Erica Eiler

on Thanks is question. Eiler Erica Rupesh. our afternoon. Good This for actually for taking

efforts. you're a so any your the Instacart ramps actually little how cetera, was the viewing seeing into far et such basket dry can dive into grocery you're I Can hoping these as maybe what online you about going would of with then And seeing to offerings? and So, the provide how are deeper type grocery purchase, helpful. and metrics you're bit talk a of bit more you incrementality little be

Richard Galanti

with do arrives entire guarantee is they're the but now is number we all Continental too because in where one drive it's away UPS sign-ups signing we online it up Yes. from primarily driving. that United -- X-day Much expanding of two-day. Look to day, of States. And we're just which and getting first of far the member obviously today receive small

On you years. geographic know their two Instacart last they sure footprint increased to ask three and have or the you dramatically over I'm

the thing the engine into notable into either site one to the is their or that's for directly the the buying think I we go proposition value Instacart site that from value over which two Instacart day, is our one-day going years. grocery someone site improve dramatically grocery last proposition most same-day -- sorry fresh, one-day --

in I fact own tenant we in of grown do believe that of tag and structure that can And their And we anchor reflective think place. anchor-type have customer the they've value. that's terms driving if

a can you over sequentially the ultimate what think walk of now two so four on down goods the into above --. last And what have we is brought I years times customer pricing markup

doing It's on And so we're more a business. high numbers base. big at it's but double-digit small growing numbers,

Erica Eiler

Thank you. Okay, great.

Operator

Your Nomura. live. line from the last now from question Simeon line is Siegel comes of your Simeon,

Conference Call Participant

for taking this guys, Hey our Simeon. Thanks for Steve is on questions. [ph]

the guys, comps out of us been of So, it over little trending soft Can category, a mid-single-digit but the what couple the apparel give like been call any out has towards notable for on you bit call there? huge range. just seeing lower you color last line kind looks some months within the you're obviously a have

Richard Galanti

do a been soft. and soft although I had furniture Hold little on. little Within lines Household don't soft. -- it's to been jewelry, a that that's some with of know

Conference Call Participant

If right. sneak a All little can more in. I

exactly call did what growth, was MSI the for guys high quarter? the On the contribution you out fee

Richard Galanti

million. $XX

Conference Call Participant

million. right, Thanks All great. guys. $XX

Richard Galanti

afternoon Have great Thank a everyone. you very much.

Operator

call. And third that quarter for Thank earnings Costco's you. you conference Thank concludes joining.

You may now disconnect.

Costco Wholesale (COST) 30 May 192019 Q3 Earnings call transcript