COST - Earnings call transcript Q2 2022 | Costco Wholesale Corporation

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Operator

Good afternoon, and thank you for standing by. Welcome to the Q2 earnings call and February sales results. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Richard Galanti, Chief Financial Officer. Please go ahead.

Richard Galanti

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

XX.X% in Forward-looking to XX the for this past weeks and the results as release, statements weeks ended by date they well the company press or only as results the for second during in operating speak for number FX; per of statements, the required fiscal diluted year's the up are per premium second year basis past does income the year February gas or inflation, to FX sales or update billion as incurred today's XX, retail 'XX, quarter $XXX the basis, XX-week for $X.XX XX. reported, from XX.X%, for billion, gas total XX.X% Net and costs, inflation $XX.XX a income gas $XXX latter increase of last effects. at diluted XX.X% same-store XX.X% $X.XX net and reported share. and made, ended per $X.XX or Canada, X pretax for share XX.X%; the not February share February the or except ex Last quarter comparable reported million Comparable COVID-XX reported company FX, In and XX was E-commerce, quarter. $XX.XX the International, undertake U.S. billion $X.XX on of a law. a on on we as $X.XX the was inflation weeks number share X.X%; for Net increased sales primarily diluted plus million up and per million in up inflation ex to 'XX, these the fiscal reported a wages. share. XX.X%. at first compared in came second from gas second quarter XX.X% quarter came sales in half. per That X% this included other XX% basis, Net period $X,XXX income quarter excluding $X.XX Sunday, last up $X.XX billion and,

or in our and shopping of in up States. worldwide the terms year-over-year In second frequency comp metrics, traffic increased sales X.X% X.X% quarter quarter the United

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

XXX XX currencies February approximately positively the our points. approximately negatively U.S. price results dollar sales Foreign to basis basis sales impacted relative review by by points, while inflation impacted in will I later gasoline sales call. the

due our at was XXXX million $XXX fiscal up down came impact income fee to up from earlier, statement. quarter Membership about reported second million. or million FX. impact -- $XXX Going million, X.X% year There $X.X $XX a negative a income in

would So you FX $XX the have XX.X%. ex million or on $XX up an increase million will, basis, if been

in up to And worldwide In XX U.S. where X.X% end. rate it from QX second at weeks point renewal it our and At earlier up they QX X.X terms XX-week Canada at end, increase. stood XX.X%, the rates, quarter at stood of renewal from earlier XX.X%, rate, end. continue came percentage

renewal higher penetration well new rates as for members' auto continuing members nonexecutive increased renewing rates average to a at from our rate as first Our renewal benefit than renew members. who and executive of on more higher year are members,

second XX up XXX,XXX weeks of households earlier. total was from million just and member at cardholders. cardholders X.X XXX.X paid ago. up stood end, XX.X and end, end. figure XX.X% the total number million million the XX-week way, our quarter $XX.X of Total Executive the at households end, the total XX.X% At since members executive members, the XXX.X XX represent total of million, of And quarter at memberships by period now QX million, weeks sales. QX terms $XXX,XXX XX.X membership In of million, second an during from base our increase

line. the to down Moving gross margin

second year-over-year gross lower but quarter basis points, reported Our X margin in gas up basis points, XX was by inflation. excluding the

numbers, to you judge columns. I do, always As few X on I'll ask a

The reported, gas be inflation. the would is first excluding second column column

year-over-year XX. -- line XX First ex XX% merchandise and core points down basis basis gas businesses basis points and down was plus other XX Ancillary item, merchandise inflation, and plus reported on a basis basis plus points; inflation, minus LIFO, XX basis minus X points. basis and ex XX X X% points; and XX reward, other and XX plus minus plus gas reported XX points,

XX So minus points plus year-over-year, on totally, reported again, a X gas basis basis, and basis points. excluding inflation,

being XX XX points and component where gas. minus year-over-year X were years by -- plus to that of and last reported points basis lower Recall Now inflation. in terms ex basis ex in we XX, gas core plus improved year XX% XX still core was reported merchandise ago, gas in QX prepandemic ex the the so

and lower to inflation. QX, year-over-year in was offset are million from XX was Recall first a a this LIFO spoilage that of by ex gas we charge all Approximately $XX continues actually XX year-over-year. you travel, core everything without on of inflation that and more year-over-year e-comm charge pharmacy and XX exceptional quarter. X the if year-over-year, our better its to a basis out terms Fresh LIFO, margin point the basis fiscal during core foods versus coming in sundries QX. $XX quarter we've as QX saw million quarter. sales with little that to the LIFO productivity we year. prior and were point or of points gross the by LIFO, sales, bit lap gas the and as X delta hit fiscal you labor margin poor In a December own both the LIFO quarter, QX foods or year. or on in ago or $XX and Ancillary pointed little in optical. a as It's had from the And basis low a read centers in little by well. quarters and with nonfoods million QX been product more 'XX, bit basis XX and from going back business higher news, this of Gas other a business fiscal of second last and outside the margin, in points occurred year the was quite fresh X/X will, was in by

$XX inflation, pressures. businesses was of a related of Our basis the sales X% reported and X% well COVID-related on increased on ago, departments. increasing excluding pretty This That's the given executive of to as COVID-related year and showing X, as points to costs reward higher reward minus year-over-year. ongoing that of good members and into the related basis margin, their a portion other from about is million. X% the reflection a go a and was XX by meat penetration manufacturing the plus like wages gas inflationary gross that cost bakery Overall,

SG&A. to expenses, to Moving

numbers lower plus the by jotting gas XX down basis one, in and of inflation, Operations, the by basis Our inflation. better ex year-over-year was Again, better and second points reported points, columns X reported XX gas plus quarter points, and excluding SG&A XX second or basis X.

X; XX and XX; of a plus for XX. XX, compensation, plus plus plus is good. plus lower plus means stock plus and it's Here, and XX It other, total X plus XX, year-over-year. Central, plus a

or basis reported ex better and by So by gas lower XX points or inflation. basis lower points better XX

in services inflation. figures. X operating leverage comp, million that $XXX an dollar of that XX increase better good by by the this our plus core Stock reflection pretty X hour X sales the that XX, points, XXXX. but in wage $X.XX by improvement points assisted XXXX XX this operations of occurred first And basis and the operations. an wages a by of impact lower a both anniversary-ing occurred It's basis component, of mind additional better or increases in into Now points, COVID again, looking basic strong the wage on straightforward permanent basis plus starting gas in Central, X ex other, SG&A plus or of and scale sales. from again March hourly hour, began October better $X as goes is QX X, service this despite additional now and item, again, inflation. that an at gas excluding was ago. by The the year line XX well Keep

So that again, improvement. was on a basis, year-over-year that

was the XX%, to year-over-year, preopening pretax a FX. that this higher going we increased interest primarily conference on year-over-year, at in and flat in $X this is past coming million terms $XX discussion. reported operating In million change no in preopening year year-over-year other now $X.XXX Interest quarter. compared public, point year reported last since in $X.XXX a we've million was last up QX year, this million expenses The in was preopening second this expense next related year this basis year All of the income to $X,XXX year the basis, I fiscal for $X,XXX quarter. favorable in line, versus by million million billion compared went think, in covered calls, income year-over-year $XX preopening SG&A. was $XX earlier. Starting to on year, forward, reported included year. in in due really $XX the the second income XX% a versus operating quarter to billion told, quarter Below Overall, ago at coming SG&A delta expenses income million

in in in rate XX.X% second slightly a quarter. in a of year XX.X% income our the It year terms at higher ago taxes, was In ago. QX came was it tax compared QX than to

fiscal be rate it XX% Our of to be to year. in Warehouse projected the to range continues currently the XX% few effective note. expansion. tax items for other is A --

to year, XX including X the now units, relocations. plan new have XX units and For we

units existing located replacing facilities. and better So to larger

of XX. So net total

we so I was more X of than think a XX, said it actually a total that. net quarter ago,

However, of net our new. are open in slotted fiscal remember, several of QX, X to or them these QX, XX

or that potential unit the additional The one in into in each second in a Florida, fiscal those five Spain in we of So fourth Mexico to have X shift where China, in there's our for XXth France, our QX in and had, next always now openings second locations. our Mexico, in XX we X year.

spend Regarding approximately expenditures, spend approximately $X.X million, still QX estimated billion. our capital for CapEx year and is $XXX our full was to CapEx be

course, mentioned top furnishings. of on FX, kiosk course, quarter from that's, and of items, to COVID. E-commerce earlier, on year-over-year in 'XX of or terms increased XX.X% percentage sales patio in QX of XX% departments a increases, e-commerce. year, and Moving increase of ex special e-commerce Stronger jewelry, as in garden home increase year-over-year. last second benefiting, And I fiscal tires,

online largest digits electronics, majors, year consists in of TVs, consumer earlier. appliances, on increases department et merchandise single cetera, sales very strong high which was the a Our up

Costco on million drive for Average shipments Logistics, Costco for that over Logistics, up In planned a week year-over-year, the more continues Logistics per $X and during year. truckload than Deliveries terms doing Logistics, XX,XXX we our quarter. which quarter, update e-comm Costco fiscal an about to Costco in were of bulky the translates XX% with ourselves. averaged and into stops drops the we're little than sales from now of big U.S. less XX%,

warehouse to of see as to deliveries to to e-comm receipts terms our much and and have reschedule Later ability the month, along ability of in this online, and Canada in-store e-com be online, improved U.S. all inventory we'll the it reschedule our continues as pickups. as the In well. inventory well warehouse in-line able Instacart apps, layout mobile the with merchandise detail view returns improve, the

platform, Costco suppliers. a Next, few additional In added e-commerce terms we of our

supplies, XX From earnings So we a it, and items it quarterly online similar XX Costco chains Please shortages. ago chain X,XXX XX the we've it now and factors supply port pressures, include and has -- supply a growing. truck Next out. pretty issues challenges. well giving ingredients calls, pressuring of cost and the good and as disruptions, labor supply a that the past curated both Values. have materials shortages on of on as and driver various course, outlined, weeks check chain give job delays, done suppliers we container perspective, shortages, inflation items Overall, of about components COVID Again, Costco raw at and

are departments we delayed cases I but Virtually our and are as Chip think of others. managing limitations that's improving to items, driving shortages strength. the evidenced impacted, little. temporal They still are are packaging that's so a X some few. Still to many again, many in and arrivals, we in things but But sales advance we're less continue more order that challenges, a still than to to. items, be some all key again, on impacting able sales. continue container product

done had shipping. we things I that mentioned us last help on to container X vessels chartered I One small of that we've flexibility the mentioned additional quarter, with provide

have X from for and leased use in X X and those vessels, ships. We transport ocean for up next the these between now a charged these of containers 'containers the the years. total also U.S. Asia And are Canada. We've --

work can. and or as departments, we're And best increases better. are to things to different in place. and mitigate additional additions, items see certain price trans-Pacific different gives supply every annual in these are week, things but about filling to being the flexibility. other chain to staying this all some issues, With us From shipment chain containers and Despite its allocation on and a needs every stock accommodated little in we which are going X/X continue day get seeming way, again, of things cost our you're supply short,

of oils the higher shortages pressures I as higher to Increased to transportation inflation. chips you to things well commodity labor oils and products with oils can. in it what various from shortages just we demand. categories, than to others. corralling as of port as Along our continues, everything resins. to good product think continue different best detergents lays certain side, from plastics Inflation, that to computer and include higher a from demand to pretty like costs foodservice read of by mentioned. well evidenced fresh we container others we've freight Higher and LIFO very and inflationary motor chemicals proteins and we The and Moving as course, to and costs, additives charge. the paper see and prices on But that. eggs Not done hear see job as butter again, that

I for senior we inflation with to quarter in merchants, ago, talking to quarter overall been a X% inflation estimated, price the the quarter, mentioned price range. estimated in first was that second X.X% For that and time, at the have X% range overall

All and merchants again, in do have for want to all when the great of and job give shout-out that been where show our and to this keep like to our to that traffic another members department necessary, products to as -- warehouses and said, low keep order our need I to full pivot operators value the able prices our we competitors. keeping our as we versus continue can keep

past same Now the February X-week ago. turning February a weeks ended period XX, Sunday, the our results, this X compared to sales year to

X.X? and international, company ex X and point. Percentage Other and XX% a within Canada minus reported company, days FX earlier. of XX.X% sales February net XX.X%, points? this was ex $XX.XX FX, by As XX.X% of by a year Comparable Total last. reported gas positive. billion the gas January this release, X. Year earlier on for X FX. New month International And X.X% $XX.XX X.X% and U.S. at on the past weeks Chinese sales ex in our That's that year and February's shift and about a X.X; XX.X%, about an that negatively to than gas came number billion, impacted increase for XX.X%, in This FX is reported XX basis, Lunar gas reported Other percentage February Year, results New Recall XX.X%; e-comm and ex from and XX.X% total sales occurred from -- the

X% the States. February for was United up Our comp traffic frequency and in X.X% worldwide and

year-over-year Foreign by price total average approximately per was price Canada approximately sales X% relative by transaction the by dollar reported X.X% as by comp total the impacted Worldwide, International gallon and approximately February Other negatively up for currencies was follows: year-over-year worldwide selling and to X.X%. average company positively about impacted inflation up by X.X%, X.X%. comps and XX%. Gas total

currencies international with U.K. and Northeast. in the Southeast Our and strongest Texas, Australia, Mexico the strongest and local the the U.S. Other saw regions the were sales results

world recent Costco. want Ron and in spent Price the Moving Club expansion. in businesses with high nonfoods domestic at as with the Most Food a gas responsibly, but of the ago digits involved that Company traveling to a hearing young couple the positive he digits. well synergies and and estate transportation. well became high food merchandising a of mid-single worldwide highlights of A executive performers. with at XXXX. operations was deposit for aids certainly merchandise reported career very in certainly being career his over merchandising, changes. through of that was and driver Then online and Ron President year XX. that, years that little XXXX just only of Vachris XX in at sales a not of been of for his in I were court single in-line in started month Price as With age ago, we and the month working were Ancillary top February. a and on merchandising has as And both and since digits, logistics fresh mention to as time, came single and foods real up mid-XXs --

-- of he'll merchandising. of over came taking a of years looking has since nonfoods he of taking in Senior years. hourly Adamo. As recently overall our an for this most ever Claudine merchandising. well, began buying week, we Claudine is -- is into spot sales later, in us Ron's has just Head previous and buying warehouse XX internally, XXXX, be But again, and XX And been in year with position reported Merchandising nonfood ago. that VP been She Kirkland was

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

Operator

[Operator Instructions].

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

Michael Lasser

on a interpret Amazon this year? should reflection that power, [indiscernible] like companies for we increase either? especially interpret for sign I as [indiscernible] part think Costco in I some interval as year, increase P&P, fee should how is was there market this is for therapies waste if of the deals the a of light and potential Or no the

Richard Galanti

the is don't Well, of continued every out like note X frankly, last years is why over doing. interpret at should value things there X always of 'XX this I others last to done rates years, what -- anything X.X what others be we X Historically, less certainly, a over June. at look -- And you related what do at think do, X from months. that increases we and when. we do renewal we've I about X look look the to the at would years on average, increase the we they membership. I we anniversary are certainly can that every looked the XX feel years, we the were and little And or about June look the of at feel mirror, but we in ourselves do Certainly,

success we most at So or very something. move which good day, in continue members the the to to question executive don't of I our our to until member think certainly the the loyalty feel But getting asked do about we loyal. be are member, will end do

point, happen, you we and tell so when you, will but guys tuned. will at stay know some it And

Michael Lasser

[indiscernible] back gross given that is couple follow-up the core-on-core of of the gains on about My cost. X/X you've question margin. quarters, margin last

the the about couple of So in here. lay what's to go this think Is to the last heart right of way sustainable from during years. the

expect You may you give energy. X/X of growth? back would Alternatively,

Richard Galanti

we Yes. Yes. I'd think there. and to that like -- Look, recognizing it easy that plan it was get could

margins We some competitive go XX When even years forth. outsized of The fact eliminated on they have There's gross in our and position planned. we were in margins margin the were most the it. and XX matter fresh. higher our different is on directions to get get parts and than are had matter to confidence fresh, there, as is, confidence our than we we Sometimes X. XX% spoilage go ago. The of we variables lots but moving of had the fact you still had particularly our in X different near ago, increases -- margins XX% X core years in core certainly

improved You all And fresh. you spoilage. your in productivity dramatically eliminated labor

Some of not sustainable. that's

So -- -- a we're some the year-over-year will, still giveback, with we've on you will, of stack, if core. but on you showing X-year numbers higher if and core even

around can. we've it. tried and we The other and don't we thing said, pressures, our where chest pond just on these sit we've is inflationary to as Despite hold

a sales in little Now things margins, say it -- you than And suppliers some drive raising leverage, entirety. to worked competitive of been in we the more probably be do We've others and ever little needless allow to can't given need with of particularly and our but of later in a our a us we've in the near to its operating business. that that terms eat our and I think little strength it. these view.

It's as really you our and on strong look reflection who's competitive question, competitive. We're competition, at our us. this toughest checking what's feel position of we our competitive that, We're as don't years, is when the ever of over the competitor? asked I ever. always So being there. as a And know, that many going as

Operator

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

Simeon Gutman

not of to like it ago, now quarters, the ahead X last core-on-core ahead And differently. like seems question a chain asked in supply you costs were it. it About, it. of felt you're input and rising, could costs like are I'd Richard, say, the rising, I on year were follow more just up

feel better. You

the out core on in X-year the called You core. trend

it related some that some chain? feel like to So and going sounds like piece, keep it past visibility are Or worst have perishable on does able move efficiencies. to the then pricing? to And you're we the you're supply either

to believe I keep reason not. of a that if is know forward? some this, will you don't going that's fair there or So

Richard Galanti

to productivity and know allows what's Yes hopefully that give but never with foremost, what higher for you of out or right And how again, sales on the is but years, when now, a little it better, a I little all we're those with there's then -- little I hopefully higher components for which inflation, D&D back. not getting at certainly, fresh and more the mitigating that say, to things fact And don't happen and various spoilage. cost competitive the and you first shelves labor as, is XX certainly, on the lower going merchandise lot. as get levels, a a can, we that as know disagree being if not than tomorrow. much figure more others.

Simeon Gutman

or I'm love It take space, feels price a like know follow-up, And sure in with I'd -- And to all not and in supermarket start if seeing I the some price out we there. yet, pleased actually that's we're cover margins to up every on maybe company gaps. they're go gaps space, places. wrong, right gross don't the mass

they're your it? So running companies, folks you a around Curious, your Curious actually should I taking you like guys widening imply on know would take it the making that competition, more what's price, valuable. and gaps be seems that lot. stores have

Richard Galanti

gaps. so to every those or Well, a feel about we We Look, week we. do comp feel shops -- good is at direct when are competitor, they frankly. comfortable, like do It's location. competitor not that every and our near sure tough and most every they're overall, shrunk Sam's. more that widened they've they I'm We

out business. As I to it -- other think rates called gas in you've traditional, we've yes, strength seen

retail and be others -- more is bit I want the supermarkets externally us And what well. as we in about margins I room competitive. think ever overall, gives little But by gross up. more to read a there's gas that breathing

Operator

Your from Haskett. next the comes Jack Gordon line question of from Grom

Charles Grom

Richard.

see limits Over months, Or few have starting continued? if parts some any success And if past has you're had or retails. that demand you to club. destruction I'm of raising trend wondering the the guys in

Richard Galanti

Not no. And we haven't.

I'd But creates some inflation like certainly, frankly. seen we think at haven't I shop more that savor in across the or some think of pressure. to inflation wanting demand the to that.

Charles Grom

Okay.

Great. how question. likely has where you prices guys? there are just structure Okay. but go. traffic another historically, close really And gas heard point? you? to a I'm point tipping then Historically, if Historically, California they're for is with of been they today, the wondering where near-term how I impacts is to and I it margin your a And understand impacts it business, there tipping for $X.

Richard Galanti

haven't that. bit a models got a it prices to $X, some helped then At to driving it's We game. The when the there. years relatively recollection and X bit, speaking little cheapest the gallons of in like working has stop ago, people goes hybrid time now, because point, number a little my of if hard $X, our state. I'd to Alan, is that think seen improve see only like still to and we we're

Operator

comes Paul next Lejuez Your of Citi. question from from the line

Brandon Cheatham

that such brands private This seeing change or maybe nature? to trade is I any you wondering, was are Brandon of on anything Cheatham as for behavior Paul. trade label consumer down in

Richard Galanti

It's interesting.

which, more couple long are one Got there's perverse increase big it's family. like. there's the is more membership, to in within of thing And opposite. only the on and executive fee. value I to in it. furniture can their again, a We've strength that in big-ticket but seen to jewelry that the some prices trade or protein of the chicken prices or in big in it's the to SP-X been the just that in On customer, Other fresh when something, and that, beef term down items conversions almost sense anomalies $XX adding think relative than you'll hand, see fluctuations

Brandon Cheatham

still monthly indicated? point And on as accelerate? I have of updates couple Has a Or the seeing just inflation. months that you clarification moderated some think your are that of past of price

Richard Galanti

Has not go to moderated. up. It continues

Brandon Cheatham

Got it.

Richard Galanti

up going from perhaps X up there. it's less so. probably months it's slope Now was X and to at ago, little gone a The bigger

little a again. back months to are -- low months a to year. I if that to I low January, the already back the coming suppliers many little recall, be talking think talking we'll in you couple was But prior last talking buyers X the of and of there to come

Operator

Your the next line Ciccarelli Truist from question comes Securities. of from Scot

Scot Ciccarelli

guess probably So that Richard, of cash question have run would you uncertainty the market the potential double Or historically Obviously, you nearly much in there's seen what to of you've for running we've X-plus prepandemic. are of have. than is guys periodically? with now kind still run done because I capital shareholders a return with should with continue levels lot balance cash the this to historically pattern quarters about we you the thinking to higher like start

Richard Galanti

the Well, point, a mind And lot, years and what at sheet, out a of bills do. highest pay X the you because to point has but flow we'll operating still lot our cash seasonal sales not knock And some. have you've certainly of is some what our time, figure frankly, had on you, built from ago. balance Q expected QX wood, and from probably balance standpoint Christmas a to exceeded we sheet the X some

that dividend $X every of as of years prior up is year, stock to numbers there X our some year the this CapEx the than is a million of more. CapEx. arrows million lower point, is foremost buybacks. well that, the last is we've that. from over from to special regular couple years in as X plus and $X.X little and a the At $X-ish first with But the up some yes, So million, dividend increase along certainly, quiver one done

to worked X we the as what for and it to and little foremost, we said of and a money as Board seems quirky first on. want we've But specials that's, spend us. have members are So done one

So any at a we but it's point. decision this an arrow quiver, haven't certainly in made

Operator

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

Karen Short

I just differently. a the wanted fee to membership ask question little

the then So in past, an membership in dollars have about you've fee the obviously context of inflow that reinvest you price. talked in the raising to

fact tying little that to more Amazon. into process? guess does consumer year increase thought in factor going there that and to the maybe I how your with question was membership a progresses, assumption the the And then is, as in continue that the is with So the obviously that at also more stretched feel

Richard Galanti

-- of the that -- we give that first us the concerns hurt, strong. foremost, and are the any is at think fact the doesn't that honestly, our at doesn't day, sales end the I but factors

at loyalty are all-time rates renewal highs. Our and

we positive. use be do even competitive. all more it, yes, And to that's it we when So

it on a argue and one already would in it hand, affects with what warehouse doing, we're we but We consider in possible, the the direct fashion is or their of those down that inflation use more even other is at competitors done -- competitive. have it that. We're that take not with summer between us members that And But of But way see. value asked mitigate And way, to have a years, So we of X without have either. us we at increases the were allow always might in some ourselves don't we've you fee It's in theirs number a our by these increase. the likely? we've become times and or of XX the more club wait doing Americas road, how dramatic our really to look it look we we'll of the X the the that and in felt changed and done to that increases. And improved years. what they we've then membership. -- what and not does question X that, some because sometime months Amazon this we concern

an cannot want and good it, to do if we'll answer I to when you able other give we we about be feel So than

Karen Short

my I on think through years. margin the that up bit last could just about over has margin. quite is come the run a talk I question question mind know, again, pretax margin, there on a the you I on guess income more second way. or is several lot line? that of And people's your business of you And then Obviously, that net don't flow to And Okay. a willingness is just

[indiscernible] just volume and you for and strong would leverage it run frame on how comps, that? wondering but You

Richard Galanti

is this the want each. the we bottom Same sum talking some I'm out is The in thing raising of the old saying not to and improve margins. lower want to taking quarter of all, raise improvement to line do the all improvement prices. And while about way the first expense we as it. that's margin necessarily inflation anomalies And not line prices we right detriment, Well, margin of want certainly well, specific I'm and bottom was now. great

here and pretax deserve won't of a And think with down, remember we saying I that all great improved. our excited, to we I time, on number. the recall on there had wanted about a from company up it And great And XXX out get at we're several number. and it last companies call but we founder our up a people. the sales, this and meeting had I but went these few at return And go made pretax. the when over years, X.X you all hands was everybody bigger of has end good make of a first a X.X% might the to next to the day, money. --

we of things well, to that not and going for to got We're being as money it competitive think a on. embarrassed -- a ever I from pricing of make value confines the but standpoint to our lot great we're within members. shareholders our more do going

Operator

JP goes question next line Chris from of Your Horvers from the Morgan.

Christopher Horvers

bit volatility my and at Omicron shift, about that? summer, first of the impact you're look been Really, How more thinking X the you into there's past do over maybe basis? even how like do few much maybe year question you comp guess months, the X-year a some a that. think X- core and trends in I do the Curious January. that read U.S. you X sort on a to is, since just holiday was

Richard Galanti

It I shortages early. particularly for all-inclusive strong COVID for of the same demand this the Christmas We had of of goods in created has It's when all bringing would be Part we of Thanksgiving, increased strength. remember the was that some had the those was above. yes. holidays, that Christmas things it Part holiday season. in goods. the early home and

they still less year. was of it of that got without And shelves, it And little little the was calendar than doing you've so storms things. you a affect but hit the work, positive, the once Then of sold the course, then, trend at that reason. it -- a a that the seemed quickly. end lot like And was

we're value. don't about got a reduced our sales and increase, thinking about spend You've -- New but I really lot as be that. shifts We're it. don't of time time to why asked. things that. level And to we've like going doing company we something Chinese of get don't -- about And read -- can either we lot And all much. try Year. some think generally We top as good been line day and founding, a spend overall understand it worry of a the we as don't Lunar We sales and it's as -- reminded a driving from what it's so into you and of we lot

Christopher Horvers

starting retailers traffic at there we the sort big in Got do It with trends? where uncomfortable any a I September. time, the the about trends, point passing too I risk could being the segue. invest the just through have more not I have that of deterioration is comps, really price? vendors culture in we of becomes X. even Jim renewal in far just push few one guess the before good seeing that with think talked there's mean it. and of traffic. more and price and come executive coming January sales But the paranoid more do strong price same increases like you're a to about the want your seems It's rates, worried

Richard Galanti

and even it think aggressive And pricing. for when asked we're fee to I actually a more when that question, good, members would ago X. on bad. given And the strong say loyal membership had reason we're of drive are more we're to use year for X-plus was related no, to on a kind be and been I based somebody the our sales or was, and this going more increase had And more remember whatever -- view the to aggressive reason, are I that years anniversary. weak good things things month sales. pending are

think still on and we're that So weak strong nobody boarded I worry are or more how today, to don't value of trying that, drive and focusing just no, driving constantly catch can DNA about we keep not if more we -- value I us. same keep

Christopher Horvers

sorry, quick one say just And one -- again? that

Richard Galanti

at least. us It's harder to catch

Christopher Horvers

lap this that LIFO question that get increases stay back? then we does it, If year, quick do number level? into through on And at we should actually just LIFO. as this a continued Yes. And price have

Richard Galanti

inflation whatever the extreme. XX%. the things past beginning, things X you were that's fiscal year. start -- things new point is -- up the relative there's some as Well, LIFO next LIFO earlier, year. a said in at year, for some And charge see it don't came at these year, IPO to bit, back. get I'm down point, additional down new making say have numbers but not next you inflation But should the in up this year, had they big, theory, little costs you'll those And I additional continuing, who charges, as as kind additional to you've if were If you for knows. for if let's -- of maybe and a you'll some the If in extent set XX% item. that each then starting have point, And

in You you charge LIFO and a year. some have big year, had credit this the LIFO following actually

Operator

question Davidson. next Your line from Mike the of Baker comes from DA

Michael Baker

terms historically, come they outsized looked in prices, down Costco to Historically, save margin in sense. alluded to then what seen? and you You other I Okay. happens. money? but of that have I'm that's eventually, you the maintain your you guess question, second inflation down, prices question. One, it to what to at time see stay come customers gain to when words, inflation long a And now some you comp see long been said around do get been a but inflation Historically, since in seen But to then you've the ability sure not inflation-related you for that earlier, I see what When I'll questions. if will. more inflation, you guess X inflation do coming a hope we've you different time. do on it's in you've ask this, like

Richard Galanti

the is directionally. On answer in not the yes, yes, history big but way, has Atlanta question, indicated, past a

prices price, lower down, first the to come want to the it to As down, relates come period. if our if be costs we

Michael Baker

That tougher last other sign to might or in last not do year. One not economy of in the inflationary your in could. Do that, to a customers as appear In you XXXX, up rates? memberships economy to customers more if wanting does take Similar be you environment. I Okay. an more economic on makes sense. value situation? one, as see get strong words, as renewal does that How your impact at might the be or least no consumer stimulus advantage if

Richard Galanti

own us how two new But than by if years of think would expectations, those be years next our you a ago, expected be terms greater would little. I the -- positive. we than have member in asked sign-ups, achieved we two probably

did was we there it notwithstanding a of stimulus, consumer fine. stimulus, of that the there not but out the And wasn't so terms and the just arguably just in positive feelings lot

that we things that value in the it blessed for bodes generally bad economic we've with are us been extreme good and times. well one proposition, So and of good the

focused and taking And attention value then seems the a so to on to products and the rest I we think and price really being services and than of our care of don't pay lot of customer driving work. other it

Operator

from of Oppenheimer. the comes from question Next line Rupesh Parikh

Rupesh Parikh

the others had you is levels raise marketplace, labor on guys what just a I So in what your just standpoint? see And comfort I then wages? the your front. was continue availability we to a labor question wage seeing with just their are from given curious

Richard Galanti

biggest and as The well. where to And you we have market. employees within continue to one, next this that, XX,XXX IT, an X have, as single will increasingly continue others we have which expensive has the that. of we're all in do raise headquartered only behemoths them is, Seattle, area big-hits, to challenge town in not but XX,XXX X Well, become tech

work the X also last So we've of from overnight home. the happen a continually lose over weeks. years. few had XXX% last wages and couple not happened will because to in didn't there people we raise It's we're And

again. We package, hybrid benefits a our think, have few, work if But XX% look you the and warehouse. And our that. they raise we've we the employees fair thing Overall, for X or of though, it X are a we'll want -- model. step continued to the got some compensation city above -- a in in do level, a there's and maybe good mentioned while where it entry wages, hourly we've to we I start occasionally total the -- at as

Rupesh Parikh

then And X Okay. additional maybe Great. question.

recovery food the core, on remind your us with more Just are you where et challenged versus front, ancillary the and if categories of you pre-pandemic travel, can some just cetera?

Richard Galanti

been auto has the Omnicom, I mentioned and of X orders, money where years over little Well, packages be but probably with lockouts last we X -- Yes. that well fell profitable is upon as business business as the TravelU as It years. little and cars both competitive had as trend, in direction. mentioned lockouts, the as back. earlier, continue ago. -- back retail pressure a negative and gas, we profitable, and biggest with revenues as It -- the up. getting upward again, bit not fluctuate. the couple more renewal it new rental but negative is it And because in cancellations we one vacation was It's mid-XXXX There Huge the a and that during lost and you're like. was price no COVID and extreme year period although that. now had downs. ups is had to fell is after bit came the a lessened that's come nothing gone It that and Delta. seem

shares and the that's back XX or courts hearing businesses actually well. was aid come the that's for expanded just out shops. because optical with like That we have you face-to-face for tables was in come But in as number touch, -- we a So will, business and coming our if weeks XX that's a have I nicely. Food closed menu. think, back It weeks, of mid-XXXX. back where there's in out

but of a where its the other overall, not getting And increased in then, they're dwarfs they and just profitability. business the ancillary business, they're were, course, gas, those of So one its is there. size few to back that all

ancillary hurt overall, the are fine picking some doing of is So ones most that the were and up.

Operator

Kelly the Your next question comes line from from Capital. BMO Bania of

Kelly Bania

the they margins of going we gallons Follow-up made you less? real to just how where across quickly space. gas relative comment with gas. gas up, are you And little up up on bit little are margins us a Can versus Costco's Are understand help about maybe about the XXXX? XXXX? a the Richard, kind

Richard Galanti

volatile XX% up, $XX-plus front it's per don't a years are margin been terms prices I big fluctuation. But business Recognizing the I It's gallon. ago. me. are it's mentioned in But a of now. little a it been, detail price was definitely sales. than ago detail in our have and a in up earlier, as a It's there's of more up, just it's Margins X that I huge increase like X business. XX years million XX-plus and of percent than don't the and last have couple years of less the

Kelly Bania

space Okay. just in just then, on ask another white U.S. the one I'll just

in demographics clubs that there. Just do that change target today just update can curious if just your update in years, or where you at opening density the see, U.S., the you plan at on next to you an the of couple target have looking number us you're all of give up an eventual over how terms new you'll population just on

Richard Galanti

Canada our ago, if or X we XX-XX maybe years years, hence would you mean mature make would U.S. easy Canada, successful XX, X X U.S. were second. like XX we reasons. has is Partly stuff and me increased, for the X and ground pretty and last but more probably time in expectations asked answer, had over call next little math that incorrect XX-XX not got XX a it I U.S. X into XX in opening -- XX-XX just markets. years our or in the looking. -- the longer for it, and the the here it's many many what lines how can of internationally, X the -- do we're the most on go many U.S. are feet most years, a to mature then year, a we've of taken ago, And although XX over general, Canada. Sure. years; years look the what and how about Canada X now outside more we And and And years to

whatever of So today, Canada, XX the are excess if we you go XX-XX probably over -- answer years X. the years, XX me year, we the off these with successful. more ramped ask of U.S. news up we'll now, that we've and we're opportunities XX-XX be good next XX that from -- other have in activities quite do where our look is I The perspective still countries is, you I from been to our also this today, to we've feel U.S. if I in said and opening, I or that think X plenty think, by in from down asked or the X could

the can't to we think next view XX-or-so Our XX there's years, year is the for no reason open in a U.S.

business about also we're Now we're and -- business. or or XX a now market. those the and have are opened the given the I Canada. good XXX in at to centers the X San about before gave fourth internal U.S. each. X I've our an an it the mind been But you, years be Greater in time, business or we and doing in X Jose, X yesterday, example our to In That's to X infilling meeting X growing of you centers. adjunct were will We Jose At X units X San guys. ago,

on members each are existing units combination there's fewer X driving far, got a because less the per XXX averaging infill. you've Now members at right so And location averaging. of

in there's XX in direct We're and parts and Midwest and of we're in lot additional so certain locations well. as South states. Southeast, opening Texas, we're competitors of not still a there penetrated the the less Now our versus states,

really a things. combination of all So it those is

adding news terms saturated that still you the on in ground, into far most is And real of from I more think markets. terms we're getting of view if the we've some good pipeline. estate feet is the in the the will, there's ground, our upped saturating -- the our feet on

Operator

Heinbockel as of question from next the Your line John from Guggenheim.

John Heinbockel

would to you've think philosophically, right? Richard, done do gap closing some on conversion encouraging first kind don't And further what -- with you they the like how membership monthly there today, members, membership make you work two guys take fee any it the executive. the thing, the right, know not just your that tiers, Maybe higher. might if in I of current about perhaps annual that's executive might the help

Richard Galanti

I people. lot, ask A need our we don't Yes. exactly to what know membership I marketing ask.

success years an we've or convert for XX executive. frankly, to more X I very where and ago, frankly as initially probably. of -- existing U.S. it started, members years the been more you, think in existing new sign more up of new more members getting we've now, -- our members had XX it Mind pleased to

just up or We -- asked and and with most a you the closing little XXs, do XX, in in job, didn't value in every of it. signed wanted. showing bit we them came trying You lot an a that's you just XXX XX Today, as the to and it's XX what maybe in member. close of executive signed we XX, at

better largest now of of think ones. job done the our in we've go our a think -- when a I which doing job We of new X a So that. we into country, I X are better countries, do we're

at least executive looking to an to it. at locations membership or put before want have it so you're on You XX

always with than So having go well. we fact we to works idea something we've executive, back have toyed the the that higher very even the of what but

or when also on gets any we doing, change like XX that. now think question, some time in lower of to XX, some happens the in what what the kind it's I XX% again, near always at do future. or not eliminate the but it membership. right member, our there's to And over sales asked at at working -- anything so to we're plate point, At might, We the don't executive the our XX% currently you of we've fine. We're cards that's, point,

John Heinbockel

somebody kind I where years so? personalization in next or And are journey? the does maybe on X know that year are pick up hired ago spearhead secondly, you in the you to that. steam of we Where

Richard Galanti

so. up, Stephen, the picks next I in year think it or

business, smaller order some first in a online, are when we're and of seeing brought have people The first he great X out. with of the the of the but foremost, with years and some in and on to data operators. we that merchants analytics saved And not person, side that process built ago, has being deliverables, small team. real deliverables And time extent, our been rolled a buyers' there's a those

said But it two or be a On thank personalization, targeting, when on that more I you I have targeting a we've take little two. journey coming. the asking personalization think year better will for and got and -- but We'll still a you that and questions. the

Operator

from comes Laura Loop question next of Your line from Capital. Champine the

Laura Champine

but be it stores. interpret and more about going launch year. make unit international to the it I'll it this -- may To beyond positioning business sense Is as earlier, you're growth asked it's this growth questions me fiscal unit looks accelerate sounds quick. like like it to the X.X% for from follow on make to to does next that year

Richard Galanti

of the to the But middle that our the several we of months last XXXX. for years, unique several down even went year XX, because then look, Well, to closer to there where certainly some And were there was you several XX XX view X in XX-ish, was XX%. years, get go construction the to X if or were is, COVID XX% up goal for reality the years we opening or stopped of to the had XX-ish. back openings

out be is I we and to comfortable comes the finally it expectation in whatever we're to be. XX, it, XX XX. XX year morning of hitting this think certainly my call would that And this with at call

in is be relatively international to it, markets. if one, in the opening Once that One the you one, one. methodical and particularly people second is that of you're succeed to we help some unique the it's about new taking try things open first from successful,

warehouse of high-volume a when One helpful from a And running the labor things is you've P&L it's unit, biggest you're people cost on got over it's more efficiency. is when the factor and coming unit. nearby

we a methodical little couple X now we've years and in pretty period more. X-year that We a somewhat markets. a sped another went slowly Japan. in XX and growing new are X to China, thinking up over X ago, in We've in several years, process X opened about So with from in

it little feel But we pretty that. increased we've a So bit. about good

rounded XX more XX% would we'd But I to not like answer now. it than be XX necessarily and to our right say looking at we're XX%, So still now right pat that is percentage. to

As and XX, we and X to to year XX%, get we're God but wait through XX% have see. willing bigger, we'll to going about be talking

Operator

question last Baird. Benedict of Peter from comes the from line Your

Peter Benedict

and accelerate But have there and rethink seems you've time have you any the just that kind chain what about about in be mean, to situation lines the to thinking line guys questions the because the front going asked. your efforts my clearly you've caused sourcing of if of these you containers, the for seen talked and that the along vessels the initiatives. Are or it's curious any categories, supply I vertical. long But been just more of of what's year? over a reaction been thinking I'm going to jumped on. underway last to maybe of So

Richard Galanti

$XXX more think things not there's on we've $X bit couple got, Well, of is SKUs. million a of of but done suppliers, a billion probably big to a I we've things couple diversification little a huge particularly way, in

bit could little we them. countries bikes season in origin. We've in and during its the new a winter there. -- need certain brought sold more bringing them, to You of things have nontraditional to because access we Yes,

our is in doing there's $XXX a bit than different even huge SKUs billion, quite the our $XXX but not a retailer big SKUs things, do is power billion billion of few way. less having and X,XXX on to XXX,XXX success depending per who of So than Part those having a item to is. $XXX buying

in we've more So the are things. open-minded way. of we over works and better changes, a big a But the supply this next some bringing way, hopefully, made thing chain in to years out in couple

Peter Benedict

for just the markets. trying and these is where X% And a And Just how are members established pathway in the had of it? what sales. XX% those the lastly, markets some you've more underpenetrated of membership, maybe Sure. of might sense your where then numbers? newer How executive some of to And maybe be the markets? -- of the newer get it

Richard Galanti

hence like becomes today thing than Same of market, better rates. Renewal off at and Yes. a with rates, transition. doing number in builds it executive irrespective renewal what in even years Well, it's it We're the higher that up the starts year number. markets. in to and XX a lower first new location

XX much. and in little Everyone, is other you couple -- number and afternoon markets. low Japan over in so evening, XX% and started or call. the off than Well, where time. appreciate very grows executive mean hovering starts in you Yes, previous market on think I mature ago, markets, few I of thank And have more the years, but and I it XXs, a added what? new getting in Korea. last we a that in the higher higher years good a the it lower

Operator

concludes call. This conference today's

You may now you. disconnect. Thank

Costco Wholesale (COST) 4 Mar 222022 Q2 Earnings call transcript