COST - Earnings call transcript Q2 2021 | Costco Wholesale Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to Q2 Earnings Call and February Sales Conference. I would now like to hand the call over to your speaker today, Mr. Richard Galanti.

You may begin your conference.

Richard Galanti

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

second statements of not made sales to as Forward-looking as operating and the today’s update quarter except results XX quarter are weeks XXXX, the only four date they reported In of speak February XX, the statements release, law. ended weeks Company this undertake required second we for past or billion to or as million press $XXX or $XXX was Reported does fiscal the by share these for February for year’s $X.XX results net income Sunday, the February the results retail XX. primarily per ended year. well and million as million $X.XX diluted premium included XX.X% to pre-tax from diluted $XX.XX share, follows. compared share quarter last wages. the ago the incurred a quarter sales Comparable increased year XXXX This Net in from billion costs COVID-XX were $XXX as for $X.XX $XX.XX sales per the second quarter. fiscal for of per

XX.X%, FX and was All XX.X%. Company Other XX.X% at basis FX XX.X%. ex XX-week deflation FX ex Canada reported XX.X% XX.X%, at reported on and total and XX.X%. at reported gas deflation the XX.X% excluding gas For U.S. a XX.X%. told, ex deflation FX FX and comps gas and period reported reported deflation E-commerce were and and XX.X%. gas International at

during the sales on In up quarter. and shopping basis traffic the a X.X% increased U.S. in terms quarter the or our second X% year-over-year of metrics, comp frequency worldwide

Our average the XX.X% during up and transaction quarter. the X.X% total or Company ticket was in U.S. second

U.S. points deflation positively basis sales by results the Foreign our basis approximately currencies impacted later gasoline the approximately price to bit review I’ll call. little in XXX sales by relative February points. dollar a negatively impacted XXX sales and

income up income the came in X%. to $XX the $XXX.X or membership or $XXX.X or a in statement, X.XX%, down million million Going year at fee million so ago, reported X.XX% quarter compared

represent in quarter Excluding the FX, impact $XX No a year increase, both $XX fiscal million of the of fiscal openings excluding the year would would second million, this and the – increase fiscal in the be FX. last impact which X.X% occurred quarter. in

at This of end. renewal at as from XX.X% In of the QX Canadian of X.X% renewal was XX.X% U.S. came number QX prior in terms quarter. quarter’s prior renewal the also were Worldwide our of end of the end fiscal from as and total Company rates, at up as rate of up X.X% the for XX.X%. rates the QX XX.X%,

in and earlier. weeks households XXX.X in In at total earlier QX end from million XX weeks XX.X end, members number terms member XXX.X as came QX of up million, up cardholders, million of terms both we of XX at XX.X million, cardholders from households of and

XXX,XXX during QX increase of executive XX.X end since an were QX paid As million, XX members of end. the weeks

at XX.XX%. last gross of basis income on a year’s lower XX.XX%, this margin down quarter X margin, year’s Moving second to gross than basis the statement in the points came reported

have XX Excluding points gas basis deflation, it would been lower.

chart some little gas to here always you, show Two without second the column of do a components of reported and ask margin. columns, As I the deflation.

in margin plus at was gas basis XX points. reported basis came a On year-over-year merchandise merchandise. deflation, core basis points, be would item XX line plus First core ex

X% and and reward, then ancillary XX Second minus minus item, Other and basis minus X. basis points points. minus XX. businesses, gas X XX XX line without minus minus

minus basis points. So again reported on basis year-over-year points deflation gas ex told and a X basis XX minus all

So deflation last as the margin fiscal has operations from core XX you see Similar business, our can gas the by contribution from total core higher year this earlier. penetration the several in to points. quarters’ basis sales was a chart, coming shifted of higher merchandise versus the component to dollars resulting gross ex core

most quarter little by to negative our impact acquisition and the and pharmacy a was points. efficiencies with the coming Looking will, group. by own their only ago, lesser core, ancillary – margins at in bit you the year-over-year to sales from the from softlines the sundries, XX gas that core as gas was hearing merchandise productivity had extent were major more basis of by of the merchandise by quarter a if gains year-over-year positive other significantly the the With e-com. you by Innovel X minus higher penetration our well. Ancillary margin strong in basis biggest travel, impact all coming from said, categories, and business other That again was efficiency from food XX which lower fresh, core percentages other benefited driver can impacted aggregate basis from categories in lower points X the Logistics, offset are see basis on year the X% and membership ex in impacted courts executive Fresh margins is sales, of foods a aids, points. was XX deflation hardlines higher and a and to three gross And by and here. relation higher points the being negative. basis reward, XX and points we spoilage. sales labor food negatively Costco margin implying

to million allocated direct cost production attributable of and COVID-XX about to fulfillment the mentioned. million wages of manufacturing, These is $XX operations. this $XXX previously of our costs the or All incremental the for are

SG&A. to on Moving

gas at then second without been have XX a X. two a X.XX% reported reported in The ex a of the a or and coming year deflation chart little Our on X.XX% Again, by gas would was versus basis, minus quarter deflation. comparison with SG&A in earlier. columns, points year-over-year higher doing worse XX minus both basis reported

would item be XX XX, was and points. gas plus compensation by Without and X points. so basis. better Core points by XX. lower minus plus line deflation reported other lower XX or X. XX, on plus basis minus or XX X First Stock minus better a Central operations basis minus plus so operations, and basis X and

when add the from core, was impact You in on expenses, the was basis year-over-year higher a XX points a ex by reported better X. component up excluding by look SG&A I’ll SG&A at by discuss in excluding gas basis the those was again, that operations deflation. and or increases. And higher The you minus XX core COVID-related XX a deflation columns points significantly XX plus moment, X total Central, leveraged ex $XXX other related much SG&A, X of stock wage million small COVID $XXX minus basis year-over-year pretty costs comp, million core a deflation basis sales to hit gas that was incremental with together strong awash. points both were benefit which again amount. merchandise or to changes and which

this March COVID-related $XX SG&A. Monday, $XXX a million of here and discuss take effective expenses $XXX the our how and like hits I’d X. changing margin So million hits past minute they’re the to million of and the million $XXX

– billion period, $XXX on paid early stay an the during to service this and approximately few month cleaning older was home. several million for lockdowns, our pay. This and amount, on employees of was supplies, pretax to Over which $XXX the remaining $X made were with items. to the pay million leave several February plus XXXX period third-party hour to the approximately assisting XX-month past hourly XX COVID-related of employees items, other weeks through companywide specifically related mass where childcare XXXX including March wages Of employees original we continues. The $X.XX demo up extra paying expended several

and in having for we discontinued an has implemented XX. With for extra past year And ago, permanent are Canada, top wage our X, of above hour hour days an March previously of full increase the $X.XX hourly hourly amount permanently well top wage starting for pay U.S. most a and and as hour a the wage on as been as few scale extra February warehouse have by salaried the that wage increase $X by of Sunday, an our of paid scale. In employees that employees. an planned increasing $X.XX increasing steps a this hour $X we most effective top been

are a With $XX with Similar of the increase expensed hour of these XX which beginning and/or little expenses changes, will plus from this other over the this type March basis three an months in starting hourly current be past countries along reduced one-half will hour. third week wages by fiscal occurring $XX discussed, plus our change, the is I in level $XXX $X quarter. operate. several components on where just a million the With over an entry increases the and $XX.XX elimination and of X, $XX.XX we reduction to going-forward billion

income is million million last openings, quarters the $X of million All upcoming including came fiscal $X for million, higher. lower zero compared reported this on to was this to $XX $X although other rates. the told, to year XXXX, Below billion X.X% at income Next the the openings an as and income mentioned $X.XXX itself both showed lower $X.XXX interest in relates second statement for year-over-year. million This was of expense quarter expense, lower pretty well. year preopening Interest the much income earlier interest same $XXX operating there year. income so Interest million year year’s $XX was $XX operating the due In quarter million million year-over-year. versus this last at increase line, billion coming $XX in compared last to year. by by were

million. billion earlier. other $X.XXX up Overall at billion X.X% a year pre-tax by and coming was this in year Additionally, was FX quarter $X $X.XXX income second lower compared the reported to

last our in higher the was terms taxes, in recorded year. XX.X%, a quarter tax income In than of the little of XX.X% QX second rate

net to change, other there XX% For all tax note, on XX% in A of that subject year which we were QX. normalized – be effective of course the of in anticipate Company of were XXXX eight always are the warehouse openings items in total current to I we openings for to new few fiscal as mentioned, terms QX. our based in estimates, expansion, There no these range. rate our

of will units. those in to fiscal of quarter, overseas. Canada half U.S., and plan second three be more will net the fourth the in year-to-date year, open eight will the be the we XX in in this in but fiscal be we’re quarter Five So new five

second million. Regarding of quarter fiscal spent XXXX, in we the approximately CapEx, $XXX

range. to year still the full is $X.X billion billion in estimated CapEx Our $X spend

and health e-commerce, follow stronger and including second few electrics, A just our the quarter. pharmacy, very e-commerce year-over-year. total overall at beauty the increased XX% convention. grocery and The consumer majors, the strong grew onto FX quarter and comp counter of online in usual ex electronics, over sales patio, numbers mentioned Moving a garden for the departments small rate

which steadily white and our program, on on XXX% formerly XX% since the convention, the of to quarter. third-party been year-over-year others. known an now club reported offered QX, year ago installation. standard made our our priority in Our service, to continues same-day has Logistics, number enhance many have It’s acquisition many complex increased as usual the excludes includes comps, our up which fulfill which grocery XX%. we a third-party comp Innovel upgrade same-day In would assembly March. or a Costco greater and in If it delivery e-com a its we include items as was items percentage

COVID-XX issues and strong the impacts and surrounding sales. it, some enjoy continued we of merchandise to to Turning core

timing categories, in container and even sundries certain our supply like shortage port furniture, our some keeping lawn some goods, including rate some job caused buying have seafood, a with and This issue well. perspective, sporting overseas to think be done continued an on supply has items items oils. chain building and food despite to great From teams demand garden a imported chain and outsized challenges has delays. cheeses stock and regards as on delays I and

it’s but everyone, to We in months, impacting pressures expect of the these ease course. coming

high home and consumer some we side, of items and exercise have from smart pressures issues bikes lawn component electronics due on like appliances. supply and where and chip shortages and activity non-food the equipment, TVs, items, certain to demand, items, garden related Regarding areas outdoor examples the computers

for the side, to food have of in shortages there aluminum Bacon is canned XX% demand the so On of lot issue shortages. up and there. mostly can beverages is due reason, some pounds whatever a

looking there overall surface is So a some bit there. pretty is sanitizing little foods Fresh sprays and cleaning, challenges paper goods. Gloves, of good. and wipes

is ongoing. and this Albuquerque is is Our recent the continuing. test don’t to pickup as pilot three The We lot at really curbside add warehouse going in well. test have a time

has our it expectations. basket have responded actually size to Our and members surpassed

it focus become this firm Our makes is for of be and efficient scalable we determining if can more a and us. doing how in course sense can offering

Turning compared year. to four February sales results, the weeks the to ended our XX, period Sunday, February past last this same

our of going were in release, the $XX.XX XX.X% year. from last release. sales down came the in the in billion an increase numbers billion, of reported As Again, February for that month net at $XX.X

XX.X%. gas reported FX On the U.S. That’s Company International FX reported FX on numbers and – reported FX. gas Within XX.X%, gas were both a and ex without XX.X%. were XX.X% ex without Canada basis XX.X%. FX and XX.X%, sale reported, e-com reported and up basis and XX.X%. same-store XX.X%. those ex up XX.X% Other Total

last be anticipated numbers approximately again out the fresh. percentage year sales Similarly, the discussed fourth third-party for sales lockdown, February this uptick results, in impacted fear estimated if of we of last closures. positively percentage of February week of approximately sales. As with these buy year’s month quarter numbers the pressure included related consumers we year’s consumer to points. by was consumers to we year four X were this pointed we That’s unusually had the primarily The buying – – as ahead e-com kind When from week week strong anniversaried the lower the in little to points. would higher lockdowns week for – same-day of that the a what a felt that COVID beginning X.X and was bit was last February, this of in we February week That big impact four February year negative a ago. sales of

of excluding the XX.X% higher of that XX.X% have been and reported ex-gas FX numbers So and would impact.

that year basis frequency points basis the gas was of or was Worldwide impact up flat again for transaction included average Our to impacts February last and U.S., XXX traffic positive some X.X% comp points of FX the last up inflation. of worldwide XX from in which the and XX.X%, week.

International and Foreign to again point basis a Other comps sales by by XXX reported basis whereas the Canada about higher points, currencies dollar by February by points. selling price comp points price XXX Company inflation positively in relative XXX XX the points, year-over-year total approximately percentage total Gas year-over-year. benefited about basis basis impacted average was

Texas. the regional merchandising U.S. the of we highlights in strong categories, South and results UK local East, regions saw Japan. with terms for In general in results Mid Internationally strongest and Korea, West currencies, and

part. the sundries Moving positive which frozen to and in digits. high-single of and strongest the electronics and and in liquor, majors, and toys category Hardlines sales Food hardware departments exclude foods were these Better and the results most merchandise consumer both by were XX%s. cooler. highlights, positive for month goods the impact high white sporting again with for performing goods, were is following seasonal, results were positive Departments FX. the the the comp

certainly hearing the COVID minus Overall, aspects COVID of up of court aids our impacted, Better the mentioned the the biggest various finally, departments the impacted a furnishings. in up XX%s. to food performing ancillary in fiscal XX%s. up sales, as relatively I Ancillary second and down included gas hits. in foods and and mid-single expenses, in and meat mentioned Better good quarter in sales were small year-over-year lower And the in of – of business included were terms departments digits to they home plus housewares, appliances sales performing also low Softlines deli. by due by and primarily had in February, low fresh and business were down due as earlier, both were ancillary, gasoline. course,

turn Sunday, terms March Lena. Q&A Wednesday, in Finally, the to close. it and results releases to up market sales will X our it after of for upcoming I we With ending the back announce will weeks April on open five X April that,

Operator

Thank Lasser Instructions] from first Michael is you, of UBS. question sir. [Operator Your

is line Your open.

Michael Lasser

Costco margin double-digit anything go up My gain efficiencies Costco over the flow give doing all Richard. margin to has of learned that along is gross away. We constraints going sales? going to go that doing allow come the with last you expansion as on just to and for hold Or gross assumed it’s that is lot now will few these that there that Thank the my comp evening, back that Good margin you’re is first that gross sales it taking to differently question. a question these on quarters.

Richard Galanti

anything pricing. on cases all, dramatically the my fresh to a things. end doing fresh year-over-year sales I challenge is will the destroyed and of the of a one we’re with is as call and which we’re day cost has you last manufacturing led particular will or anything you’re strong value what fresh. labor at much again productive of will aggressive not part Probably trying be already away first and that always different. damaged component efficiency be stuff going strength been we foods much think if labor mean as spoilage challenge At has lower a sub lot you’re or And do a of several of area from the standpoint. I the basis week, guess. some productivity, Well, can to the to dramatically. many throwing size more a point, higher given the in businesses as that which well or of at we’re were be some course, The We don’t a point on a quarters drive aggressive pretty in strength for

be price feel that Beyond along that, competitive way. ability and pretty our we good to very about

Michael Lasser

expense little the forward by going the March X reduced plus on given permanent a been wage half And billion this wage has said increases. early Okay. dollar going you

So that’s four just go $XXX should that your down? and to after we away. expense is to last wages increasing Costco the going pay your go incurred even dollars $X the of SG&A Would should billion though be million quarters will over be it

Richard Galanti

related the involved the and SG&A, manufacturing part Well, because that $XXX manufacturing the earlier, wages as of piece of COVID premium of hit of margin side, cost a $X, labor that’s then mentioned our businesses, I the million, that sales. on plus

$XXX to And could we it of you that be proportions, hit. at million related numbers those you million, bit those more would the simple said think and take little looked if A on of a so apply $XX be related again, percentages. guess I than type to hit that margin $XXX SG&A and these million quarterly SG&A may to percentage

looked math the that And a a was back. simple over so, over that you little should of $X.XX and come at yes, half, about, we half we so talked say if billion little suggested

stop we’ll as COVID-related we’ve talking Although, about anniversary expenses now that. too

Michael Lasser

Richard. again, Thanks Understood.

Operator

Stanley. Your next Simeon question Morgan Gutman is from of

open. is line Your

Simeon Gutman

are was reported prior question just Richard, Hey I first and also – clarify, the quarter. because margin. you? want how similar on core a healthy, you number. Core looked My swing is big very in to the to pretty Can gross there

XX. said plus You think I

it so And does big here the swing before or when peak? it compare margin the gasoline. And get mostly worse remind was all gets us, better? pretty Does much you can gasoline gas

Richard Galanti

out the goes dramatically. It’s which in profitability generally other stores the we volatile business and us, just stations. gas I it’s and has operate but happened helped quarter, a And – late. discount chains we’ve it ago like supermarket up it’s of and of the think – And go that less, that that gas prices the it it make meaningful I as But is chains, for year us. for down gas, is third up, us. pointed

dime. there’s it – out But a rhyme we directly that change to point again or no each reason can time. And try so on

Simeon Gutman

to Fair is was was guess right. just it quarter, just reported remainder to core the prior down… this enough. consistent the clarify, And the Why with right it gas then quarters, in swing but mostly the and I it was like looks due big was

Richard Galanti

not of of those more right because now, as well. all travels Right. probably with certainly seating, Gas courts, you one the optical know open half than food as things essentially other well impacted is still we’re [indiscernible]

gas, in it earlier, is to what a ago there. So call positive. of points last QX, be that’d I the call was A gas XX have was in QX are the all warehouse again, was is That positive. negative. biggest but are XX which year year, impacting, is was I those In to negative. we tends prime component big QX on gas but meaning when – versus In year the XXXX XXXX. mover number we be a QX the again what gas don’t to businesses, was that. to back versus swings, was there at and the X In it the other year-over-year, it XX the it it detail QX basis looking

mover XX you gas, to this So negative. lot big And was see quarter, number, not of to negative first the tends there. the components of fluctuates it the just it that the in year XX to a be now but can gas and there’s generally again,

Simeon Gutman

Okay. question then on That’s my helpful. SG&A. is And follow-up

at look all right. and QX so year-to-date, exclude you QX, premium If and the you pay, SG&A

years. business We incremental back any is that’s like half of that’s And premium that’s are prior the SG&A an from there’s year, normal even changed reason it year. still in the if I up in SG&A is because it structurally excluding coming in in this year-to-date there step than why the perspective, half. have looks from stuff know comparisons I think don’t you’ll up wage year-over-year first don’t But like a year, anything starts looks what taking higher easier the stepped you last from else this this changes. up

Richard Galanti

sales percentage better. find goes a Dollar of actually, you’ll think I it’s strong sales directly it a was well, I – as think

Simeon Gutman

I yes. Okay, was on looking – yes.

Richard Galanti

stuff separate core of SG&A XXXX below the in fiscal basis or was COVID operations better plus was and or year lower XX XX I’m entire for by points fiscal core at XXXX year. but gas lower versus – looking This of unusual next deflation we by quarters, on out not had quarterly XX Again, basis for stuff, of the a business the two points. or basis all that percent was all better the it first the the plus stuff, lower XX. that’s

on that’s average So XX.

Simeon Gutman

enough. Fair

Okay. Thank you, Richard.

Operator

of Chris is Your from question Morgan. next J.P. Horvers

is line Your open.

Chris Horvers

Thanks. Good evening.

follow-up on to wanted commentary. I that February So

So did XX XXXX, last lasts you and a week that or and last February that at XXX a nine you add basis a points. did

that the So base XX about right? X%. February. just stack in down basis would of suggest that writing slightly X% did it maybe headwind were or that math, was you last just that you a down week if a the suggest And that Is like XXX on point was maybe like a

Richard Galanti

a No, I and weeks year. think first what last that said were This last I the over with you XX.X. week down year brought the a our XX agree little to three about XX

Chris Horvers

Right, okay.

down. were you yes, So

Richard Galanti

reported, weeks. explained for whole low a to each Yes. differently the XX.X it fourth be first it but weeks yes, caused the the what – week the three Maybe XX.X XX four year, I for basically was a and

Chris Horvers

Right.

high So sorry, teens down your – basically. comp your down right, so comp

in that peers and comparisons are So look at but I mean actually also you time, same double-digits quite in you and down forward to your as think traffic the so – stores of but you aggressively. I up interesting because, month you’re in remain our tough, April as the meet April. look March ahead it’s

just forward? about So model out degree you think table, comparisons actually we can about going think these trying against what the left to to do business you you as on talk

Richard Galanti

speak for Well, others. can’t I

the and we’ve in the sales thrilled last done how our frankly with our course We’re year. numbers over of

up X.X of will, at and As lasted third March. and you started fiscal week in March and giant step in this four by into our customers look sales both February if quarter traffic about you through and weeks March, hoarding,

but it dates about front to fiscal talk the report XX-week tough relates specifically we’ll not me, mid-May, for I but comparison essentially have those that we and when the of that to included in very in was as it only don’t April sales, part period which exact So had and is March that, quarter, which mid-February we and of weeks, March, tough lockdown even weeks, X.X week early and March and one, late February three two, kind into there May, some compares. also and included when X, offset four of a and

that’ll make things comparison. an so our all And be it easier view, equal, in

there’s an through what think add and will the be to in mid-May probably XX% to of be end range enjoyed see. of we which comps next The a challenge that the is I That’s plus we’ll a to QX, minus going up on August. about ongoing buying things as So XX% even a course, basis into for and are to a or side the saw well. strengths, the people as September, where the the October of we like. weren’t on lot on But sporting but only events QX side, not food non-food as home they for traveling going

Chris Horvers

under positive the comped I it this, average and it last it February in Okay. brought just week, to to want modestly up back down. was on just math, And follow the actually sorry delay but it – that you where

Richard Galanti

yes. positive, Modestly

Chris Horvers

very Got it. much. Understood. Thanks

Richard Galanti

Yes.

Operator

Grom next Gordon Your Chuck Haskett. is from of question

Your open. line is

Chuck Grom

farther business that’s Hey, been when geographically thanks line, process. in but the that the of with a lot, you that Richard. maybe kind along top bit a reopen look a your I has drag markets know on overlay are and at

if gas improvement noticed wondering I’m in gallons. Just you’ve any

Richard Galanti

in year-over-year, a gallons in Texas, XX%, is improvement You little regions and quarter or relative improvement. our I mean that, a improvement. Florida, are February which some I South, little better seen in think bit, were the gas the the the And within an of down you’ve overall – was quarter X% like

Chuck Grom

of of XX% on the transition little guess some of XX% the roughly currency sales. inventory you are out the inventory up sheet a how as dollars and then Okay, of is just And feeling I great. insurance Thank balance ahead bit about – for spring you. items? are you

Richard Galanti

a ago. made effort months we of conscious a Yes, couple

coming farm where along on a even with shortages. well port Coast in of of side particular the call, America ports little about the North last from, think the challenges as is we and the bit both the delays container merchandise West I on some as quarterly talked the of

we in came not everything So and front-loading short. were

items seasonal frontloaded not that frontloaded basics. extra have or of we items So are inventory

all. at that about concerned not I’m so And

Chuck Grom

Thank you. it. Got

Operator

question is of Davidson. next D.A. Your Mike from Baker

line is Your open.

Mike Baker

the wanted inflation, thanks. in obviously about I pricing just Hi, ask view on your market. to

their there. your be less being pressure means maybe big out talk competitors One of it’ll with satisfied which pricing a about little price bit gaps,

how up, bit, here. about a again So it’s moderating that? maybe mid-year how inflation spiked you think you sort costs but do from commodity think back And it goes do again, up little of now about

Richard Galanti

what we’ve product Well, there’s that part of seen because I’d in higher, months, a in container up. we shortages on items, we basis about supply general, asked less shortages, as and than of or some chain good That’s we’re costs are And but to upward in to in due seeing, meat, that. ability. our mid-singles, inflation on bacon, had inflation of stroke – as bacon much X%, in more X% the sometimes a the the high little mentioned why say freight last want little broad I several the type items it’s sometimes pork When of some we competitive on high-singles. demand some trended these a than feel

coming first want there. feel ability very last and you good our to be the And to where look at but we competitive raise our about out always to our we margins – feel, lower. be and are as in We’re the again, we to margins,

Mike Baker

sense. makes That Okay.

yet? So panic point bacon yet buying that not at we seeing are our or and

Richard Galanti

because tomorrow, it. Probably I mentioned

Mike Baker

I’m there tonight. heading Exactly. Thanks.

Richard Galanti

Yes. Thank you.

Operator

Karen is next question Barclays. from Your Short of

line open. Your is

Karen Short

margin I I guess get to to wanted thanks. this gross SG&A back question. Hi, and/or

growth, sales in at out quarter So costs. look versus and EBIT I the back when COVID growth this I

narrowest quarter The gap. far the second by was

were half third XQ, what you XQ, in were XQ. less half in – like what of you more a were of XQ, XQ or than than half XQ, like XQ, you So

is clearly it question growth the a profit SG&A growth. gross like versus the dollar So of

you I’m that in glaring. just because quarter, talk little this guess I bit can somewhat more, wondering, So is the this a change through

Richard Galanti

piece think I price to again and Well, The back Yes. dollars Gas as lower impact put a impact number average dollar is the That’s Karen to high to is gets gas on mute really margin gas. well. sales it. gross please. the biggest of of both somebody me and

Karen Short

Right. growth, COVID costs the But excluding dollar sales. I’m talking EBIT versus

or widespread like just guess seems I mean yes, guess, sales very adjust but why… I it have for So to I gas, still I a

Richard Galanti

pluses I specific dollar year-over-year if was I profitability of, without can mentioned again, specific, impact just, I these Well, when gas. – minuses – dollar the being biggest and various

Karen Short

Okay.

Richard Galanti

in sales, our things would margin had dollar lower business, of to gallon. impacted. gross and price lower piece lower of combination it’s that’s profits, the touch Both which And a and lower XX%-ish those a per

Karen Short

through on the Okay. just to potentially forward look will hurt turning months. the get And into strength the ancillary? strength that the buckets offset But can’t can of the gas gross next as dollars we predict couple some appreciating categories I then should other maybe is you gross help and ancillary that of obviously gross margins the that, dollar talk may guess within in fresh margin, profit fact but you appreciating

Richard Galanti

see, reprove bit. little much how improve will travel again, what put recognizing thing there. a start to starting offer courts improve Food wait should we’ll the and same expand improve will Well, we to to its but we out as seating

first do point and goes when in we’re it that the how we’ll, certain to we’re again, big going there. the regions try is to that Gas guesstimate But that Now unknown occurs direction not you. big from out in go of week. each probably which it and to – occurs,

a Here, optical. in and we’ve seen period aid hearing we have improvement seen – a

Karen Short

Is for then enhanced just glove could SG&A there And the service one any that dollars me. call of last out? the from white you impact Okay.

Richard Galanti

mind, there some of for parties dramatically of improve lower last third have taking fast although year. There service, we’ve it, is price. our thing using of – a grown keep in more the to really our departments we continue these and the the this a We only lot to on to not better grown in existing, and efficiencies, push were

so it to its not without I in costs that improve, accomplish see to but last the you that was continue all should think And quarter. should

Karen Short

you. Thank Okay.

Operator

is question Paul Lejuez next Your from of Citigroup.

is line open Your

Unidentified Analyst

everyone, Hey inflation Paul. kind I puts inflation be quarters. if was in and [indiscernible] up go of and of on that on the through some we circle the for takes could items the back of you’ll coming anniversary coming question wondering

Richard Galanti

lot we’re any them It’s in two. in view. again, as has soon. anniversary month last think of to our don’t do And the happen of just to Well, I a it starting or

know of of paper of the supply But on to some up big with shortages of container of XXX%. You’ve in terms last issues a you a Steelers like in of things shortages. All chips recent just on had port huge components little some XX% and over things cost items issues, as impact goods, with the inflation and demand the those year things ticket because that. bit

I think months this more ago. – if it’s a versus has the happened in several last year

Unidentified Analyst

issues quarter? the this impact you container it. the most costs of recent quantify ahead on that Got some freight and of Can

Richard Galanti

I the be per at over in XX%. I used coming its can’t up to with that of the to you mean, if me. anecdotally, look XX% is what notes container have I front off cost

Unidentified Analyst

it Thank That’s helpful. you. that’s Okay, for now.

Richard Galanti

Yes.

Operator

is Your Scott of Capital. Mushkin next question RX from

is line Your open.

Scott Mushkin

questions. my taking for thanks guys, Hey

we you So about your offerings, was much the through but about understand, to guys about Richard think period I strategically and really you guys did pull? years, the think wondering and and think think you we didn’t of kind next of where Citibank deal, about clogs I some went and couple over too think helped kind you some which the do talk then the that more wanted I drive you if business Where expanded there’s a traffic. self-help you fresh it, of levers can initiatives. the business

Richard Galanti

of there. Signature items to will some all, well. all that in of of offerings packaged as aren’t There’s like And that the There’s be with them paper that. organic water hundreds to Kirkland dollar of towels the of to are first of paper do and think like continues lots huge. those XXXs the handful are I are do. out that ones, cake but toilet kinds items food and we continue to we cups that a continue Well, billion something giant increase There and that items quality, a millions XXs of things there’s dollars, ongoing.

I We’ve we bakery years we’ve a integration – we’ve opened two commissary, pay capacity seen chicken full think great starting second a our got ago, vertical at one things of to some the got the we now. of facility off, that from meat plant.

from We’re that. seeing some improvement

And that for then it’s now grown to cashews. roasting place, from sales Asia, historically to starting Australia, all We out bringing doing needs and a in of in the able and world, and we’re also and for Asia price We’re product is and line and that generally shipping – we drive drive dollars doing to packaging dramatically items the us. worldwide. it’s and for bottom yes, all all whether or have the where the one supplier over dramatically reduce that States, identify and shipped the nuts roasting U.S. United manufactured

all we’re of of with to goods avenues kinds that at that – looking with that doing as like We’re well. kinds all from paper do to things

think the these I we of a them everybody start So back important that’s Also next our in our we’re XXXXs, last notwithstanding, particular, early it e-com the to are there over lot in over year grow several the clicks like approaching be but has become more the – long-term years. and opportunities, continue business more driving it’s XX% like, nicely should and getting of that at better regard. and and getting doing we’re and

X manufacturing, costs. and in bulky prices of to a our it’s big last of margin it’s our and last items. then sales, members to to point cost and March, fact, into some Innovel that that items. – X Notwithstanding see a drive basis thing out, what for bulky those helped or all business e-commerce sales think the So on the big quarters, we And acquisition the it of hit our service as back goes fiscal in you like three gross and relates of that fact ultimately the think now, I the I lowered that has pointed

– as dilutive notwithstanding as first from our of big items. expected, not if in more it So growing and going there’s importantly of fine mattresses big operation the we to fact to think at some be more and be some increases exercise years big standpoint importantly, the seeing for business, been that as was of earnings that’s continued goods part we’re white the couple there, equipment, to shortages those bulky but

Scott Mushkin

That That’s color. the great. Thanks all was for perfect.

Operator

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

open. is line Your

Scot Ciccarelli

Thanks. Good guys. afternoon,

et be have you been some try guys for price So way pass cetera, as direct there the guys prices through increases to meat, food to you our chickens, sticky with get on your inflation on do pork, customer. Or of a rotisserie example. you the

Richard Galanti

those the not as But I we as possible want cost more as we’ll world. our XX stay wait both last, at system. to do figure off sticky and – don’t ago, supermarkets, be come think that. we out traditional be ways are particularly has as prices continue where until on and with But we extreme the certainly, the example XXX from stuck chicken old items, years than probably to be we how as to want at change through fresh Costco’s overall, often we’ll the hold well as and to

Scot Ciccarelli

you… then And it. Got

Richard Galanti

the markups types are and retail item, traditionally margin strong savings things unique fact, a is a greater where we’re can even When in I you higher part to want or of for we’re it, in business we thing that you traditional because at mention the And meat of product on get terms And prime. those little show other special mix. us our the of at our something is, a outlets. look selling like

think that overall we’re in we So regard. a stead good

Scot Ciccarelli

for know, been went plant, you And you it’s road? first Richard. that, your you a helpful, mention guys generating Are you up running. the That’s chicken and when I fully as you efficiencies think then that down originally did bit anticipated

Richard Galanti

We’re us that. had We and it. product that nobody pretty for similar. than which and decided like COVID close. puts production, chilling full for The things expenses There’s we we think provide higher put have more been planned we’re I mean at in we air to quality like is some impacted as certainly built additional it, – tastes. things

the So that course, of next year. improve should over

we’ve finding thought. – also up the we coming we are a I the costs chickens think we’ve that fortunate were been we’re Historically, feed than better are year been it’s little growing but bit, the fortunate. costs, feed – little a first

feel those add it. we all to so And up about pretty things good

Scot Ciccarelli

Thank you much. Great. very

Operator

Evercore question is ISI. Greg from of next Your Melich

Your line is open.

Greg Melich

it. just thanks. I risk comment just want of the the for clarify at to Hi, – to a I on inflation start being

X% items that Richard, You benefits would saying are X% it X% to or right you the just, in that words the higher, are But average X% is like was comment, your you actually just saying other said items now? ticket? right. in are whole what is now Or that think some there estimate that

Richard Galanti

Yes.

but on are a higher in in pork don’t and X% are are somewhere the up view categories little is like you that that, but that’s flat, if that our I probably are I produces average, I flat we range look to little, X.X%, guess. X%, anymore, I but costs than Some X% – think and at life meat some mentioned do range

Greg Melich

enough. for that Thanks clarification. Okay. Fair

Second could you thinking and other now what with some maybe you things it, Any as really be drive get understand update rates through it engagement percentage renewal you you’re went in loyalty, terms renewal guess to, tie it or us think the in do with of sales customers could is about I have what rates, the you to really renewal of the on have card are trending? program. where what there the what you credit of of like help rate card that to sort

Richard Galanti

lost on add a it’s things you a card get as more on on to to the some to Citi the on Citi gets facto membership, Sure. card, the not of that’s that sorry, to it to Visa loyal Well, improving to to or and do renewal other well. doing executive terms well, right us. it I my look, there’s credit everybody auto-renew rate but member, tend rate almost those what get now as decision customer member a renewal made to sent by we renewal is provide rate, for Also to renew we internally working plays, of – – areas a and for upgrade the or more we auto going to credit apply thought, as but that issuing based by applies high bank, people only increase And recognizing we’re – become credits be to those then of and that not renewal in train get you whether Visa executive by things triple not the card getting call be the rate. high both

to some those First and like you continues part a make remain we of our people foremost, you more of as to member to want membership, getting auto ultimately well if to think we to that renew. quarterly me? executive be you of shown things there, as we’ve which do the Can things upgrading positive hear Costco,

Greg Melich

can. I That’s Yes, better.

Richard Galanti

Sorry.

Greg Melich

that, I And is okay. any is of depressed? And on glimpse heard there sort We last, that hope there still travel bookings?

Richard Galanti

back, easing into thing knowing in but of is starting it the out when in the but did It they for the coming winter people spring and to some Christmas and XXXX, full summer it’s spring, there book even there the statistics same generally was said was I back COVID that capabilities. cancellation were and of

as and seeing, might of now We’re you many expect, things those were canceled.

we relatively to items department, and it domestic the pretty bookings, strong. hotel also additional I a and we’re Again, star we’re And – and our of to for the rentals. as thing but for pretty relates improved it’s other years talk four within the that things so, we’ve five the travel on some We’ve us we’ve optimistic parts the is relative same wouldn’t and to added world, offerings. And we’re think well. doing U.S. which Hawaii market in domestic items car ago, there Mexico Now are speaking again. few domestic back expected. travel as gotten framework, certainly, some going come have and Mexico well, – seeing

Greg Melich

going and hard Excellent. good bacon monitors from forward I a across guess luck. putting the pressure

Richard Galanti

don’t There’s out questions? food there we name a more why for a Anyway, that that. interesting have two fast retailer has

Operator

of is Greg next Badishkanian Wolfe. from question Your

Your open. is line

Spencer Hanus

Greg. Hanus February, last of year share retain. on question should Hi, digit to first compare this have that we this is how how is of the the the gains think comp you how internal My then Spencer you’ll your And much in low-single for did expectations? about week

Richard Galanti

and year last compared four knew a part ago of be the we all answer weeks is Well, February of tough of mean I going first. – and one two, week and to were that March three to I’ll we question compares.

little sorry, given the ago. still actually we I a but year a did better number was I’m first than low it think what your a And thought, we was strength question?

Spencer Hanus

TV share, share. market Market

Richard Galanti

whether food retailers, restaurants likes at that to and we’ll day, other sticky extent. end all impact retail of socialize there reopen food for out and some that will formats, supermarkets, retail of We said be it’s other general hope some sales it and and to TV the restaurants going look that and market being have at personally Costco to share, are retailers. of the good, apparel be closed all able was some enjoy the merchandise it’s not. go and will and That

the aspects So relates have in to unfortunately some good. certain for of ways, some that of closed stickiness retail

that Costco. some and restaurants buying that some it sure from that some more well. things like, of I the hope can were will – it I’m as little these comfortable the and we of of end of they gotten the they’ve of be impacted lose examples stores up reopen. likes we other And to And as will but keeping a bit it of

Spencer Hanus

previous for the new that expecting different company cohorts? rates members average? then to line COVID, overall you recruited in the renewal you’ve And than helpful. see That��s during they And are with are how

Richard Galanti

the members some percent XX-year might that or in point XX% include two whatever Whenever our X%, if or up the XX% look and renewal member, that we be are mid-XX%s sign have that you rate U.S. in mid-XX%s. at plus last that some years, Canada, and XX% members to a includes

it’s that going members a up. a lower to two-year two, from new rate they’re So combination again, to renewal of year to new some be to to follow guess it’s one going zero that of year one-year plus some you’re always My rate members these year one in renewal, picks is format. ones

though, The members we’ve markets hurt. gotten a in we sometimes other but lot, where it operate cases, new stores, not is physical don’t thing think even we in some can’t

Spencer Hanus

you. it. Got Thank

Operator

of Rupesh Your is question next Oppenheimer. from Parikh

open. Your line is

Rupesh Parikh

Thanks afternoon. my taking for question. Good

e-commerce just I ask to wanted Richard, capacity. So fulfillment you about just

obviously several guys you months. registered are strong So very growth last

step where going So from you up a you perspective curious expect would whether in forward. investment fulfillment to see just guys a are and

Richard Galanti

up the in has continued it’s years, year. and of couple there this think been step a last I Well,

we We capability. fulfillment are speak building fulfillment as additional

for everybody because it, getting so In this but I’ve is items. better at of fewer We’re be that’s, may easier kind wild of it the seen ways, think some growth. us we

pretty centers, We’re which doing our business still works through the two-day groceries smoothly.

larger than but billion new it the $X-ish a single to warehouses. percentage we used year is certainly opening is percentage the it still So spend be, of every biggest

Rupesh Parikh

one follow-up then Okay, question. great. And maybe just

guys ahead. clearly, – sorry, you go So have

Richard Galanti

to In addition our to fulfillment And is e-commerce of which physical part in there’s capital investment from around app capital lot IT mobile there’s expenditures, in everything also like. CapEx expenditures, as of well. from a the that

Rupesh Parikh

And great. do maybe wages, can increase any given then multi-year on offset the minimum business? on going you some your the pressures see in wage forward the that in a announcement just seen levers of that other Okay, basis we’ve

Richard Galanti

loyal and that think hardworking about. that know find care, are, XX employee to used we is and years company what I about to, and we’ve are beginning, that because able great is, the a got we’re And From question we we ago. as cared that they always base are a

to come be pounds ideas that with which ideas you it and the seen if efficient the that labor to everything per a we many from with of are productivity, these I these measure think shrink lot of out with labor coming over hour. we to that meat things ground, the years, do certainly will working hour, feel we’ve more on has labor in but our per from how employees inventory figuring up department, too, are productivity,

about from And figure let’s efficiency always we for then give and out worked it to how it we’ve us. let’s can figured So we’ll on standpoint. it, them, pass have out worried pass ways, not save to there an and seems it get it, onto

Rupesh Parikh

On the CapEx basis…

Richard Galanti

Costco’s way in see working savings we’re have like, well. the as to countries XX% in all we’ll it’s think the figure another savings us that to, things believe third there. of took XX% it of our of and of but them. version be it, now virtually of and self-checkout That’s awhile the XXX it environment format on we see it, to the Yes. or we’re in it want Other we U.S. It’ll our I the part And on in out,

ideas constantly the out. out we’re many people of the So we good that here those the And of They lot rooms from come don’t figuring come at on these from office. attribute floor. things to a the

Rupesh Parikh

Okay, you. Thank great.

Operator

from is Kelly Edward question of Fargo. next Your Wells

Your line open. is

Edward Kelly

look margin, want letting gas for thanks pandemic gross ancillary more to half, I consistent back a just there just Richard, that all bit basis me the other So pandemic guess remainders movement. of so since XX, about points. whatever I be XX the of drag go been Has the here. sort back, related, talked quarters, Hi I first you remainder there on the began? over the than being if would gas

Richard Galanti

Yes.

a as negatives. been I worse was had some offset now, think than was QX – – year other big quarters more a these positive. The where last It delta you negative still gas year-over-year. but improving but we right talked it about It’s and gas similar. little big is in it’s and offset of

Edward Kelly

Right.

Okay.

other back you increase to of back role a that with the wage the how segment then when have going look XX normalizes, that’s we play of life there. the coming because the when at gross come So margin, much

half should back? assume of So only I that comes

Richard Galanti

we for simple think margin. million from this I total $XXX talked Well, of million $XX impacted for COVID-related in the quarter that and about math,

And billion basis, million about an the on $XX that XX%. $XXX is a whatever annual under half. percentage $X.XX little a So little we talked over million, over

of improvement in improvement the them – there’s other So quarter. explain as from if go of we’ll kind margin you I’m that. to just half net But we And outliers, or sure each pre-tax that’s there that. into take

one, margin, that’s willing business. once that’s unknowns months. there afternoon, what low several going the The next back. courts, over very we’re tables everywhere, but high not quickly happen dramatically we with we a are because to it. it’s of going the is improve easy Food SG&A it’ll will tomorrow it’s happen to get doing and a out and things know travel Travel come how big Some God

Edward Kelly

well on, hasn’t of just from and so things the stimulus, for level you pre-COVID we’ve eventually core, that have one down over mix Okay. benefit I last we assume take margin core it’s maybe really still sort very last And forward, the but up, just could one on by that normalizes now right you obviously quarters mean going to been historically don’t the like sort mean. I of seen the few margin we back what doing

Richard Galanti

stronger in feel I the terms of than little positive. that, a

you going those and your not side, you’re tougher from yes. point, when get on have some that think year-over-your big labor At compares, productivity. fresh the basis to improvements I point spoilage

productivity. Now some more of it have you new though, these at levels,

We’re not you’ll if it. of lose it’s But you’ll going little, compare, all. lose necessarily lose tough some it a to a

even things. but particularly the that Signature, specialty of we’re are So are those of little get yes, things, within of concern than not going items, we as keep on I greater mentioned, savings like full increase some some categories, offset I’m margin all, as that where about. Kirkland to the all cases, are a we in suggesting a better can the think do some to to these the vertical it I we’re some cashews, people we things fresh nuts integration question than and tend as and of certain sell showed some other those things going the but

Edward Kelly

Thank Great. you.

Richard Galanti

Thank you. Well, you thank for listening.

We’re all here.

you know afternoon. additional Blenna you good you, a who are. any Thank have If questions, we [ph]. Have

Operator

gentlemen, Thank for You’re sir. concludes call. welcome, And this you today’s ladies participating. conference and

now disconnect. You may

Costco Wholesale (COST) 5 Mar 212021 Q2 Earnings call transcript