COST - Earnings call transcript Q4 2019 | Costco Wholesale Corporation

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Q4 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]

you. Thank like conference now respective to hand Mr. host, to would over the your I CFO. Galanti, Richard may you Sir, begin.

Richard Galanti

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

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

million for year share XX $X.XX In September to quarter reserve $XX a a year ago operating $XXX release, quarter year's income for fourth a billion results SG&A reported was and or XX fourth the the $X.XXX fiscal today's to or we weeks Reported compared XXXX, product per net or $X.XX quarter share was the and assessment. that Xst. $X.XXX related million impacted tax by per after-tax share. or negatively $X.XX billion This press pretax ended ended to

SG&A, or XXXX to to January X.X reserve In XXXX. period certain covered pretax They last we July terms taxes. year received through of $XXX this assessment product charge week an related million from

in U.S. for in a with this a filing be the While GAAP. we will this, to accordance reserve assessment quarter recorded fourth was protest

been or net a QX income a quarter. over last would XXXX share, reserve, year's this $X.XX fourth billion have XX% increase $X.XX Excluding

in the X.X% billion, at sales last came in increase came fiscal in year's $XXX.XX quarter year, at for XXXX and $XXX.XX over a billion X% the increase billion, $XX.XX fiscal for sales year billion. entire the $XX.XX a last Net net over

fourth In U.S. in X.X%. comp reported XX-week reported quarter, sales the for terms was of as the release,

and Canada gas X.X%; X.X%. X.X%. was FX, items, Other X.X%; deflation, FX Excluding rev revenue ex-deflation, it rec, International X.X%. reported ex and recognition, those reported

both a without E-commerce XX with was and total a X.X%. weeks company rev comp was XX.X% and ex-FX items XX.X% those the for reported So, rec. and a

increased In XX dollar comp negative a in points, U.S. and XX comp terms U.S. fourth of XXX. currencies QX rev and metrics, foreign the traffic X.X% gas by sales X.X% frequency by shopping basis quarter basis was in impacted deflation or Weakening worldwide to sales rec about relative plus benefited price points, the the negatively quarter sales

So out. those together things zeroed essentially three

transaction Our quarter the was without ticket rev or average rec. of and the and X.X%, FX, both gas, impacts fiscal up during with

reported $X.XXX fee fourth $XX the quarter. in our up the or been income the up X.X%. increase million over million would Next X.X% or membership billion, Ex fourth million impact have FX, $XX statement, was quarter on $XX income the last year's of

XXXX was XX-month the fee incremental or June almost impact results was and $X that to completed, benefit P&L the quarter. the quarter, of fourth to began benefit QX the the During than the increases the million cycle in in less recognize zero

And at XX.X%, in renewal of rate up end terms QX a our and worldwide, renewal of XX.X% as X.X% came renewal rates, the of from figures Both from at membership Canada the was all-time of the quarter end, ago. In XX.X%, U.S. rate XX.X% highs. at quarter. these up last

XX.X cardholders from of the QX of we of and fiscal at million, million end the at end at million, XX.X of households, up up terms year-end, number had of that's year, member XX.X XX.X ago total from QX. a In members quarter and million the

and eight opening an increase our in quarter, At was totaled XX the in had which in fourth million, of a the quarter during China new openings, quarter memberships paid U.K. first end, XX.X we U.S., Executive warehouse in the net During XXX,XXX the week. Shanghai. XX,XXX one or

of reported reported a XX fourth by rec, year-over-year quarter margin XX the our margin gross In and rev terms was gas higher down line, in gross basis up points. basis going ex and the by points, deflation

-- have rev was As both merchandise. X points Ex usual, On deflation, quarter, and and would purposes. I'll rec. items, a line be up points minus points line rec, points. businesses, and gas points; XX minus the down minus XX reported Ancillary minus items year-over-year merchandise, the basis, gas, The points. jot up In ask a few and was fourth would item rev basis and you without reward, to for items basis explanation you points those columns, basis basis then be reported basis the core X first down and X year-over-year. down points. other, basis X basis X basis X% it X two ex

gas plus ex again, rev up XX as points the get you reported, up, those XX. add basis you and rec, If and

in might by points margin, and lower terms X rev X core of gross or really lower basis the points Now, basis merchandise component by rec. was of the gas it ex

points. core in relation to margins merchandise categories our core-on-core, call the own were by year-over-year what higher we at X sales Looking or basis

year-over-year. higher food that, softlines, increases ex of Other as was rev basis relatively little and and within and offset with showed in and being both that and higher to basis by X gasoline margins. gas minus strong XX rec. basis in points mentioned business year-over-year the a was Most and points attributable points was columns. XX partially in hardlines down fresh the sundries Ancillary flat year-over-year other Subcategories by quarter fourth

deflation lower and to points minus minus deflation X minus following. XX Operations, basis basis X columns, central, basis points. two jot I'll X points plus and ex points points; Again, other, the -- X you plus points X and X so and by points basis reported gas X minus Moving so points, by and points higher and or rec. meaning X down and minus rev points, basis year-over-year; plus basis stock basis higher basis points XX by X minus compensation, basis points; SG&A, basis X basis then to ask basis

would get being one-time year-over-year sales, XX rec, And on year-over-year points. ago. worse reported and to excluding XX.XX%; basis earlier, discussed from a basis and at basis have the gas higher with that, reported points Again, SG&A by X.XX% a SG&A rev year percentage higher flat by up been of coming or in items you sales the would a X ex

increases the of XXXX included the This again the March June components and were and in taken operations component figure impacts excluding points of year-over-year wage once X the which will one Now, the an of hit basis about quarter, XXXX, the rec X core estimated a in higher. points terms X anniversaries estimate one estimate impact to basis We rev to point gas be the X here, essentially by was comparison hit. basis that we quarter. X that during that the the QX impact basis basis two anniversary in first point to the in and points now QX that

was X increase. driver higher without by of points, IT gas the year-over-year rec. Central basis that and was both and rev biggest with

to earlier, basis accounts -- basis again, the points. In stock X hit SG&A XX that was discussed again, for $XXX by SG&A million helped as lastly hit And that the terms -- points. the comp, helped of

the of higher fourth income plus came year. quarter on quarter than -- million, relos. we $XX the million openings, opened million This in $XX Next for in two preopening net the at expense in had XX fourth year the statement, the total expense. fourth $XX last XX quarter, Preopening we XX

for date. to the primarily due total an from was go-live September in preopening and the up business plant fill estimated chicken our preopening ramp now year-over-year open up It's XX-week XXth Our to related have to we'll costs production Nebraska.

income increased X.X%. X%, at billion items operating coming was year All told, year. compared earlier, $X.XXX billion $X.XXX again, last in this excluding income reported discussed up the to QX operating And one-time in

invested combination of variance, was balances rates both year-over-year. $X or higher in the other balance million income from higher by and and $XX items year or Actual better line, by million favorable coming was $XX Below interest income the better million, with better interest a income positive year-over-year million $XX million $X for with interest FX-related was and down quarter year-over-year. earlier lower higher cash of expense primarily a the $XX million at operating interest

was billion last $X.XXX income operating So, income about one-time the coming reported, pretax again from this the SG&A earlier, and excluding including item, X%, in up again at one-time overall, year and $X.XXX would've up year XX.X%. discussed charge been billion

in terms the quarter at XX.X% ago. year tax rate In fourth quarter the XX.X% came a compared to fourth in taxes, income of our in

benefited discrete few quarter a This from rate adjustments. tax tax favorable

relos A items total I as the net locations new locations. in other of quarter, note. mentioned, XX opened we of Again, fourth XX at net few

in of QX our of locations, including total About the we a a U.S. the whole increase quarter million and quarters end, footage relocations, year, XX XXX were XX. At international. three net opened at square For feet. five stood so those square them

CapEx, And Regarding spend will fiscal from upcoming different that be or was but CapEx right estimate not at XXXX above billion. the fiscal slightly year we $X.X year. that total our for the the past that

at In terms price of of repurchased million of million an XXX,XXX $XXX.XX. -- to year shares per an we at $XXX.XX. brought $XXX quarter, share average on stock buybacks XX million That XXX X.XXX average total in million shares the shares, the shares fourth price

still and the the like. and a includes very as rev relative it's call to I note. mentioned a was recognizing continues that up the Instacart. rec to saw fresh the we of pretty and strong day XX.X%. healthy as on ex-gas majors, at grow for clip, the small and particularly well Moving couple electronics growth grocery other appliances, the as both to one-day what quarter, again We two during quarter, Total items E-commerce, online

past brands new appliances, grills this the time carried high-quality and some for like first KitchenAid weber several beauty the for E-com first quarter items time.

we shop the rolled call kind you of warehouses. we hunt treasure we what the merchandise for -- examples a of addition, what if a warehouse, roadshows, out In few to

things those now put online. of are Some being

upcoming two year. We planned new this countries, fiscal Japan and during later sold we me, e-com ring Australia quarter for another And the sometime $XXX,XXX. sites have Japan Australia excuse for -- mid-fiscal year, and diamond large

the of terms to was including That as Currently, Costco membership allows well. added we few register the digital started the things addition digital card. app, in activations to -- We as with, a add In have your during app membership now new million July. in you quarter. X.X if to to over use the

growth the annual gas Executive Reward. view You view members prices; Executive of can Member current their X%

tell offerings. and roll both to with for continue And it's renew the we'll the and warehouse managing We works shopping upgrade pharmacy to and enhancements lists, you, promotional online. to few of of related Costco have and refilling those a the as I able will well new guidance in and and additional in some so out are prescriptions more things in be as terms beginnings the pharmacy

I in the mentioned opened have sales during Subsequent hours XXth, remained the August the on very of crowds, in Shanghai. opening interest. China unit part have overwhelming about the well into closed backgrounds month. to great past the actually earlier City strong was it’s it that Due a Minhang, managed we quarter, our day. been was first four That and over of

record there. We've had sign-ups

there I opened well we've think been it's presence. media the helped by as social one that first as

have We up. currently members have over we -- signed over XX,XXX

worldwide, months for to member have that location. XX and the households been have per put Costco, open all average perspective, XX,XXX that for open years, have in Just been ones approximately that XX months

Pudong. in Shanghai of next Our is also the in for opening and area planned XXXX early

In terms comments. a a and few of It changes next way. along increases lot quick and the be continues item, moving few tariffs, of parts a update. A to

currently at about and As luggage pictures total things first like things to which lists, current aware, XX%. billion bicycles you're includes shelving from air $XXX the imports tariffed that. to those furniture probably are -- and China, steel That's water from fryers of to to shredders three being

from domestics, things plan, and the Xst XXth, approximately kitchenware, and September $XXX don't List With we'll and go at although That Xa, effective we that. that billion, wait to have October but think TVs, includes we tariff where on equipmentware there understand like which goes. from XX% started XX% includes see. just source I to about we'll see current is

toys, to Xb, And and is Again, That's tariff small some currently tablets, laptops, the of then planned XXth. an apparel we'll to of worth which as see. $XXX appliances, go additional well. billion goods XX% effective and footwear and List December wait including electronics,

levels. active an be is beginning we're a for the being tariffs percentage effect tariffs tariffs of in ago, to we Since impact the or over planned can. accelerate year to increase these where We continue shipments possibly and managing before put being we mitigating into is

suppliers do with and what do that. both working daily. reduce every to are on figure out supplier item every We've to gone can We see how cost to much pretty we to

And we've country on we feasible cases, on ability possible In although to look what items. certain we sourcing impact that -- certain some our do exchange a commitments items impacted has advantage just expect, we've limited reduced and on where that. between two taken lower a again, a countries of there's way. that And have been The the way again, helped the U.S. our other by and the amount on few at of alternative pricing little bit. not of rate

things. those all So,

we're think expect, to might we're item able in and continue cases, pursue and hold push our able some, our given ability to In good some every on that our vendor on size and a -- that. vendors. Board, all the and overall we we're is you need and with retail we to it little Overall, we and it's over will scale forward and relationships As and to some off to every different. relative position push

The EU-produced area last tariffs tariffs, to another in thing of billion annually. that of goods legally to potential yesterday's announcement WTO It up relates the on impose can U.S. tariffs. $X.X just

duties U.S. released effect a planning with to of XXth. the plans yesterday, list TR products it Later to target, October take

the countries apparel various include various butter whiskeys items European certain a list from products, of few. XX% olive name yogurt on the on Some duties for and certain U.K., and and pork oils countries cheeses the European included from to certain and products

terms have to we of in pretty what say. much it that's So,

in terms close closes. -- weeks market sales this upcoming our results the Lastly, for we announce September the on Wednesday, October Sunday, ending we releases, really Xth will will after -- five of coming Xth, October

I'll up operator. it the to Thank answers that, With questions you. back and and it to open turn

Operator

you. Thank [Operator Instructions]

the from UBS. first coming Michael your Lasser question have of from We line

Your line is now live.

Michael Lasser

a taking thanks my lot Good question. for and afternoon

a So, to you’ve recently run few drive membership promotions growth.

guess, Should than say, You've done that of should what's this to interpret you and I increase this membership How want in from different we can price about so as you any driving all that? we now the given that's periodically. that you particularly decision. anniversary the growth benefits think past the increase, that well,

Richard Galanti

of beyond the four get -- real people waiting between No, to last a And in one, that, they I for to we've timing that them. and have we to think as I to is doing item, time I similar four currently they think. over the We three nothing one but three a the don't as some work promotional it I want the years done don't think do very it's relates or the put help while or years underway, that. try got no another we've anticipate and just past. any for we

Michael Lasser

can influence on did then expectations? in China, quickly And how helpful. that very that's and your your Okay, you does it And that growth surpass expand many how country? in

Richard Galanti

country. methodical we pretty first start of the being two build it high A or two your the fact from go country, areas we're managers that country, is, it the said, a and from have wherever to functional do neighboring within to we Well, opened want very building clearly, to units That one of in countries the we the really our has surpassed people with start when your a with or into structure and over all new it and expectations. help you process, while to supervisor, other year there. lot go

they and year then will be asked about to a nothing [indiscernible] and and perhaps first today. be is we've going how but -- who we probably it in in methodical that -- see The or certainly five but seen, We've it and a certainly two even hence. the one bigger, what couple as well where same we and as had will when we we gets will felt good, open maybe couple but first it So, us the there, we years we're more answer We'll do. a knows from if excited have you'd pleased open the opened little be how and go before, positive countries. about pretty other we're do it

Michael Lasser

you very and luck. good much Thank

Operator

Thank you.

of Morgan next from your coming question Gutman line Stanley. have Simeon We from the

Your now line is live.

Simeon Gutman

Richard. Hi

the on say I make market was in So, core-on-core this I you better to big looked it reported, years gas I'd a there, have they want properly, Are pure means solid. for ancillary; X, looks which Can a was just still gas if little, I I the pretty the was up sure over that. pretty think, like you, dynamics ask side? or the improved getting it piece gross the margin, which of heard sounds couple up the general? normal down past little, a dynamics on that of

Richard Galanti

big them still bring view, had normal better. what to I historically little generally, to, think retailers, only and prices improved few couple years, and and they Walmart's, last our and the as for ago. us greater some over have in I little the think to a probably particularly some a margins been operations come relative and not ability of supermarkets down last more, And retailers we showing a but other savings a have the for us years the give down few new has us, years gas the the

a is That say also I'd on been. fluctuate, overall was being the than had couple few good. quarters of better it year-over-year said, quarter average quarters, new but does are good. It was the There back that a normal

Simeon Gutman

normal And for was the pretty core-on-core well? you as

Richard Galanti

little. bit. When up yes, We maybe think it'll be surprises a will a year-over-year, it's big you it little there. little little, up it's down when come a a any was well, core-on-core, there don't always that tell The maybe down I

haven't the seen underlying still we're out the to day, competition, and There's of changes we ourselves. the we there, pretty of feel still at landscape headlines out the a competitive giant competition a relates any of in competitive lot of it there. that there's lot factors As end but darn

Simeon Gutman

my take follow-up years, that single-digit on EBIT high like is And the over And single-digit in year. last if X%-ish dollar coming range. you high like It looked came Okay. the it's around the several it growth. this average

little on year, modeling don't know your that? one should is consensus anything look way to is fiscal other big or margin we that, but a items, As that impact there's you the that think next years curious it's spending comment should I so the rate. issues we the I about lower any with think been if several just and out outsized year. bit next model growth, a there you as

Richard Galanti

There's lots feel certainly now. of merchandising-wise retailers an impact. about of impacted talk everything, doing right I we're We Simeon. by good having future. we little the tariffs a about don't mean all where bit what really are That's

that, year in certainly our rates renewal about members. opening feel we on terms beyond up new driving what we with next another membership. and to seeing XX-ish continue the getting But and the direction good going higher got units of in We're pleased go

but feel see. overall, good, we So, we'll

Simeon Gutman

Great. Thank you.

Operator

Thank you.

from Guggenheim. from next Heinbockel We question your the have John line of comes

line now is Your live.

John Heinbockel

on little where versus over the that if is any quarter, at growth, questions getting gas then you it's gallon an two? more One, bit margin gas. last into Do core-on-core. guys gas, where don't think about between that two it you now margin the back year I on you're that pump Meaning Richard, a Hew in maybe -- interaction or been think right? about core-on-core, way? you given think and wrong, or can't you And put

Richard Galanti

I can else not another don't be We going to we Human you in are elsewhere? don't there, things stronger margin you competitive more look. But Well, we terms when dictates if doing and little wanting nature do necessarily. manage say we're way well one a sure, do, completely. Well, the in would of what area. area, that can it in that see --

it the relates up I think to in As gallons gallons, our singles. are high

yes. You theory, a have

of stronger terms than So, of do of comps whole we gasoline. gallon U.S. gallon industry continue much to in

John Heinbockel

little I with And then stand now year? guess, Is it's -- in year I bit the opening past guess, -- was a this do geography the secondly, back-end schedule loaded by same what's it where the and Maybe you XXXX? and your cadence. for

Richard Galanti

if get as Labor whether Yes, probably so little when Christmas all missed and so. you We try the things through approach cares it's you the or generally New as way things it to back-to-school, are bit try much, Year's. but before open May, the who April Day forward February to holiday, if or you -- push holidays,

way. the And disproportionate so the I a last number year locations of same think the We -- opened before QX. in was

generally So, exactly, don't a schedule I me of have yes, front but-- in speaking,

John Heinbockel

Okay. Thank you.

Operator

you. Thank

line from next We Christopher Horvers the have of from your comes question JPMorgan.

live. now is line Your

Christopher Horvers

Thanks. Good evening.

and wanted FX ask So, average ticket ex question to you gas. about a growth

relative in prior you August, slow pretty If to sharply a look trend. that down take showed the

through So, year? in that put Is change what's lapping on want thoughts it driving of a that. investment of center are against Is aisle starting that just that to price want to the or there? the mix pick last price thoughts increases your in so outlook get on the Is a that perhaps grocery, at to some And that comparison? and vendors then? any

Richard Galanti

think or have I quarter, It but specific one-four. if it good that. know I you not if mix. think I'm the head. it prior like for don't It one-nine correct, a a on a my answer, probably don't this the Well, last mix, was in off is I I I'm top and be the answer of -- one-eight could QX, was --

Christopher Horvers

items how through, how it. your peers and assessing are think And tariffs, what's you Got keep on landscape at then passed taking you about you're approach seeing certain are out price acting? that terms more versus, trying of peers items side? in are been on your to price then the the say, less and you -- balancing portfolio points elastic Are as

Richard Galanti

and competitive saw retailers see issues. given of XX,XXX that on it's dealing with with easier and categories. XXX,XXX manage we subset don't at versus some items can to items start and Certainly, any I location I Yes, personally they're -- selling it's X,XXX say to XXX,XXX that times our at think we major total

smaller-ticket bit furniture bigger ticket we generally with and items, One With pretty it's it's harder. feel -- Garden overall, little that, it hard. it. I items, mean & it. easier to that's eat about Lawn a harder. little we on good like be of or might a things Certainly, something But have like

And of that tariff, in an -- don't business. to some cases examples examples I'm put items item-driven again, we're, supplier. me, think by you or we greatly we will sure we something able another we're what can where try that. I'm to from way, overall, I the front have to can some sure and do geographically the able move were thing been its There not on as the if place. item in in But is else or be mitigate of source have something to other limits to of best weren't but there I decide sell are mitigate

little that think merchandisers. it But makes easier to all. impacts a us general again, for relative I -- us it's

Christopher Horvers

particularly items United oil on Got oil olive in olive Can the cheese. olive is oil some the be I of the this there I talk standout, last And imagine about that might the largest seller on there night, then mean, and announcement in States. you it. side;

about is So, not? think covered, sourcing but can that? you talk Spain's Italy I you're where

Richard Galanti

including ones that the mentioned. source you we some from just Yes, There'll impact. several countries, be

Christopher Horvers

the quarter in cash that here down then what balance And to money sheet it. the to the question we another I build. last had as any Got guess that with announcement is all question and you're continues haven't going to the do is

there? anything about So, powder changed? Are Thanks your thought you keep what dry is trying any Has process talk is for can particular reason? much. to very you

Richard Galanti

there's any -- Well, dry dry powder don't Sure. powder. I think M&A-related

We I believe. and December We due haven't million coming a anything. or billion February, of do total $X.X $XXX billion and currently $X.X plan in to have then do

so we'll write -- we'll that down. And pay

We're to that about three or They questions done about dividend, have positively. we've been comments worked special have of the always viewed asked our well seem them. and is

to the in it's specific we to what But planned. have back future. pocket. we see So, in so there's in it's we'll do and special, decide still the wait our still But are nothing they -- that and have

Christopher Horvers

Understood. much. very Thanks

Operator

Thank you.

line from have Barclays. comes Short We of the question your next from Karen

Your line now live. is

Karen Short

thanks much. Hey, very

mean growth, kind much the year-over-year color Just million growth. gas growth better that from on the gas just you I rate? in might backing so up product Because was I -- stronger But into million tax on can little give $XXX excluding incremental margins operating XX%-ish $XXX was profit was how dollars of margins-- it about it have a impacted assessment.

Richard Galanti

disclose don't think I we margin, certainly, had that I good was a was gas help think mentioned, we But Well, as that. I specifics. year-over-year also a it QX to that

Karen Short

Okay. like high? or somewhere too the it is range way But estimate is that in

Richard Galanti

really don't disclose of really We into go we -- specific Karen, detail. don't that a

Karen Short

where Okay. And then and elasticity categories did wondering response anything raise little elasticity of color you in point a on terms if you with could maybe can prices. give you to

Richard Galanti

raises was the And good types items the examples, tariffs impacts category one was the price, are mean of there I -- that price. but of Sure. mean is a portion up generally subset don't I there to I have XX% also speaking, a instead the bigger in the ticket want that was items down so those where anecdotal and flat of these subset But was a percent. typically year-over-year you suggest it I was mid-single-digits down increases, that's everything. of and of a included pricing some that of a probably; is -- so units. to category, couple

we we've items mean and where tariffs saw But just where that, been increase than -- -- some and we've from that. the many others to users price going increase were the price saw we examples we thought of been price unit as increase reflected in most half to There's reductions previous there given tariff-related, less is our of our as have essentially tariff buyers the results. where we related even the I to

has board. the really over it been So,

it was when But the get a board. generally over and have for first using it's a the do there get cost. get about an slight up, $X,XXX. example then item retails $X,XXX of is by pick -- $XXX impact. negative from XX% But unless XX% that to bigger beat or go speaking, to it the that That even we -- that or and try But you you net-net the really $X,XXX it to item,

Karen Short

those guess, little out and Okay. cost inflation then, give lines, at, non-consumables? was along both can maybe guess a that And I between I parse you and color you on And just retail? consumables if then what can at

Richard Galanti

It very little. seen was We've very little.

components, consumables, taking was goes. see for and was You than you'll what's earlier over on question as It's freight steady it some it's away second ago, soup few in pretty actually One tariffs in years week I bit higher freight on about you with still going been was deflation. but the asked has things year. the she here. much this a and little electronics see overall; a all Overall a improved it's

Karen Short

great. Okay, Thanks much. very

Operator

Thank you.

your of from Grom We from question line next Gordon have Haskett. the Chuck coming

is line live. Your now

Chuck Grom

Hey Good Richard. afternoon thanks.

core-on-core on you consistent up, categories, the down. was hardlines think, was Food year-over-year. I a couple and sundries, were Just between said relatively

the dive the compression you can last sundries and into and the also hardline on change food Just Thanks. quarter from segment?

Richard Galanti

a electronics growth those still. electronics part in tends change. be tend business, little to majors, A Yes. but -- a earlier of online its lower-margin to but little also store, I mentioned mix be good and

particularly there's we big it a when $XX,XXX what's changes changes. we're competition, again, big the any ex of lot out seeing not whether I on a lot of food but that is of headlines going there, And of seen question the side, haven't on

Chuck Grom

company's potential, both of in seeing U.S. particularly just remind saturation of you fair your any signs us here And in club enough. how about growth any thinking then domestically are guys you're and Okay, and internationally? long-term can you markets, if the key the

Richard Galanti

I will Well, and in and three we've U.S. have by growth and like that Canada in U.S. rate done what ago because slow But the the said of Canada. years definition, the would down. of

finding course, adding time, will down. slow We're So, opportunities. business it of we more But also, keep over the centers.

We U.S. one in to add I coming a think, in have, our XX the and in and so shortly Canada that'll little bit Canada with second it.

a the your bit. XX guesstimate been other maybe recently, next year, the what a we like year. When truly basis little U.S., of XX it five so over Right on the in years a it's will come now, asked XX-plus is guesstimate, down XX-ish

were saturated XXX XXX. a in we at a one-plus Canada or Canada, now XX In thought and We we year. have

what if abide then increasing. that that or there of by years the percentage we certainly from -- the outside Certainly, will the U.S. certain be then nothing and comfortable of openings most now, penetration I is think the three keep is will of thing think feel likely those more So, I will five Canada.

Chuck Grom

analyzed Okay, next question, that the the years? then you trip. last shoppers just your to potentially using replaced revenue. curious great. over Thanks. in-store traffic Instacart, if that you've impact could I'm either X% are sales, analyzing And total are When of are in-store about the I if purchases I online think, two how And the CostcoGrocery, have guess guys five

Richard Galanti

then is replace? you've see what shops to But their is a shopping on And shops you inflowing Look, to the it's replace first we're does does online. -- seeing will who's you're full How somebody than bit. year, before. it that recognizing net lookout overall more when it's the little But the guess. It's trips I got location you Generally seen if to speaking, reducing more have little still early. slight we be still positive a it and is many shop? less the what a we've

So, doesn't neutral but that by happens good knows I I can't to now, good slightly about way. we call But tomorrow? mean, what -- far, right predict. we So feel it that, who the

members the and the the good our of use that when also part of -- I for talked think think that Costco the And we've last I things about way, examples can talking we e-mails, we aside help in traditional is are trip. frequency it lot create is by supplies warehouse and a warehouse what to past are in to some to seen from while the -- talked about about not hot e-mails cases. the we connection online, in drive of happening that shopping are the e-mails or just a communicate

every that with in. person up gas gasoline, with And comes along not fills

is little But a what do. incremental, check It's got it's to don't to help. So, half positive. We we I think that's of that about you asking them it not half over one We're got to. know Even can't is. to -- see do, a hurt. if

into that I help think think drive to we of us types which buildings, traffic -- those the the do. we're we to So, continue drive want will that are things

Chuck Grom

you. Thank sense. Makes

Operator

you. Thank

coming the Scot question next your Ciccarelli have We of from line Capital Markets. from RBC

live. line Your now is

Scot Ciccarelli

afternoon guys. Scot Ciccarelli. Good

store on year? kind international of for store current follow-up Chuck's versus fiscal openings you plan a a Just opening Do question. the have U.S. for quick

Richard Galanti

U.S. is Yes, I more in than sheet half. think little still front me. going be have to a I don't of the

Scot Ciccarelli

more A half. little

color price you those good when Amazon, the Can how be grills you of how mentioned products your you've website, of Home lots about any Okay, of you're caps but are price kind target of competitive, on on Richard, et kind there's course, got when cetera? can you lot Improvement trying guys of different enough. that's Amazon kinds where branded bring they on found price when the Weber to there, products can call in obviously you transparency, for guys of a popular pricing provide spots? thinking out in Marketplace, guys you guys

Richard Galanti

And it. and whatever big have a mean, that real in but want go are as greater low items Look, extra even good feel of that's computers we going instances, or show we value whether all these value includes a so some -- and things, and create that about bundle in we And Yes. it. done perhaps to be on or I to items value, lowest settings. to can to we're we other priced appliances. I kinds we've that real the accessories as an found it's

And if the tends be show continue then with have I up and a items of think all what to they're And some look of accessories the to on to see entry extra themselves where savings I strong -- you by mean competitive you you to we the traditional. good those will. lot and and that's -- times; consumers at generally we to. savings we big-ticket trade some of way, the very advertised, pricing what level and pretty

Scot Ciccarelli

you. Thank it. Got

Operator

Thank you.

We Raymond line from James. of have from Bobby question Griffin comes your the next

now live. line is Your

Bobby Griffin

and you everybody Thank Richard afternoon else. good Yes, for taking my questions.

go First, international the rolled have markets other and out to back those the some operating you're rolled in I here initiatives the just in? that been some e-commerce U.S. of your grocery delivery into that want Have of sites to been

Richard Galanti

when in now, other said do order. some out countries, would Yes, but like help short from we to few Canada with and others. it we a in haven't rolled But where. Canada it We in

Bobby Griffin

Okay.

-- So it some XXXX? in time is safe to time assume some FY

Richard Galanti

the Starting doing there dry. but Canada, fresh easier, it XXXX, be we're we're up We'll which doing dry well. doing two-day yet. as in not We're fresh, FY But with is yes. already. doing two-day, one-day one-day two-day

Bobby Griffin

XXX% I now. want Okay. lastly on room And And from just do we there in touch over more with going much be impressive some of I How that that. to appreciate guess one? know, keep driving payables, model you working I that ellipsing me, to mind? inventory of you in that one-time continues the capital any to as there you for are is as have items think we're out performance

Richard Galanti

inventories. right And with payables Well, a QX issues, the that's is percent our seasonal generally the of it's highest as when around month or Thanksgiving time. a

on the is low QX generally, with little I where seasonal February sales So, a the basis. point a think softer are

want probably we turning was little that, currently and sure the number. to grow we're have and make it, impacted e-com actually than to that very anything, a it's as that more to negatively a build inventory Other there in strong fact trying that out if

were programs smaller sometimes, capital, few in in though a us negotiated even These stuff and if we each the seasonal terms last end a impacted or they early, working few good quarter at big those numbers, the some assume it's look have it's a months that's years bit that pay sometimes, coming where are and, you have have rate some the itself. will, not little that you need if been also not best ideally, of of guess. vendors We That's usually probably called different. Overall, to I'd reduce return percentages anticipation. cases, items at what's but for -- for that particularly there's will what extended those

Bobby Griffin

the luck year. appreciate of detail. fiscal I this Okay. Best

Richard Galanti

Thank you.

Operator

Thank you.

the We from comes have Chris Jefferies. from your question line Mandeville next of

now is line live. Your

Unidentified Analyst

Jeff good for This is Hey Chris. evening. online

Just a quick question.

the on touched of tariffs. little bit with You a topic this

general, at check some responding nature? in Just like feeling just and that acting ways know you temperature of It price and how geopolitical you're to stuff with in like given what on wanted But are on consumer. tariff both consumers are your items they politics general concerns big-ticket the said sounds increases.

Richard Galanti

seeing good good I is speak still remember very we're we I think renewal growth, in certainly, all that a openings. good and sense rates, results

it. about good pretty feel we So,

day. that turned we think ask television does better. Now, all knows? relate consumer, be off listening the We'll to to and every the all how everything stopped I me who if you heck

Unidentified Analyst

Thank you.

Richard Galanti

everybody a to is also desensitized everything. think we're -- I little

Unidentified Analyst

Thank Right. I understand. you very much.

Operator

Thank you.

question have Oliver next and Cowen from Chen the of line coming Company. We your from

Your line is live. now

Oliver Chen

the Congrats well. thanks. diamonds Hi as on progress in

progressive. growth Regarding and digital, there? new digital how What been for execution, that adding movers check you thoughts drivers app across the you D.C., out improving bigger whether as or traffic the the has prioritize search on product your your be large? or and biggest new the mobile would think are development really And needle that

Richard Galanti

I work things on lot mentioned X.X think, there's improved be people since it. it, done we July. first like since of there's more it. that of just to million to was all, getting to But I as it add a about the app, relates to

the members I on million think over XX have we app.

One e-mail everybody. was of getting from addresses the things just other

guys the push long the where And this for of to a good we were the and in You then couple have ago. terms increased game had collecting have addresses. a we years we big e-mail dramatically done number others a we time, of last little e-mail members of later in years addresses

we're to helping. simple we and are getting more more tell on We're did and people do we e-mail and getting only you sounds click people, open that I the that, and can Now it's that's things. -- why

buckets that the fee of think a from that Hot know, bit while for increase, years giving that's all a card we us into make need have membership take talk a the about leg and, with these transition helping And we as think of couple have think it Buys, reform, the different these little helped credit past. us the over a money -- improvement helped up that's I terms it's the starting have. items. member. achieve I And last to a value better in buyers, tax of ago to numbers I years so whether you couple the improved And we of still We in things of the

think connections more That's no good in renewal slowdown to to I So, are the going Certainly, been rates. members there's help. us.

some budget item what whether examples, it's weeks we improve continue improving stuff, us that, countries items. our Beyond the doing decrease Myers, and KS at looking to the these to and items, number ship see of value side and to at for just meetings from There the of They're existing therefore, U.S. four in constantly to a exciting well exciting but countries, lower point every we to take other from items are the other price other is bringing also the exciting improved item, dramatically. in not and them parts Costco.

So, think our a game standpoint, about I things. when I from of merchandising lot a think we're on the at top of

or for the on, with and poultry infrastructure, going e-commerce new There's fulfillment lot a we On going depot expenses that. in of a got general, associated the that cost we whether it's everything talked IT we've on. complex. as have efficiencies that side, with moment. There's We about do e-commerce

lots things we've are numbers as that of pretty expenses terms in of our and done in well well. there's So,

as vertical integration So, think sourcing value. more a the it little driving but some -- doing cases, that doing we're I some kinds to in and and -- we keep global ultimately, things relates of

Oliver Chen

digital you've customers those of and the they with fulfillment on your margins the done good for getting and align speed? a chain looking Richard. options What job what Thanks delivery? the customers with right packages of overall. with pursue managing supply And Do you speed thoughts and smaller how are investments are kind

Richard Galanti

off not it able -- order you're be to an to not be soon. to and drop later Well, going something anytime hour going we're

particularly actually certain vendors first For days. as but three improvement to that to physical certain installation. now was items, five were I big-ticket now as delivery weeks are three the we items -- it it's and items times of order And five on remember schedule of on well, delivery wasn't you long can with online, and us, actually ago expected

at have and great is your tires example time. These now, -- online order things be but long at. those a all done can you as things -- for we're haven't warehouse a used them with are and that the to shopping schedule them basic you're where So, well. we It appointment actually

see and you'll our think improvement costs all numbers. And easy, are none it's that. I it you continued in So, more than think. of But those

Oliver Chen

really it you've that had been momentum, at business? diamonds strategy should What's with Costco sales good has including finally with And think big-ticket And Any that and how your of diamonds. things the about? going? we

Richard Galanti

that Those us mean quality one example starts are think -- I helped small-sized has great at value. -- to with and on with we're and of don't great I area front the lockers now place Look, it leave good it of items, is a it -- the they ship that's their that jewelry rolling out high-value the can't of things on the want lot people to to a their they work of A locations. porch. number

saw items we like some of uptick items other an number so and And handbags electronics. a those and of little of some bit

all of jewelry Costco couple relates a XXX,XXX value that of got a things And of and past quarters karats. diamonds know it hits overall, so one is diamond I lot I business close typically jewelry you as you year. $XXX,XXX -- the into a of about trust. when -- We're selling just electronics it's a the of and it's because mentioned walk to ago. karats a lot But press a we've That's to

Oliver Chen

you. regards. Best Thank

Operator

Thank you.

America. Your coming of of line Bank Robbie Ohmes comes question next from -- the from

now live. is line Your

Robert Ohmes

vertical And Hey a Can affect $XX is things it expectations? of going the this any be maybe And that us lot Thanks know is on getting chicken looking let you how other question I'm further? integration, quarter? there forward? out expense might plant. chicken does plants, are so And of do far to million was just of sort preopening you preopening to just One going questions. my related taking types the versus for how about also it that Richard.

Richard Galanti

is this look, a plant. big Well,

to It's to year of birds very day first And I weeks chicken through each sorry, production. be and it's birds planned plant that of but to X going take the to understand X as went terms think I XX processing a week I'm a several gone -- in in the most full -- it's but to X first state-of-the-art and in more -- million the going close more about get efficient, the to going million a get to million you're country. have year weeks.

when effectively we it September The XXth. on stopped opened preopening

big XX% huge not and So, still little a there's chilled. water but U.S. About amount. are of air-chilled. that bit poultry facility, it's like plants also a it's in But QX

of high-quality of So, considered it all environment a that it's deliver the to things well. as very a us terms while issues the in lot and food doing for allows -- item

didn't It things. a a It for big in year, us a a come good of lot a and there's more but we're excited without So, was investment little it. cost. about bit

had one we in -- a one many for had a California We opened things, we Illinois. Other Tracy, ago, year Morris, We've second plant. meat years. had in

terms in a We that also dough also, of to States as and off much of United bake ready commissary premise. bakery Canada you know, croissants serve in things will cookie on like opened the

price going the to looking variety lower There's the to environment. a being things for well better not of new airship of being greenhouse on the of We're closer to and having market in things lot as at greatly nice as technology of be the agriculture. area a Hawaii Would opportunities. to and

in of the required this certainly chicken side, are going planned don't done investment I But So, other the I and nothing but on, there's going big some not half of greenhouse was say a year I capital to and we're the in than size type of hopefully that else, complex. would think, new a our the way. that's beyond things that. But we've the mentioned few that, in think from given couple a -- given benefit things things on and plant, got that last I the poultry

Robert Ohmes

Got That's Thanks it. great. Richard.

Operator

Thank you.

We line Montani the question coming from have your Michael Evercore from next of ISI.

is now live. Your line

Michael Montani

Thanks taking the Hi for Richard. question.

us update slated it have of next? kind can now remind get to an you wanted rollout, be on if and countries Just just ones Executive it which which for to might program ask

Richard Galanti

month year and it ago. Japan. half in out year out have we've this Mexico, and about U.K., we year, Korea, A U.S., it ago. rolled we a Well, the Japan. Canada, Korea, rolled started we just just And a in --

Michael Montani

could give for XX%, around Okay, a for great. One quarter? gasoline of thinking And I've Can I XX% the what is housekeeping us ASP quarter. also one been around was if you was the this that sales gasoline. sense?

Richard Galanti

Hold on.

think I on it's a $X.XX the [Indiscernible]. versus $X.XX year ago.

Michael Montani

how give last the And just now I and that third-party members can terms Okay. in was that had of what seeing just many spend, Citi progressing? how update it's thing you're us on on Visa, an have you

Richard Galanti

those I members. tell you don't continue numbers us. can we of new to front I in have add

hopefully for better to us Visa existing continue originally continues card holder the per well and rewards and average and card Citi our the probably It's -- done partners. increase. we had had it's We to substantial, reward credit working are on it's hoped The really than well.

Michael Montani

you. Thank Great.

Operator

Thank you.

We have of question your line next Kelly the coming BMO Capital. Bania from from

now is live. line Your

Kelly Bania

in fitting Hi good Richard. Thanks evening. for me

Just in the really wanted to go back potential question to store U.S. the

to I you maybe ago it communities that were kind you of some thought. go into years you few was know than a smaller originally able that think

planning about for And as so the and kind size clubs. communities couple just of think at are of demographics of new what the curious, you and next looking you years,

ramp on go also, of cannibalization that? look you guys it the you how terms think some you of question are what you do metrics when And members? that the think saturation, of at Or analyzing of at? to about the saturation the Is back the about you just when you and think key how help are in any analyze pace sales,

Richard Galanti

of as low X.X think years be plus you could million trade Today, depends. I was people to that the XX needed XXX,XXX view and stuff. kind It area certain of number ago, sometimes. businesses about that as all number

little XX of our markets the never we go our room or are markets few confident gotten cases, direct gone had when we in and more both for were, probably XX there. relatively -- gone in it, medium us, we've and of years smaller competitors that done well. Some or where a last years we've for in generally many just We've competition there's the into

opportunities. households, example side East some the and those opened I've in back lot them, the only added where, Redmond. the we the thing about years my few locations, three in on you over Issaquah, And three ago, in in but had the think so the had them. XX,XXX because loyal if two we Bellevue look Seattle, -- added upcoming a let's members each. frequently I and XX,XXX last in guess years About you new Woodinville. the side calls used members to next shopping historically, that We only infill about Seattle on had years, be started other is, we is of XX,XXX, Kirkland there'll of we closer members XXX,XXX-ish of locations, year, were say more between

opened high example, million to that threes Seattle, those million aggregate volume. million you on did we before $XXX-plus of that level, low you think business. side comes more a twos. $XXX -- -- afford of location example, a sales, year, that I Part that think had comfort million, in of and in high over the of that get the we we when the with X gives little cannibalization, other mid In of I cannibalization. little $XXX have think this that to business, And two as net And that I $XXX first can fourth the you

when easy guesstimate base. pretty have a can you it's membership do to So, you and loyal you think estimate what particularly

quite but not all but get market, if And every can And market, roughly know The open talking units. -- that geographic but probably look of XX-ish of greater don't thrilled happen. we'd XX we can you very XX if another are I couple very think like which Greater they're impossible, is markets those years, I'm there at you have other we have geographies, are Angeles specific to difficult. XX, the then view X Los be

and in has terms the trade over So, and our where we competition entering all I expansion smaller and think it's of continue then board are infills. the been areas, markets just

Kelly Bania

that And how what some helpful. collect learning perspective on going from just maybe that's maybe which I and broadening and do labor you categories to then for ticket logistics one with click of and you're changes maybe another and that's are other like a respect as realize that Okay, or items. some any the and thoughts big grocery, labor-intensive? And to more complicated

Richard Galanti

tires I pharmacy talking deep. items being. for we're about and jewelry, and computers, high-value handbags, going us see don't I too the mean Yes, small-sized time

Kelly Bania

Okay. Thanks.

Operator

Thank you.

coming We line question have your next the Champine Laura of from Loop from Capital.

Your line live. now is

Laura Champine

a Thanks just for one quick It's on inventory. question. taking my

quarters little receipts like were -- they also in a to prior growth. Your looks rapidly and inventory less have grew relative sales than

So, sales just any you on to get -- that trends? why thoughts ordering and on of that quarter whether whether sense has your reflects wanted cut your might a our have current

Richard Galanti

inventories quarter. our guessing. built that. e-com that to guess a as it's We've baked is happened year-over-year a It year, up, kind into happened anomaly really and of I -- maybe I an cycled don't that little -- this than My example, But for read read things that's online, don't bit less an like in it. of that to lot increased that a related might that. be there's I'm into Other nothing that, of we've

Laura Champine

Thank Understood. you.

Richard Galanti

Why don't we two take more questions?

Operator

Thank you.

Your the Rupesh of Parikh Oppenheimer. coming from next question line from

Your line is live. now

Erica Eiler

actually Erica for on Eiler Rupesh. It's afternoon. Good

So, I just had international. question back one quick to just flipping

inflection market and in point when typically an see So, when a those clubs? at China, look like you do you profitability

Richard Galanti

the years be the a the at year level, club road. could or few first Well, it down

XX, grow and you've from operations not up. one not mean and -- or nearly I a in of central the a got have with XX. central one people location a change the department expense it'll you there's huge to but change big some buyers the You've -- cost like. and a big accounting geared Whether

so on can depends And year or country. the it be Usually, it four five.

was I think Japan, of our is years five which year old, turned quarter a end years in five. of to in open the budget profitability original XX-ish and now five towards

the near we hit of six. end four, and think I profitability we opened year

out. that's probably like France to of get country be XX additional a just it And probably years where we're years one It's good a So took slower us be sites, a -- in looking it but could to couple going guesstimate. opened. while for still

happen. mix to going going not those. to go in from one to you're five So, of going five years. to that's a But have We're

Erica Eiler

helpful. That's great. Okay,

Operator

Thank you.

the next line your Research. Chuck coming from have question We from Northcoast of Cerankosky

Your line is now live.

Chuck Cerankosky

Can Was Good talk tax evening Richard. One of it housekeeping you question. kind the product? on about drove an reserve What thing? the excise tax that?

Richard Galanti

seven have authority on can't thought a and it a before say, again, ended was just it. formal that But half file notified and and that yet. in year been should tax a relates we But under I see accounting, we we're, XXXX going again, to, again, a we've period protest And how GAAP It for it the about really to to some talk assessment. were essentially I'd reserved that collecting lot much.

Chuck Cerankosky

And tariff maybe coming then result in private what could for And categories, new thinking the get as general, for the you to situation, are sourcing Okay. an at on year? a that about in down? fiscal label items private products to the looking more new label price impetus use put --

Richard Galanti

Yes, really for not tariffs.

everybody. so it's changes First of China some items overnight. private going quickly sourced label our nothing are to all, out as of well, And impact of

of things have mean they KS late olive essence oil virgin waters, terms to see continue of some all that I on or like you'll introductions I In have and extra seen chocolate impact items, of a items, you recent chips. of specialty think variety tariffs, waters, kinds that

and I'm just the looking items children, apparel women down list here, for more several men, housewares.

I grow raise So, of the continue going existing improvement and further even that that to to -- continuous you're and see cycle. items, think quality

looking see frozen coffee food here, I'm some down that pods. items, my on You're just going to soaps, list diapers.

the sales. -- three lowered -- think, it's I years trade. and fair the customer And to ago, XX% now four to recyclable which pod, and went will, and you coffee we if it KS driving more it's or value the by over quality. the went improving, Since the taken We've we then, price organic while we've

we're So, doing to of we -- things again, we items regards -- types of and what there. lots the there's little as

Chuck Cerankosky

Good next this year. -- year All Thank you. right. for luck

Richard Galanti

Thank you.

Well, additional day. around group good there's here thank any be questions. if everyone think it. Have I the and you, that's a will

Operator

for you, participating. today's Thank conference. concludes everyone, This

Have You disconnect. may a now lovely day.

Costco Wholesale (COST) 4 Oct 192019 Q4 Earnings call transcript