COST - Earnings call transcript Q1 2020 | Costco Wholesale Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q1 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]. Please be advised that today's conference is being recorded.

to conference like speaker to now Mr. today, would hand over the your I CFO. Galanti, Richard ahead, go Please sir.

Richard Galanti

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

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

share operating $X.XX quarter tax benefit year's year quarter. the XX. first This million year's quarter income benefit results included release, per first last income results compensation. share or In the related quarter we $X.XX income net first compared related at Reported weeks today's XX stock-based or share included came in $XXX per a million for $XX the million first $XXX a or or reported $X.XX share to press stock-based the Last to per $X.XX tax results in compensation. $XX a for million quarter XXXX, ended to fiscal of November

Other on X.X%, a X.X%. reported was reported plus the quarter first international a Comparable $XX.XX the over Canada $XX.XX X.X%. of X.X%, billion and during Net deflation fiscal ex-gas quarter billion, the U.S. first quarter for reported deflation FX deflation ex-gas FX XXXX was sales a plus the the and in at X.X%, year. in last sales of ex-gas X.X%. increase for sold came X.X% basis

the deflation Total reported and and E-commerce a and later FX an for sales a was this company approximately by on a XX impacted were by impacted ex comparable percentage of due a X.X% company E-commerce gas week occurring in reported basis. a points. sales negatively to the basis negatively and quarter total So estimated on reported Thanksgiving quarter were X.X% year. X.X% was X.X% X.X% a

impacted again X.X% So the negative XX X.X% and percentage the were points. by to

the of U.S. sales by currencies the of QX includes the In sales approximately X.X% dollar traffic deflation first the increased basis quarter frequency points holiday terms in or impacted relative metrics, gasoline the to U.S. negatively basis sales foreign negatively Weakening again points. impact comp worldwide XX and shift. price by impacted shopping Thanksgiving This X.X% and approximately XX

was X.X% shift. and deflation, Our during holiday average of transaction up or the including the impacts FX, gas negative the ticket quarter

Next on membership have million last membership the in million to million. income came negative. would up that $X income currencies year's at fee Reported fee $XXX or the million, Deflation, $XX from income. of statement, a FX foreign by impacted $XXX X.X%

$X would ex FX. been million it So, higher, about have

was U.S. fiscal worldwide were that rate of our came XX renewal QX-end, and and In in ago achieved at terms of Canada at weeks at renewal levels XX.X%, remaining renewal figures XX.X% rate same the rates the rates at these both year-end.

fiscal increased in, In million had total end. I and QX-end, was weeks households of we at million, XX.X at QX cardholders and XX.X million XX of XX.X on member at end cardholders, at terms total from of households X, to number later of and terms member September in XX.X year members QX think back million QX-end

in the Connecticut U.S., warehouses openings, Dallas, and three business two a new had and in During Minnesota. additional the quarter, Texas; in center we all Costco

increase an QX-end, relocated the of new paid have the units [indiscernible], QX-end. offering XX.X week. our of $XXX,XXX week This memberships would beginning been [indiscernible] of included would per one At executive as of members recent Canada. in the executive memberships the XX,XXX Even the launch also or We weekly out, million, time executive since first XX,XXX of year. fiscal taking those a ex average been to the totaled increase

at ex-gas margin plus would down a that Going we line, deflation. Doing on a compared basis do XX our the XX. reported XX margin points reported little gross the quarter, to was coming to the by and basis XX.XX%, again ago higher ex-gas have year deflation gross been fourth quarter in year-over-year columns as chart two each reported in XX.XX%

year-over-year basis and points merchandise plus X plus be to to No businesses basis reward, plus quarter, ex-gas core a and reported compared XX. a XXXX item other an was basis year XX line on earlier First Ancillary points XX. on change plus XX in QX and deflation of X% and X the would basis. minus minus

of total basis ex-deflation. points So plus a XX XX basis on and plus reported

gross of deflation. X by year-over-year ex-gas again reported margin, X minus Now, the merchandise lower component core

core that foods their will. Looking in in commenced throughout complex. relation hardlines, own by operating you XX-week processing and a that we the foods. core basis on and plant food headwind was plan to to a softlines, to Subcategories showed year-over-year from higher on will points. the the sundries if with on full the Recall the at a within initial year-over-year and core are result fresh small our That in roughly increases losses Nebraska decrease at capacity, poultry and get margins we core, operations September production so. year. and track new chicken currently the XX sales, Nearly be of do all QX in X to decrease merchandise fresh were categories of Margins in

highlights by reported in ex-gas shop, Ancillary and XX margin, business the and hearing XX other The tire deflation. gross being year-over-year optical, gas, aids. higher and

last in zero the year quarter last and on this last other, program mentioned of estimate the adjusting card year, year Citi relates this was in ago, the Visa versus The cobranded pus again rewards year. to our what of to hit the compared year XX to that we breakage for comparison

SG&A. to Moving

Our SG&A worse do, last ex deflation both basis meaning operations points. was in coming XX X up matrix was XX gas little SGA reported Central, or basis points year-over-year and percentage reported points, minus X higher Ex-gas XX.XX%, we minus basis deflation. minus points from points minus X versus minus Again, that year. higher basis at Stock basis minus QX-over-QX by in by higher the deflation, XX.XX% X X. without and compensation, X and by X.

of minus and For XX. a minus again, total, XX

figures terms relates XXXX, which that occurred increases These we that This comparison points March the the by minus the in the X being year-over-year deflation basis includes occurred. basis wage in impact about that quarters in an last X to the the of increases ex-gas impact core from to in wage on figure basis, quarter. this of include, points hit couple X talked

through mentioned QX As increase in before that previously, midway will would occur anniversary we expect similar impact we wage a QX. that

that QX years XX, fact hit points that four hit we RSUs quarter Central year-over-year. we only four basis we upgrade maintain was again XX and employees but higher in expand increase our comp again have and in XX and for activities is there. IT by usually we That and biggest continued minus capabilities the was going not lot things points based the driver on to the how do year-over-year and stock out. as basis on there. of a grant certainly And

the income statement. On

expense. by in this million. six plus versus total Last $XX openings, last first three This at $XXX came total we relocation. eight Next year openings, QX we $X.XX at in one the quarter, year year income million operating the is $X two XX.X%, this had $XX coming year, lower compared in year. the the by billion plus It told, All pre-opening relocations. to increased quarter in It's million. four in million had

was other compared Below higher operating year-over-year, higher coming FX by year's million. better in for to of compared year. year actually expense Overall million million $X Interest income $XX and last interest this first income income million. line, pre-tax the XX%, the to last was $XX year-over-year. was plus the quarter $XXX $XX million million by up was $XX or in Interest $X QX income in higher was at favorable XXXX million quarter $X.XX billion primarily variance others and

XXXX income year. of we this stock-based in year these tax in QX tax year's treatment from and Both last QX mentioned rates, tax from item, taxes, benefited year, also which additional last of compared quarter compensation, terms mentioned Last year. XX.X% first to quarter earlier. an our last of reported XX.X% In rate the discrete the in of as was benefited rate

other items few of note. A

open end XX, fiscal warehouse expansion, we with somewhere of planned open terms a the it of of around it plus new or of back-loaded expect units year. openings, much of net the new lot In minus, to towards to

of footage XXX As total we of square square had warehouse QX-end, million feet.

of capital and CapEx billion was expenditures. approximately our fiscal In amount. QX, $X $XXX estimate the for of spend all remains XXXX million Regarding total right around our

In our those our mentioned a terms XX account roughly holiday as and a points e-commerce shift. X.X%, earlier quarter X.X%. I on was e-commerce, of could to Again, of add basis each ex-FX reported numbers, in estimate again the percentage sales overall impact you those to of the of for the

again the holiday pharmacy. the we at grocery as the to stronger one than faster piece grow it's it still shift. departments, of small were impacted online rate believe by Majors, not furnishings, e-commerce Total domestics, and a business. tires although of the comps, home departments among A most those few core was continues electronics relatively the a

and expanded gift New including airline tickets Super packages. Lyft the and Uber online cards, Bowl during offerings quarter cards

our during with in to few we California with the week, of and the Japan site delivery today, of in it's planned also offered delivery test the a open we prescription first that launched lastly, launched quarter also, Instacart same being site earlier quarter, in half a Instacart in And states. through this We e-commerce XX alcohol calendar Australia day our same-day XXXX. such launched as Rx as locations in

to up imports. worth will. go if X tariffs, were XB of there possibilities X, moving there and ago. lot would of Currently, place In terms lists, changes to X.X again that $XXX be and are X, a XX. including continues and about There hour totaling there list be X would you a Lists an A, parts December of billion into

of that current China and close Although today U.S. a a trade on to deal. finalizing out news and is part are the deal Phase X the the

and wait to And have so see. will we

just that increase $XX billion in olive of again butter which $X.X current whiskey, items. a other oil, last subject In mostly XX% on imports, et there's cetera. White would among week, last food items tariff announced to cheese, EU. House terms tariff, the imports that in to Monday, cookies, include those of U.S. are Currently, wine, XXX% like billion Again, the it proposed

mid-January. to to have even early aren't that and see just anticipated comments where will to believe We wait complete be I is. until

it pretty our That's on part. much

releases, the Lastly, in results five-weeks upcoming Sunday, December X after January ending close. X for sales announce terms January of our we market Wednesday, will on

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

Operator

Instructions]. [Operator

Your question. comes from JPMorgan. line Christopher first question Horvers your of ask the Please from

Christopher Horvers

Good Thanks. evening.

into and that plan at the and the so bigger something you you am any So, six it? I It just just you are in Is terms holiday maybe season there something retailers days. given normal in for to season. expecting XXXX? want thoughts shortened asking a Christmas, comment that surge reported fewer how December given of about through planned back are get have lot not big it I saw than step far? what XXXX Is seems how the in year planning something, you end, of like are your a it this you Is

Richard Galanti

between yes, recognizing ramp being per for to general, on that switch -- we think as that Thanksgiving and we the to of basis. I November are when Christmas. planned example types us the period in we past in a the expect have going in switching QX versus Well, example. in historical continue a with time to what's plan, months rather But have do comps Thanksgiving And have levels sometimes of of we some knowledge assuming you it got between and of day the being versus so QX shortest up happened we -- our there's

have will went see good the into renewal planning, we We frequency and pretty good have that rates But wait where it shopping I comps. increases to think, and goes. and with we confidence had, the good

Christopher Horvers

pricing environment, then like to some seems has line margin on it taking be bigger hits And seems to gross the and comps. the benefiting it Understood. been Sam's

in step-up a seeing in club seeing you core are Are your So, peers? that investment of, you price step-up in a terms from channel?

Richard Galanti

In a word, no.

Christopher Horvers

in Got I it. And ancillary you the enough. to big my in question lap, going think, That's pretty fair then benefit are a year. line XQ last is, last

all think have so to points, mean gas, gas to it basis going prices. was we XX have I you of give are that I Do part being up be a big prices that will gas are still an there look know at like bit interplay to but is year-over-year two and they those sequentially this between going point up I dynamics. be down back?

give could you basis points given would helpful? thoughts any around us be that So, lapping those super dynamics XX

Richard Galanti

last few the We, read we that gas I part retail comp seen Well, business. high think fact very have has for retailers profitable basis have our we think, gas in us been from increases the their from gallon the for have It big on retailers, stations normal single over years. new and the profitably of it's concept, a more that as other benefit as I a digits.

can our that taking price in never of been shops our we market competitors Despite gas, we when increased as in business, profitability know savings it view, we strong. has So, do share. are

very So, feel with about are that. good we we where

increase, you of much the last to plus Now sequentially, year-over-year look but XX had as whatever in at year's before. was was, me, on it part it it do of don't the when have front year a what whatever, it as I basis, or

read you been the what others it's for when said and again couple quarters, in we of us. good said of think all have what I pretty have last

years are of but coming that, last may going nor wait you negative not we and going see two ago, that it be, have see. back see kind to the top will it big you from are of from delta to big So, are to the negative delta year on

from about the never it to last very fleeting. good as in you gas been think is, how of what learned now, Right general, it was week. know to was couple we could it week profitability have quarter We it be but it's years predict as and over sometimes last

Christopher Horvers

so guys. Have Awesome, much. holiday. Thanks a great

Operator

from Lasser comes line UBS. of the question next Michael Your from

Your line now is open.

Michael Lasser

briefly. Good Richard, is over if how Costco quarters But touched and tariffs this? you question. going evening. Costco's of margin this on Thanks have are tariffs dynamic? a we modeling my the profitability from back, the of lot for next impacted taking couple Should is how benefit this some handle to be rolled

Richard Galanti

qualitative have if plan, Well, easier we good a one basis, think I we I we have XX% a generally certainly those XX%. fact relatively companies that a a feel overall said that than are the that and scale of on on we had of will, think tariff mitigation and you

think our on XX% in I percentage retailer, thing has that's small a business whatever retailer this, are one of different and of furniture in that or area. items you your top tariff of again in a out if scale our general, company ability to than our that are because all of move a items,

things it where other and we sourced others, countries. Like moved have few we a out can of

lower the percentage I think ago. points into U.S. few a just total our China year a imports about than is

don't the more our But hard end have done we haven't we in know is enough think look On as are anybody until the have we have where seen an has us price day, terms generally it it, the being it think budget will. can of I ones unit into on or speaking, to to if So, which at to able impact numbers. of that nor mitigate of others, happens, up -- is, you at impact. and than good But in What and never we elastic we of the it's others, sales. that for as we nobody that passed the cases lot fact all a some can do the we. some we gone it's

core certainly, higher. else there. by out we now, slightly I hardlines have speaking, the haven't we want foremost That or margins, in And XB first it generally the we and continue the without that on to margins, our feel softlines, And to most us to okay think anything and that year-over-year. our and it. don't core like come go that think been have even up competitive departments so on don't fact done makes I again, done being we List But want

Michael Lasser

have a you price to or it how where that? make So taken in you do reengineered handle cheaper, cases product

Richard Galanti

product. ever tried all, have of to I don't first Well, a think we reengineer

figure We little with the help how bit to out down get suppliers. our to the a going try to are price of

a Sometimes, our to putting can or moving items country in eliminating own we here. money or sometimes and and place item few whatever else another something else an its

to hit be So the one hard what in good January, when of and XXXX to stuff I $X,XXX had $X,XXX that late hit care get March hit as on economic I anecdotal were markdowns and remember furniture, in when in a and patio story case downturn would our our think floors. through lot we take a that was the hard February as values calendar

bad that merchandising remember reminding I our bring hit want budget everybody, June, vividly, were we still to and quality a when meeting, economic in the CEO down and and to price of can see following us don't come I downturn a head stuff it's point. a our

to We particularly XX we with years can goods. on bettering have taken XX, the values our of types members bring, get comfortable

And a Yes. not with Yes. to. so might units we something? we little augment buy bit we offerings? of a try some Might But less few

Michael Lasser

a the helpful. to keep read holiday the more Costco investment website weekend, business? outage we question its the that meaningful And over that size of given follow-up in should up needs That's technology is, well-publicized growing as to my with make infrastructure

Richard Galanti

very Thanksgiving the will, plenty It every capacity, that Cyber and certainly something was day are. incurred. we here you Well, Despite processing you than first so and have unfortunate. between and were the what When if of percentage look all as was have a five efforts five it there mean better of all, we we showed I year-over-year we live days Monday, at been to tells on it we What we have what a us, we consistent days high that. done up teens on the could currently still basis, running. in those have e-commerce,

did we again, It are spending we there. we several day, So the assured, leave like a table rest unfortunately. correct that money hours And something it. took lot things that. were able on to of on But

Michael Lasser

Understood. great Have holiday. a

Operator

the Gordon Grom ask question question. next Haskett. comes Please of Your from Chuck from your line

Chuck Grom

Hi. Richard. afternoon, Good

First on question MFI.

be in past you is wondering we see fee you FX X% coming reason proxy the quarter am good the increase wouldn't if just in and the the reported quarters? Now normalizing, any material are why I growth a

Richard Galanti

certainly, growing a reasons sales as one little the the little the why knows than a That's of it's faster a openings of opening. of it's who of like China total it. a little line, Well, recent couple

more executive importantly, it's done of remember. members an think sign have that of a we up some job the better as getting much new things I to

we You saw member number conversions job new these executive membership the in are up member, terms of as is new member well. which well doing a as combination of a as as signing of executive of that better to

more aside course fees, And membership a member frequently at of that and slightly that improving more higher renew shop from they more rate. loyal are

I doing, as up are example with things Costco. the that lot getting somebody the the here other card, auto-renewal of may and on Visa mean for that some we auto-renewal And to U.S. at of use of cards that into so it I signing Visa having a is choose a well think growing opting as members, as Citi number

more would well. all too. we certainly to it's the are think member, offer it and value like those is things as of so that great help related that's part that the I which And things to just

Chuck Grom

Inventory sort metric, sense inventory the a of Okay. the presume a Any a that's just balance Understood. look to for apples-to-apples over per like? club some to I just way sheet were little or what that, other just get heavier. for would to of bit little to switch normalize maybe timing Thanksgiving. levels bit. And

Richard Galanti

holiday. Yes. think of it's Well, I mostly shift the

more Some of system. in with with buildup it a e-commerce those and is as holidays well the

down days Again, since the we that more are fulfillment then, doing have it's We as come on side. expected. few in

read So I it. into lot to is a don't think whole there

Chuck Grom

to the Okay. then quantify going Maybe was a saw here that how plant, much one current core you and Great. then are the get drag from on you chicken And up see on for sense the last the to for quarter? what in us the just just that core quarter continue to to X%.

Richard Galanti

weeks if first a about, through on be Hopefully million thing later, the there. week chicken going X.X through we chickens will went the there chicken, September the roughly plant, will, if open Well, you XX. XX

months, three you if you you want while a lowest of here, first the running which be have cost The that. part operating then this issue. discussion, there's it's lot and I for will. should drag cost were don't that. plant. to it September, November, one diminishing the completely, close if October we QX enough million of then of And line in at chicken straight and and There lines end both but of lot a QX then running will, It from is a don't QX in an QX of going is chickens, X.X associated to just with production and yet, be most not

Chuck Grom

sense. Makes lot. a Thanks

Operator

And have Jefferies. Mandeville your Please ask Chris question. from we

is line now Your open.

Chris Mandeville

Richard. Hi

basis? quick realized SG&A, I a to with to that allude So were Michael. little investment, we expanding am gets your to we trying a basis? should with progressively capabilities a activities? assuming if similar know to something IT thinking the don't Central just go-forward similar prominent on what the Or in actually on respect more reference be a if pressure you be go-forward just that quarter should and that's if to was bit about that I on respect question curious or

Richard Galanti

about talked look the I have several some called some that modernization as I years in the other we things but it's hits the talked e-comm completely money If well. using stopped word over modernization and like now of to last, with last We of of technology. lot all in a plant, things The quarters on fulfillment chicken in several SG&A lot spending A last that terms about that extent. that.

here within woods reset of the on this wage part Northwest. couple over of IT also have certain based departments in competition We up years the of last done in a the

go So and whether lot increases as continued into of that I well operations have on, And things lot as e-comm, a we and it. integration modernization. mean got depot going vertical it's there's our a in infrastructure

I know. don't So

quickly, think and incremental just best few a we ago first And of two be talking started was estimated ultimately we then a that we XX felt that, XX it it XX. it years basis was I when or years be XX points to quarters some about over zero. then, and went would as the we couple could quarter-over-quarter was could modernization originally it some six and And a basis, years it on was or quarters, it company.

think I flat to impact. couple three that quarters of a ago, maybe So was ago, quarters it year-over-year

like reminded people that that point. it an And into read don't inflection is I anything

have expanding as as lot both vertical well well a going as to related We stuff modernization integration. on as

is, slow point, guess supposed At year-over-year. can't those negative negative some hence, incremental say. negatives I my So a have will still negative, a it's There's anniversary it to be when down. will net? year we a

Chris Mandeville

to to just And the Okay. approaching respect how you a I attempting in delivering the pilot pharmacy exactly there? perspective? are guess different your what Rx And be Instacart things and then just you my terms of would is of members. structure from any with are accomplish delivering grocery follow-up to

Richard Galanti

our something things a way. in are have where when let's store, to you start this all expect, no, is you shot. of things we And them Well, going you going and do might our Instacart this, to give already are to have do that own there, We kind this asked into look anything these when are we to coming out the always look, we as area pickup order locations, Yes. up relationship when one Like else. with you going are it's do at life it online convenience. and in

have mail-order a already We good business. and growing

the have is XXX-ish another opportunity. We this But pharmacies country. around

are come they pharmacies sometimes, does, well. feeling out won't not Our are if somebody

And it was have to increases help. to something belt here. that this. is competitive can as these opportunity And to you But so density do hopefully we others, got an drivers should delivering it add already groceries the and given

Chris Mandeville

I Is notable profile? kind a economics of impact about margin am there guess curious Rx to one's the that just there? I

Richard Galanti

No.

just brand out First more And to a a it's going to of all, few locations, new. roll it's shortly. few

So we it will goes. see where

Chris Mandeville

All right. Thanks.

Operator

question Simeon Morgan next ask from Stanley. question. from Your is Please your Gutman

Michael Kessler

for there. Kessler, Simeon. This Hi Michael on is

So a question the on competitive environment.

undergoing is would the that far doing? unexpected guess We of Or round anything to changes their investments there as from investments? to have are notable feel as seen Sam's respond what of need recently. an Club on anything end they And that I some you your

Richard Galanti

lot gotten fresh a ago, of day, I things out competitive that at But flow. mean, every about month locations pointed hear have Not of or our good aggressive the on that a too. And here are and really. and we about and managers good we hear a little operator competitor ebb region the well they we it I But very We so we good a I look, in there and about our more or by location year is week. their nothing every that warehouse do things they could point end rather. out. these had some look, feel of and are very feel by A position.

Michael Kessler

Got it.

is new you last And far a little as updates Okay. one I little follow-up a changes the that further more away on any China. on from anything front? just Great. couple But opening. any which side? to the your of plans that And know months? The store have on rollout, notable the as there, slower the Is opened learned that over there you

Richard Galanti

a to has there. one rollout But next. probably have see will lot all, we exceeded was of not That's expectations. planned side we location our previously. And the do to which what look other Overall, Well, one we about that the on want first away. planned continue a of to change year-and-a-half

we to to in continue sales continue And there. We neighboring very grow, have sign will but additional see. help the from to ups do brought help the places well

over have we good merchandising We chain. think, reviews getting, had So good And supply standpoint great feel about good. are a Very there. reception. we maintaining I a from a and

we tried. have anecdotal. we that still identified one item. customers also found few sea done again where is over on with have in have Coast great I which items, just West cities have the never you good in a job cucumbers have We as a But is that a several value got there very particular particularly that

done with it. have We well very

other life, like world. sense our high there makes have just price a found of we Costco. in great value, operation out the value parts fun to high items it's in It's that item throughout So a at and see at anything

Michael Kessler

interesting. Very right. Thank All you.

Operator

the line we a of Badishkanian And from question have Greg Citi. from

now Your line is open.

Spencer Hanus

actually Greg. is for Hanus, Spencer on This Hi.

called out sales the were just Or think do lost? some you those You they issue. to sales you pushed out? headwinds Do website been guys related have think

Richard Galanti

think went of In things, the faster was little I X% lost. than e-commerce rest still that and some was company. whole out, recognizing in-line, the while given of some growing scope pushed company, is our of warehouse some over the our

cavalier days. We sent have extra extended So million it extended that hours be that we out deals excite those got, I members emails two of so for XX-plus Thursday. in we But the it. the we about hit We the were to feel didn't delayed. early don't want values we an that the

feel did better back. we it that lose again day done period, have so had And we just some something And of Frankly, we we we for we did think we five could that got anticipated. than fine.

Spencer Hanus

the on year? any this then are you the comment And sales heading seeing? feel holiday And then trends consumer that how big into season does ticket

Richard Galanti

even it's It's of screen done Big other huge, is particularly are things and were those. and the price of have or this strong, and like. we items. great. the Apple just computers done game year, high-end coming TVs offer those. a keep well online, big with now us. the have done past better value items game Apple for are with we back the products. and line able well consoles. ticket fact in Yes. electronics And we things consumers Big which are very for the Those the to have down, Macs that products including that April watches recognizing very full The ticket And not those And March

Spencer Hanus

Thank Perfect. you.

Operator

ask Short from Please question Your next of from the line question. Barclays. Karen comes your

Karen Short

much. very Thanks Hi.

the core with starting on guess I questions. core. of couple a Just

had just core couple power. in you I stability, does the core if forward are in have quarters a on a buying alluded of stable to could like But think of you because guess, new a core meaningful how norm seem and on should about and core we it being wondering we scale So bit of terms generally? obviously pretty up your am this ago you on your little kind I going to that frame on of

Richard Galanti

about We the or have membership improve the based change our from think are income the talked a recognizing cards, we hourly past tax in to from monies to fee, which business, go fact think volume in I little safe better or right, drive over going credit whatever, the of done. reform the drive wages. income the use reform, that is we the to increasing went Well, or monies third about the Signature do you tax a or you all Kirkland out, when pricing on to to just it things it's are the that, value get we to

it But a That's we basis would of where when to are point. might business. so the don't have if that the for-profit things. us we manage grow like savings a value. want continue much? to up the customer, avenues will the the we or help and to those year-over-year too are but there again, department see it at. little topline that. very other something, first That Even thing it first we go year-over-year. bit, have we at do But to And We our giving strong And to see is monies we the even look completely times additional are a be to drive something, margin we a given day, greater the to end particular

Karen Short

tariffs, on this effect. were specifically then And for they into go Okay. just to or not to tariffs the if Sunday

of you XB not I of model about lists, anything? I does So is guess, X think obviously the rest terms your kind anything embedded. AA, or go to effect it the into or respect can mean it's like positioning already the just in with clarify, through to But of there

Richard Galanti

was the there. so it before so in it, I advance in immediately as go anticipating that we into we that and wouldn't that Anyway, the extent mean let's change change to don't tariff, we know. extent wouldn't did. it get the things certain are place you it going to could, to we bought But merchandise saying,

extra if of had in mean, if have little we it. I So anything, a inventory advance

Karen Short

and on as and last Thanks. few sheet it then food build? And Okay. to just is housekeeping the from then thoughts continues inflation on me non-food and also in cash balance on

Richard Galanti

inflation they year-over-year. has slightly lot more partly My yes, course for mean, Inflation up and limited swine do are as there. on than or slightly a Other generally well Tariffs items. we a that a about those is talk understanding, is to mentioned of as with I inflationary to not proteins deflation, China flu are deflationary with Yes, not beef. almost that, either little. demand speaking. It's non-issue.

question? What was the part of other the

Karen Short

the cash It's on balance sheet building?

Richard Galanti

debt or week we Monday. repayments Well, coming have due Yes. two next this

totaling billion $X.X Next week prior and in offerings. debt from mid-February

highest generally Beyond everything because for at cash you level is haven't course, paid yet sell relative that, end more, started and of Thanksgiving or to QX the the have stuff Christmas. of to but seasonal you

AP So a on the quarterly ratio always like strongest our basis. was

stay that, tuned. Beyond

Karen Short

Okay. Thanks. Great. a great holiday. Have

Richard Galanti

Thank you.

Operator

And Heinbockel Securities. Guggenheim from a from question we John have

is Your line now open.

John Heinbockel

your of the expanding Richard, then now you stand have do know that you terms where is been How going What member you checkout? And is self-checkout? of speed that. expansion with satisfaction, do of be? are rate right, clubs I that in? learnings, think consumer, many to in what So, of

Richard Galanti

locations. going U.S. currently we have well. in about Canada It's and in the Well, it XXX

another XX planned have early We calendar for XXXX.

overall, additional continue Craig, performance. rollouts But So with XXXs. it, up to a the on based positive. discuss senior in their above And it's operators the low

do will And expectation. is continue so we to it, my

John Heinbockel

like of get right. an reinvest that when the how to but don't reinvest you speaking, that roughly that? into there enough think mean, about you I idea is know savings, it is I material Can back be in cost. know Is have arms around? Or reticent I you something about you can that the no? your now to of BOPUS? been Or because BOPUS sort something begin expanded business

Richard Galanti

I Well, get it know if exclusive seconds to there another. you full we take look are first of of saved of think save some that the I those at money of amount, all you either well thoughts front-end or all, don't is back, labor, a be in one we is, of but millions there. conservative billions mutually even on it When

More members like importantly, the it.

the is is member volume, that generally doesn't them only speaking, in The with front is longer. full even when like their high of through going and thing like basket that of there Seattle I the gone in is But well the few taking a they actually have work and I ones now them use when are units they high to fast. the member in and late, am volume I and fast,

savings. is I it But that well there as experience. customer improves So think

online As is continue scratch what it even store, times competitors, to pickup and two to we per almost location. at volume per times and look average do continue compared and our buy and to Costco, almost three relates to almost recognizing head volume two and others our location, the direct two the in three the times

So have will we to see. and wait

are not it, at a look at are that do that. at a not with We We planning but point. we point still we are anything to

John Heinbockel

you. Okay. Thank

Operator

is Kate Goldman Your question Sachs. next McShane from from

open. now is line Your

Kate McShane

about the position some And can be? the afternoon. how that share I have of I into give if ask been Costco Good We you next to question. apparel a year? this Thanks performance you during the the little itself know quarter? a some taking of opportunity focused. to for about color apparel. wanted is see to wondered going What could capture my where bit category you more Hi. kind

Richard Galanti

Yes.

I as or willing both us brands value. Apparel story part additional to well they the a few selling And expanded what to both dollars new a grow talked the Kirkland that in a that's I to for category as that. several think in months Signature of it's in as amazed fortunately the it's great fall that billions of this lot the expanding combination showing less it's in think about single monthly and same last whether years. continues retail us coming and are and is of meetings few outerwear have ago few we a the well digits budget than are season or women's high And children's our roughly stuff. what's men's, at bringing buyers always for in compared sell am case, overall for apparel when, outerwear, I

Kate McShane

you. Thank

Operator

Your Ciccarelli is Markets. from RBC next Scot Capital question from

Your now line open. is

Scot Ciccarelli

a a just a facility? you traditional guys. Good activity Richard, on follow-up Shanghai more the had that question on the evening provide I context to location. Can sign-up of relative location

Richard Galanti

the households. I say. XX,XXX to am Costco good. allowed sitting am The on world mid beyond has my in member in to average high with somewhere the of It's what I here colleagues

had countries years, one that. after have even maybe to Asia XXX,XXX a This at after a or We XXX,XXX in be than where in years. locations other twice few is one we two more might

million So in city of XX-plus that press there's a is lot populated with people.

Scot Ciccarelli

Yes. understand. I

about need want thinking are scale profitability help you a more point. in So the trajectory point long given kind takes you the and you the does really just change you that hit early fact the hence the get given where to the sales opportunity? about I Or how locations China of to past location, kind guess of membership it? how do breakeven distribution warehouse for that that of to that breakeven talked it and

Richard Galanti

in you efficient continue with or you land American run time XX Well we getting to XX, out not using is third-party over locations as or eight country to up a items. stuff the shipped, go we and one have to bunch do barge supplied high to a time. as from consolidation eight enough to three, flown, expand to because bulk or seven get or no-brainer air toilet to you bigger you the don't time, And some more of items of it want want over or to a paper may, cross-dock where value become storage maybe water by

locations the XX to and Cross-docks in U.S. Canada volume each XX high serve to XX XX relatively and locations.

as we will to That serves little XX a locations. XX that locations. an bit be one that Australia as improvement serves economic and XX it have continue in country to So

XX We have have over there two for north locations. south more in to opened time. plan a all to XX essentially lot We Japan, of or

extra of lot have a we So there. addition, help in certainly,

are we also but additional Taiwan and when brought that and have doing we our to Costco additional with volume local more. from history been big that and have we fortunate people understand the then gone We over and speaks there, language have expertise concept

think have you warehouse, it's whatever run it's all the don't doing volume at normal several I will So is got, the it's have efficiently years. cross-dock. That you and what take doing from once maybe the efficiencies

many and how But and to most the efficient. process become the building people in are help you efficiencies more what's that need

couple of side. takes we right it from mean years So to to go operational slow countries we want generally that's reasons get in it customer experience I a an on And because why one a the do of new that.

Scot Ciccarelli

Got Very helpful. Thank you. it.

Operator

Oliver Chen from Your & Cowen next is question from Company.

Your line is now open.

Oliver Chen

digital and on Richard, you. about fulfillment inventory Thank your fulfillment in-store thoughts. supply chain across the thoughts also capabilities Hi. from robotic from micro or management in-store? roadmap, what innovation are centers? thinking And Would your about love your

Richard Galanti

as know, ago, point, we have of our we because what just a you that for as act Well, a couple today. business currently years of focal centers did

our have We depot operations.

depot We some as have we which last some annexes months our automation to well where quarters I few our continue six about to off in of that put talked we the last have to or fulfillment, moved out. some some of depots and roll that over of fulfillment biggest of

or that in particularly bulky is not are improve call have One old big is, particularly be store white that time, installation if of how online but and the might only sometimes things one. take like goods, sold we done the things items those but the do what require will away like and we presented I only

that, do parties it. a little third many do While of we

locations number geographic items some and I have shipping making but dramatically. that these to are efficiently up, Canada volumes and be take down can figured staged States the dozen, our dozen what a the am United of out a across times on We also based

over will stuff. of that's of couple last and the years some evolved that And we have And done do more. we

getting exercise You stuff. white There goods, white furniture. big There's days. that's delivered There over only on selling patio from have business in four is gone equipment. is and got essentially of and million But years just just growing. have bulky. is $XXX and at goods sub ago, that we a of just the great the a stuff not $XX it's certainly year to it part prices, not fewer million And

Oliver Chen

And chain what's or Richard what for be sense integration in of should you evaluating makes owning across Okay. thinking could And your you are the of opportunities categories? supply possible? on different vertical for terms ahead, framework parts what more

Richard Galanti

what beef one ground last save into are years One the in California we $X.XX a started over XX itself where $X.XX Well, Illinois, meat is which in ground we started growing it pound ago to thought Tracy, and two was two a since a plant years beef to now year-and-a-half, opened. plants. major still

which California ours. I we think partly well consistent efficiently the to We on That Canada dog over by hot confidence gave the pounds more handful the croissants. cookie crusted are us does and plant. in like commissary only making did that a but finding more bakery in one million can are Canada U.S. four do of week serve necessity items a a dough just almost and items not of

So something. do we time each learn we

produce. greenhouses testing think about been some out for has I there there press

where we up particularly our a But time opportunities and just and in starting transportation there hothouses that spoils is will, on some few product necessity quickly is California if think and great months shelves. greenhouses, on in that We side have running the the easily. and stuff got one think for just to is I the produce you costs hit last of some

Hawaii Right of to we shipped. produce the our is air locations ship much now, that

it's business given of that structure volume advantage do a allows more can Again, new. SKUs, us, of think and But that that's are not more that take to just that efficient our that. no-brainer. it's of think help. there, we to others trying model some limited the we that's And over but you If our an us

to right I bit if drawing complex know think But But catching There there's anything will a breath our is chicken the we on as don't the we little big do continue things. as are boards. I nothing big. now.

chicken for We green the complex of and commissary, first have just plant in and the meat hothouses. few recently, made more the some second bakery major the recently even the investments

answer have so got on. going so and it good. And we is, the and far So works a lot

Oliver Chen

And your also happen as magnitude last question. percentage that nice would what on a have Just not evolve over and you percentage my are added assortment. a time? how advantage. will yet? are of there And that increase for that your the may cited mix in total? new What How services may product thoughts categories may suitable Richard, you services you of Kirkland is to of be competitive that love

Richard Galanti

first, stuff. certainly antibiotic-free. on that lots dollar not lots high-end paper And water there's But of $XX of items and of the added a billion are and things lot new million items billion can And want. and items. Kirkland a that. Signature go our on million $XXX And in and side, things all million aren't from gets has everything organic only that front various $X.X many, and benefits there Well, lot million members in packaged but the seemingly frankly I high-end that on goods that like are but those I there the adjectives think yes of few there's hundred $XX food we $X some of millennials of have items, on and million to many can of like but don't me, not do $XX

sporting goods. into we think I some expanded have But

May suppliers. in add lots of XX%, next Yes, we me, But going does years? ex-gas over don't and So number to is is up? found if front will ability but our the to XX and XX%, to go that think We ourselves number a likely XX% because it. or there of if our go be. have is XX bit the it I it this things little little and exactly the

Some we are good what at of retailer. a branded private also very do. our But they label suppliers still are

on have items. savings, you We as branded good very know,

We very relative because sticky Costco but now auto don't grow. the to we the only small booking reservation when and the about more we packaged other so side, On the ago only, whether or airline recently are year to not package profitable, continues that engine talk membership it's added the which items, and service they our it of business travel the company, our things lot a make just a and are or trips size it's hotel everything. program

yet, adding keep things. will but we we think at you can't tell I things. I so And keep what looking

Oliver Chen

Great. Happy holidays. you. Thank

Operator

Greg from Evercore Your next from question is Melich ISI.

Your line now is open.

Greg Melich

Richard. now maybe Thanks how as link or to of label auto-renewal few say part are wanted scale, on rates? properly anything that the are have to now the get season penetration sales that an update you a had private what club? you I card, Hi. it renewal doing and And outside years the the how for the rates to could on the

Richard Galanti

away, those provider, rates provider, auto-renewals something. when was was to don't big converted, we Delta auto-renewal all went increasing. They or other there those other card to the prior I is, ones, know what Yes. branded zero. And the issue SkyMiles of are are. plus both conversion cobranded The all non-cobrand it like when went the that cards

So our over had that up overall we that time a rate to picked impact be renewal and bit. little saw

is, have keeps bigger. new thing add the other getting the that The as value to of members continue and we number better cobrand and card increasing

be think so will continue That's additive. to And that helped. we

better also when think I job to not only up when to upgrade overall, to we somebody have sign but in a auto-renew. done even like they walks

Citi of list. the Certainly still that just of one of fact in the the Visa cardholders we size to probably help. it are biggest things adding of and movers those all is so that that new And because sheer

Greg Melich

in sales Visa this Is of club outside multiples point? the that it's Citi at doing doing of the club

Richard Galanti

time. There's relationship, the years there certainly outside were previous the being evolved done over more as sales over that XX of

good As standpoint have outside we versus spend greater share presumably. higher we us general why businesses which the From this revenue would offered have to is Visa and that's even be than that merchant smaller that which inside fees is at the more in anyway. have tend expected, them for would card and

If card. market is local it's previously wallet, places I of certain to it that restaurant. the potential that a whole are couldn't share new there cleaner use those revenue using of like and my top dry additional card people So

Now can. I

Greg Melich

of I Australia the And Japan think Got Any e-commerce for around world. and launch in it early it. mentioned if the out you then you learnings was look coming Japan?

Richard Galanti

it two what, it's been than well Other days.

happy I to report know am So I nothing.

Greg Melich

great holiday, That's good Richard. a to hear. Have

Richard Galanti

questions. more two take will we Laurie, you. Thank

Operator

from Your next RX question Scott is Capital. Mushkin from

line is Your now open.

Scott Mushkin

my question. Thanks Richard. for Hi taking

left, has bit So a about I maybe incredible. growth little table. number that's obviously opening come little bit. the on the your to you left of But wanted club is talk Obviously, a being I mean, performance down

through You omnichannel. might say

things we as you just Kind back, to step are take a up thought speed underserving almost the Maybe research, look bit about you XX here? little bit? you certain of U.S. look markets to back we it what's of a process growth? our up How clubs? like in Is little more kind So at the think time a do put Get omnichannel? money behind the company's

Richard Galanti

in XX-ish I think took this with more Part delays some want it think, than that how I year. We you. open of overseas. don't I disagree was, to long

I I doing. five thing. little when. we a said, exactly filled have, it do a say I same well, is always little the but think got can't than we years would many have more better. and We do by bit I our how say We Today, the And ago, bit, open were pipeline increase plan to will

sell at And in on few still countries company. getting the we of a like on would working. anymore. don't big certainly people a because but this emphasis in are it's anyway goods on. thing. are either to, there's Not But lot of have it. e-commerce lot And a getting going hands white building store cases, sales not very we building those other we some remaining we the it's into lost side, we just but that things We And supposed think that, are have you using only

So a from work of years. XX giant doing a harder things But are couple those we goal more well. of is to other I these to some to XX think, change open as while all in our don't expect few

Scott Mushkin

very much. Thanks right. All

Operator

from is from BMO Capital. Kelly And your question Bania

Your line is now open.

Kelly Bania

Hi fitting me in here. Richard. Thanks for

to wanted about executive Just penetration. ask

and am know where little You just penetration in point? could called curious and years a this are higher? at the have level kind you how asked I there the some seeing much that Japan out over move we I bit. U.S. think the but executive of But impact out you just

Richard Galanti

the membership it's it's where countries longest most off it a in plan look originally. of Canada where it's could and marketing as think In offering, and services where and it it's get people in by more U.S. I of country, other has executive units got for the don't the like been the When I XXs in the the mid-XXs. growing. part we the go. do I what Mexico, and But we been, to department and up do have to the most sign lower. know starts if It's convert

I savings. if it thought want it's revert even much each the that that there's where could some and it the loyal But I terms And there's as shooting think that of long and will I some at year. And spend from no hip going know them They in they how the and they so they day, one I sometimes is, not if that shop some any period. members would of some to executive people, provides day, be as to more to more but end back. was think to are there. membership, there And totally, be go it rates. have members their that frequently an point they more at thrilled idea We don't get take want executive savings renewal

Kelly Bania

curious terms is talked retailers or we of maybe label, international core you. And impacts which But years, really just shift up more organics impacts what of on or things one other about kind on is have that? more the And than as at I very e-commerce kind over you Obviously of it. in mix mix kind just guess gross core just margin. mix look even underlying that shift. X% stable, it some clearly like of private Got

Richard Galanti

gas our business. a gross mix It Well, than line. XX% of more I Gas impact. has mean be think that shift. I could the is margin it's more certainly biggest

and -- there deflation. is all, of First

And or so the points. you have minus, could margin plus of basis contribution, a gross by number

pharmacy, the And because You have are margins they normal faster things all pharmacists cover the are on of the gross than businesses, small work all little growing those the company. services In while growing a they optical, them that. higher and optometrists, tax. like generally pharmacy some than the

an the brokerage as things sales be. would Travel, fees. travel, In and of example, of are are them some some gross

really high of is very There very getting the sales, is So label a generally core commission. it's back to merchandise, But a cost positive. slight margin. little private

at growing the rate percentage slower a the branded label that's while past. is again Although, in versus than it growing of private has stuff

And then there's that word, competition. magic

is, we view line, we as do to that how be do top have And can to fortunate competitive. we look how we the drive the buckets that different with. are most we Our

So it's the us a up to which lot we going little are flat the things. to margins want hard want bit enough and it topline or grow where will than solve be and a each know to of we for month other each quarter

Kelly Bania

Understood. you. Thank

Richard Galanti

you Laurie. thank you, Thank Well, Okay. everyone.

Operator

today's concludes participating. for you Ladies and Thank this call. gentlemen, conference

You may now disconnect.

Costco Wholesale (COST) 12 Dec 192020 Q1 Earnings call transcript