COST - Earnings call transcript Q3 2022 | Costco Wholesale Corporation

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Operator

Good day, and thank you for standing by. Welcome to the Costco Wholesale Corporation Third Quarter Earnings Conference Call. At this time, all participant’s are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. now for hand today. would to conference I speaker your Instructions] like the to over [Operator Thank you. ahead. go Please

Bob Nelson

Thank you, fiscal Relations Erica, Bob and review in good afternoon to call conference operating VP Thank for to Finance results. into Costco. today's Nelson, third everyone. of and XXXX at Investor quarter here our you dialing year Senior This is

items Before we of. care begin, a to couple take of housekeeping

be with and early family you a the and rescheduled vacation filling in as that was now could along be to the First, will wishes He canceled pass today. great me everyone is his for I doing on best in to Richard is him not have wanted absence his in He pandemic. He today. us is his he in on call. with surmised, Italy

details we Secondly, I to read and before safe into need get today's results, disclosure. harbor our earnings of the

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

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

third XX $X.XX this under $X.XXX or million per to share, May reported $X.XX In one-time from pre-tax diluted results quarter agreement new $X.XX for was share. operating net billion, income of XXXX, share employee this Okay. third for $X.XX a included XXth. With of was diluted premium awarded let's primarily benefits $XX weeks the costs pre-tax per The past diluted which quarter press billion, today's for that wages. per share effective charge, diluted out ended we past reported Last $XX quarter release, incurred incremental $X.XX Net March income way, year's for the included it. Xth. million $X.XX the the per COVID-XX the get fiscal

for In for terms or XXth in with account the of of XXXX margin this in share, awarded adjust weeks was to this diluted of vacation, primarily benefit in subsequent SG&A last as well $X.XX to was compares new enhancements per diluted day be Net per charge, conjunction $X.XX are wage billion effective and as employee income quarters. our pre-tax continuing again, for $X.XX our $XX past impacts $X.XX benefit billion, reflected share this of -- is employee and that for was year. agreement, additional year's The immediately. and fiscal and for this million March will quarter which to each to and one XX first the accrual

Now of P&L. -- let's now review metrics our the

As compares with always, $XX.XX last QX. third increased sales, that to net billion billion and year quarter in reported for the to sales XX.X% $XX.XX starting

the XX for X.X% on company, again, total up the Canada and was or XX.X%. comparable In US weeks by better quarter, up terms XX.X%, up international, reported for sales better of Other a third XX.X%. the basis, by

better e-comm by a business the quarter third in reported ago. Our X.X% year versus

better FX better up international US the inflation XX.X%, came inflation Canada the in by XX other XX.X%, company and for total e-commerce just $X.X and and a at the XX.X%, gas X.X% gas up headwinds headwinds FX. the below basis, excluding ex and on million, of X% by benefit of For weeks, quarter. at The

X.X% in X.X% and or up shopping traffic increased worldwide metrics, comp QX of terms US. the In frequency

by to the just was the a during foreign in performing impacted sales were The US of in bit transaction Underperforming just the impacted apparel, quarter, gasoline positively X% currencies X%. in departments goods dollar XX.X% quarter. sales up categories little And over which up price the hardware, X.X% average office, little furnishings, and strong relative our Our negatively worldwide inflation and QX than year and sporting candy, and were sundries, jewelry, more liquor, were bakery all a a ago. deli. best quite kiosks, US tires, home toys,

food other our and performers from the of best terms in In sales, centers. courts business came business gasoline, travel,

So in And for part, pretty broad-based. the overall, nicely quarter. the sales grew our most we're

sales. QX, was million And of membership as million about $XX.X sales, up, X.XX to percentage of a membership the $X.XX from in headwinds or up million, quarter. XX.X% a Moving excluding a to million fee income down or compared in last $XX the year-over-year percentage or as $XXX income FX increase. That's $XXX statement reported year's X.X% of

worldwide the and In for terms all-time rates, at that's reported XX.X%, from end. -- end. in we in Canada up all-time renewal we to up X.X% from auto historically US addition At continue an end, higher year of from we hit XX% than rate XX QX first first that, of hit increased came the renewal highs. more and was benefit renewal Renewal penetration at rate earlier And history, QX weeks at company And have renewals time our the QX rates in what member the both seen. X.X% and what to we rates executive members.

since up QX Executive paid and a households In QX were and our XX% member member sales. those our of our $XX.X end, of base end, represent XX now end. member year cardholders increase QX and compared At million of XXX.X to XX% that's paid over of both memberships over ended of we at $XXX,XXX terms worldwide million XX.X about with million, over and X%, executive number ago. cardholders, counts, of members just households weeks the an during QX

last I three June Now membership in the of address before the increases the of years been coming I timing frame, lot take a X.X-year on to getting recently Historically, at fee we've move with and and five that the just minute coming on, question a last to we've XXXX. fees want regarding increase. average the about every raised increase our six time potential

with more Ron specific executive we report mark, discussions timing. approach But will we to more the there of today, Craig, As nothing in for have terms this be and X.X-year team.

given and is fee addition, on macro current historically consumers ahead inflation of in general, burden typical today all membership is members environment, our the think having our time. the high the timing right and In we our not the increasing

however, when changes. let We that will you know,

Okay.

gross Moving margins. a on, along look P&L, let's at the take

XX.XX% have Our the ago, were to so compares basis the reported year margins we reported a the year-over-year sales, of by coming as gas percentage And year’s basis This in that down inflation, XX year-over-year. basis down points. impact a year third lower we quarter XX.XX% been points. in and at XX points would negative gross XX excluding that last of

impact There margin other; of the would as you row and matrix. gas me columns, first usual, then margin second, inflation. gross the two as six reported being And total. the gross LIFO; column if So gross normal, third and rewards; ancillary please and core; for the our rows, and followed being other margin, second again, down being merchandised are for row, the jot by without following first the column X% business;

a plus down versus our of were core XX six terms points and year, points on down they basis last reported in reported merchandise a basis, and basis ex-gas, So XX plus margins other ancillary basis and plus LIFO, minus gas ex other gas. X% three; XX XX reported minus points eight with plus basis and and rewards minus XX% and finally, ex-gas, one without on inflation;

gross margin color inflation. to So points, on core relative by of little gross sales, primarily quarter. impact again, total, in down were the gas to XX lower basis reported, A our color, was total gasoline Sales gas down in which core XX with XX very the lower margins, contribution more merchandise. The impacted strong sales inflation from penetration quarter. excluding negatively the starting sales in core of ex the the mix core, merchandise

due higher higher as ex Last D&D wages ex gas somewhat and labor gross LIFO This margin, their for million terms minus inflation. Fresh by had of had the onetime our better higher minus LIFO, were both years. we from at again, charge $XX costs Again, year-over-year, net versus by own year in Gas, of was pass XX margins with on contributing reported a by as this raw call, lower continue $XX point, produced expenses, pharmacy value recorded by items within beginning to inflation. quarter ex two ex points and centers by XX $XXX while quarter to items, we higher decline a X and both charge gas we difficult great through two-thirds experienced rewards can, three reported to price travel mitigate best the members. offset while higher other basis very by million, comfortable of our to we material gas. And in extraordinary when Approximately of to optical. providing six our The Ancillary the QX, XX point. fresh remain of business In of result from basis XX and coming eight million of which were lower minus margin. the wages. Also to and the premium fresh primarily a year, and other volumes of gross higher discussed these foods. new productivity COVID gross as and and This included last the sales related again, $XX increases X basis ability were basis margins we higher minus the our costs costs e-com, margin. this in labor business points. X% higher compare core-on-core the ago. impact million year year, we core gas

Moving results. to good We showed SG&A.

impact the the that points, compensation points, lower down we row in the X.XX% Again, SG&A five stock inflation. third -- basis through jot coming second lower inflation. first the column the or for basis columns, SG&A was row That's, total first column, if again, other our the you fifth third at following row again, XX reported then SG&A better excluding or fourth impact rows, in ex is XX of better X.XX% And two expense, last or basis the gas and to XX central, figure. year-over-year gas second SG&A being reported and the row. matrix, have operations, Our quarter points of reported and by compares SG&A; year's third

new basis, the reported, better one call, and And points The gas. SG&A Last a gas. items, gas minus ex by to XX our basis includes gas margin, SG&A point, better of better inflation. of year. gas. was better had the increases of better component minus wage years. core the totaled better inflation two, better we ex-gas of million, of on the QX was and twp on lower and million past $XX by October two $XX inflation. in related one and the as one other better all included operations minus reported XX%, by SG&A. benefit had minus by mind, wage as discussed the by by this beginning we In terms two implemented million minus better gas just Similar a during Keep comp XX. points ex QX at gas result by net XX of October, Central Central eight these and again one-time XX the basis XX benefit Stock inflation. was gas benefit again, one without of excluding minus this well result by this both of gas. better two from and charge other or to items by XX weeks starting year, reported, ex compensation this Again, XX XX gross plus In ex year-over-year, ex the expenses. of XX one again, increase two and this operations COVID without which XX Stock plus reported, we instituted again, year, basis $XX without of

income billion, to pre-tax Overall, in FX. $XX line, ago. compares pre-tax higher and reported and So all which other year-over-year, basis was was year million $XX billion. in income that X%, year for came told, a And coming primarily interest – billion, year. the quarter by the at $X.XXX we due income operating the this $X.XX increased million quarter XX%, this for up reported favorable at last to of coming XX in QX points Below operating profit income interest versus expense $X.XXX year at in

warehouses that currently XX.X% Overall, plus In rate warehouse fiscal last terms expansion. between warehouses, new in tax compares year, taxes, of for a relocations. was net have two QX, income far be warehouse net opened our of XX% this XX.X% QX one including the note, year. QX opened relocations, other of our XX items projected tax we XX%. to few In QX new three so effective in and rate to year-to-date, XX A for year. is we

by of remainder including in additional a three will to the QX, the year, net us XX For two fiscal put warehouses Zealand, Canada the year. and XX the August new in market Spain, new an XX all open this warehouses, in one expect relocations our warehouses of for fiscal year at net China and for new and XXXX. of we each US, Japan, opening The in which and Korea, year for XX XX of are in occur New Australia, Mexico, France, first which will in

chain the Two US new openings of and California. related new other in two All opening And due supply Incidentally, four were of November to Australia our QX to this this site these three issues. the was week that past in buildings of In than there opened is bringing open electrical and in fall. the have in are QX today in development San the by Utah, center to business year, world. been the one first were one Riverton, located total to scheduled the third-party as of around by The in Marcos, And delayed. open equipment. of XX worldwide of XXX QX. Costco's we terms four net now issues a impacted fewer this the this what are scheduled in end projected four to delayed the calendar

Regarding CapEx, spend was QX, XXXX $XXX million. approximately the

spend be just billion. CapEx $X year estimated year of shy full for Our is the to about

is quarter jewelry order, furnishings. the XX% garden, In and a top comm This terms home of special on in sales the our were e-comm ex-FX in X.X%. business, increase ago. of Stronger QX, year increased and patio departments

digits and for and a department appliances, the Costco merchandise double managers, averaged And XX,XXX to our up sales which in Costco fresh third-party very was more including grocery, update continues dry, quarter. e-comm bit frozen little TVs, year Logistics continues electronics, a better week strong bulky consumer stops to big mid-single largest increase in on grow, Our than includes a digits two-day delivery, An sales low us. a than Costco the quarter. Logistics. up We drive on third earlier.

to delivery own will exceed deliveries million. inventory, we big ship cost year, will be of ship XX% up our For transition drop we and merchandise direct With the total levels service particularly full Logistics, estimate to $X items. and for and in our continue and Overall, from vendor times the improved from bulky this lowers members.

Okay. -- a few few regarding now inflation. comments A

chain it all all, and higher play. Pressures prices, costs of in from higher higher wages, continues. First supply disruptions commodity transportation still

we price to in estimate For inflation QX, X.X% was X% range. the

inflation if QX X%-ish, our And for range. estimated X%-ish had we QX, the to you For estimated and merchants, price will. talking in was

began We relatively cycling believe our to inflation foods we margins have as the sales a QX and slightly balance ago in passing to over we right costs. QX meat consistent see that on higher Switching in high increases show for in strike inventory continued However, solid we a did fresh versus minute. lower year in come prices.

Our than QX versus A up up high-level of in rather QX, total unit inventory. in is was year-over-year year-over-year inventory increase a comments XX% inflation the regarding growth. couple material XX% component of

new XX XX locations, expand to months. new in continue open We the last

mentioned sundries very some high a categories lapping we good demand. result fresh certain is bulky primarily are call. purposely building of inventory big low as the and our Food are We And in in and business, shape. in e-comm year's earlier stocks in in and departments as last

is little year, certain in departments due categories. arriving sporting of and This light Nonfood Our year-over-year. a year. weak certain lawn result in and this inventories is merchandise part TVs, small seasonal we goods. a domestics, Otherwise, primarily being last are specifically, up supply in to in and appliances comparable garden, heavy appliances are late

of buy face dollars the ongoing which in holiday late hundred inventory from some this a few proper ensure season, these to have addition, in until of we merchandise last fall we're chain storing issues. inventory levels supply In in both million merchandise extra arriving and

of Adamo, about our move our right with they about new inventory Ron it. Head we're the Craig, additional feel levels. departments, A quick feel and and update ability we The Merchandising, Speaking Claudine our inventory carrying is good current good to on China. in

$XX negative Our first for located opening approximately third impact quarter weeks of closed the sales. million That of China in in in had Shanghai the Minhang, a last was closure six the quarter. in

operating the people at among operating on As in other XX, building can be and one happy back of but May of restrictions. report that is we're cleaning the number to building restrictions that under time, open,

negatively building second of Pudong. this for an the in impacted in on years. underway in and -- third currently last several December we the by this of opening point. three December, outside this The area -- remaining avoided date opened China Shanghai. months currently fiscal in Suzhou, has those being one targeting openings planned. opening and although dates Our four, additional next and December for I would buildings next have in more of Shanghai open to the depend will XXXX is was These XXXX. We're lockdowns Four are not China largely in It somewhat fiscal largely which the our two believe be restrictions was of and lockdowns our timing, building first

Day this Thursday, This terms May after sales later holiday. ending day reminder, releases, for than traditional As close. we May X, a our weeks Sunday, Memorial due our market of four Wednesday announce a next on to XX, June is upcoming results in the will the release week

to out around proactive globe, environment. they XXX,XXX up, work the Costco effort day challenging the a during and excellent these wrapping and employees give Before most each the navigate to worldwide quick shout

operators business, best are our and their merchants in work is hard reflected results. operating in the Our and strong the

social to claiming Finally, other few price soda of courts. media incorrect that outlets our address food in sold I some we and want floating our around on and hot a increased dog combinations the $X.XX information media have

you. the the Erika Let to we introduced this that, to over me and dog/ no at up price The for the mid-XXs when Thank combo turn today it we the $X.XX, I time. will price hot just With increase say $X.XX. plans back have open is soda Q&A. was it and price in

Operator

line Your Instructions] the question [Operator Morgan from comes first Stanley. with Simeon of Gutman

Simeon Gutman

Bob. doing? How you are Hey,

Bob Nelson

Good.

Simeon Gutman

you're that I the one Who's answers, get. if doing going all to the whisper

Bob Nelson

got help. a I

Simeon Gutman

hear I given margin ex on Okay. out the there. tell a run underlying rate little it you core it. think core surprise got what hearing we're like Can is big a on looks -- I worse, don't which gas,

what's You the markdowns year-over-year mentioned safe erratic it a bit on or talk core -- about it there? inventory in on is there's in? perishable Thanks. little – it core, is you is happening but some transport, the that Can coming

Bob Nelson

Yes.

On had we processing, will. literally productivity – that year. that the if we last we very we pounds were of fresh no side, going were labor you And had high the D&D because

think actually. leverage of We're levels. It's that just way extraordinary above pre-pandemic So we've last year. I a lot kept was that

and I higher we the goods. So have we're first costs. we'll But the costs those raw price But that. you year. – know, up I material one – it's make mean, to of And not our little of go that. as our of it is, then some bit when into this like a I way eventually keep their not think all said,

reluctantly, materials I and a quarter, the times think what I recently, were may they of of end continued muffins and the and two as we four three up last been $X our to after raw to croissants, our have have price of year. it those price of think the lot we just took but escalate the

So on that's essentially there. what's going

Simeon Gutman

is items my sure is Maybe happening I'm rising? a it. you're Got on anything per consolidation trip that, trip follow-up question Anything for. ready this

Bob Nelson

in the seeing not seeing traffic. of not are it's in this in say TVs, not where of growth seeing there showing departments of sales overall, apparel We're seeing are All still buildings. Yeah. We're seeing in shift year, their Last small and But sales good in I be of change COVID. little was money. of good for restaurants lot last consolidation of might nature. and home going a I terms number Honestly, on I because very tickets shopping. little this we're and was a that amount top on the people our in are and we're and travel things pretty in and we're really. year, A a and holding think of a But a like – more – of year. year items bit our trade the areas members lot jewelry, than gas what our during appliances. good numbers furniture there ago. lot that we're basket own mean, year spending down and feel we're throughput stuff year and more less and more ago, pretty would those a overall, we trip the think, there a seeing how decent about I tires

Simeon Gutman

Okay. Bob. Take care. Thanks

Operator

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

Chuck Grom

Okay. today. lot. job, Bob, Thanks Good a

on up to some cases, curious, much X%. anywhere some continues passing Craig's backdrop desire value, you particularly also to But between like we Just lately balancing increases uncertain, the the articulated, inflation X% are price to macro higher. pressures while more as in on show know, get the view

So, curious Craig where is on balance? that just

Bob Nelson

to in bit about the feel we're And we competitive not against some foods. in every taken most to as have Well, notwithstanding think higher have show certain to on and been, closely for think look, who or up extent our always cost, fresh it. we that, mean, the continue best to pass we've or in easier really. we the show assuming we most good in it's freight food, costs, raw that's shops prices And think that value all what in watch higher about we areas be it's sundries that as marketplace. we recent material the that I value want marketplace. I the And fact I pricing, us And in I changed.

Chuck Grom

core being then on And you talked core, Great. about Okay. the on fresh. two-third

us you some on could wonder give some discretionary Just color categories? if just of the

Bob Nelson

slightly more again, sure have an nonfoods it's of category, margins. right not specific I on a think specifics categories. certain item we're not I business, than we all in lower terms the balance items the remaining and a-third of I'm certain foods now really in mean, not where might move Well, in the it's about so I or move. was

Chuck Grom

That’s Bob. helpful. lot Okay. Thanks a

Bob Nelson

Thanks Chuck.

Operator

of question Your Christopher from next the comes Horvers with line JPMorgan.

Megan Alexander

so, the much. like very quickly of question. is in more Megan normal? increases a maybe April. follow-up rising pressure Thanks Simeon's back end This Hi. costs, Alexander those than you it's regards such if on to at from pretty for Chris. seeing Are it and to And seems with that holding that you on fuel any of any impacting diesel Maybe transportation Are they the price accelerated core-on-core core-on-core?

Bob Nelson

cetera, whether No, freight it's I the or cetera. I trucking there's supply fuel, don't or believe overall, mean, transportation so, the chain, across ocean whole price et costs Megan. higher et think I of

to of eventually, April those little price. make the since a compared tend costs terms a don't think I else. think to end I into sale it's there's managing not Again, material change in anything others, we're of bit but We your how their like that. drag way

Megan Alexander

it. Got

looks ever price cost on follow-up that get seems. to the lap, LIFO. continue forward? increases just Okay. does a as That's on Since have it environment pressure what Does do like? we And helpful. back then that it maybe we depend accelerate or then continued, quick And going

Bob Nelson

year, where Yeah. can't obviously, were if an stay We be we in some this some to inflation impacts it's predicted would you progressed. deflation, a back. there got years continue If as we that certainly to seen see be environment tell to ways of going. at more P&L. next we our exactly level, If we've to get start we We've, inflationary and will But go. yeah,

thinks stopping. everybody cycle think a in inflation of we're I versus still more

last And ago. be when to is start of fair, the small year. a this QX that we'll the beginning some I at cycling think a first this in year we Now LIFO into get actually charge we time QX had

saw So I'm food chain. areas costs of areas not a offset be but we some that by predicting, in Will bit we in quarter. in past fresh Maybe, as other higher this see inflation QX? but our other in could in enter decline we the little supply

the and then, hitting level of and beginning of started this that course, of year. -- So in higher inflation us QX QX of

So we more we'll it's to some reverses that some go. point, predict To going can't where have inflation, LIFO I we'll But really assuming more get extent at get charges. the credits.

Megan Alexander

you it. much. Got Thank very

Bob Nelson

Sure.

Operator

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

Scot Ciccarelli

how Bob, you? are Hey,

Bob Nelson

Good. Hi.

Scot Ciccarelli

strategy Good. a if business I question, more guess, of you will.

to good SG&A as pass generate? you more pretty which would compression some is, had think leverage, I question guys much the You gross your SG&A protect leverage offset the to helped were price able you guess margin to as you if merch saw, margin that increases tried on didn't you have you'd

Bob Nelson

It's one goal -- quarter get never raise we if would be out could Look, it's we everybody's mean, SG&A. margins. industry. all be same can what's leverage The our there to lower SG&A read Sure. now in on prices mean, look, a I I from until eternity. balancing on going single answer. lower prices to That's all hard the indefinitely act. said in gross would every and a

in sales Our were gas very strong.

Our we're areas what That's of into gross were we That's margins do. extent And strong. that prices? lever able to holding business by the the to other retail.

Scot Ciccarelli

it. Got

you. Thank Okay.

Operator

line Your John of next comes from Heinbockel with question Guggenheim. the

John Heinbockel

seen any pricing roll you -- to recent and And any want I okay, it do in the you back? broadly. or take the and what going what see consumer up certain not reaction -- times. not inflation Hey, do have this, much increase start elasticity, don't go in we're guys with price places, out we're say, degree of with To we're here because out it territory by where Bob, you I uncharted going think to but roll or is more you'd then roll item, item to test

Bob Nelson

to John, level. our Yes. value proposition feel like comes taking a test we and a we up we won't items take markets down price and a go market our testing really test the comfort It of value don't in all or the price we if like beyond some still incurring Seattle across and space. proposition We're honestly, can we're not and that there. these pass goods on take there, we'll the costs up all is

John Heinbockel

Okay.

Bob Nelson

unprecedented price. that I because number SKU pretty understanding of that actually I think pretty I of and limited is of situation competitive good will our feel helps counts terms what have mean marketplace, buyer is tell business us and a in kind good a in that SKUs their you managing they of about small the it they the of manages, And each where at have what do that. they times. can

John Heinbockel

Okay. right? been clubs? gas have and for to So gas some that starting you. translated you then to into drive has accelerate higher right, I prices secondly, that gains see guess, Are maybe And what incremental gallons, historically, And share up? traffic

Bob Nelson

good actually that's was our question. Well, value versus it's where best-in-class, in accelerated proposition Obviously, is and the a marketplace year it ago. a

of But say, to low a lot a getting gallon. for where because better over of you I their value five is the buy teens, we've gas. a range. in buy demand And top X% that in can in the and way. by high then their XXs will shops in much I the by think off in people proposition six members and getting terms is or gallons some we're we than building when X% in those gas trending. and extraordinarily And the we're high certainly I tank level, on what members gallons will $X is just given lot the tell industry cases come be the come also more been are the

of to a our the we're right -- amount now. difficult it's of because volume measure So getting stations huge through just

John Heinbockel

Okay. Thank you.

Operator

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

Karen Short

Hi. very much. Thanks

wavered So the you on mind. I'm component to I has Bob, two I the their months. last questions. obviously, membership based think addressed you from one curious like hear you've that in on everyone guess direction another is But what four

membership obviously, you hear not that I the steadfast taken curious I'm so now you And should, but to necessarily raise would kind stance. you not you've of why think fee, are that

question. first my that's So

Bob Nelson

wavered. really we've think don't I Well,

not we we not same once right remarks to year we half We're just right do the at we second the We're answer a it for just to a ago it. think it's get frankly, commentary when questions that saying quarter it. out call. cycle, really lot the start year this time, out us. don't year we're going about on a of the saying talked months just in prepared more three us about and think saying that's not it's and a that, get And is for And I I five think from we, or had now. right about half

than So I other think yet. anything's don't cycle make that not Does five we're just really a changed at sense? and year half the

Karen Short

you sense. you And said little a that inventory. makes you ability then small think in inventory, two were just of made comments heavy you about your in the I clear that holiday Yeah, but terms – to feel clients good

with slowdown thinking preparing So not I the you're for just that wanted potentially broadly? and/or there is? you where if or mean consumer on are in terms that of you're clarify on a at thinking to And maybe you if exactly what

Bob Nelson

again, of ability whether frankly, problem. line. think feel yesterday the I we can month drive areas, of he the this, Ron months to that I really in tell I spoke you top the couple there's or couple three to he I move two going thinks to What a members through lot really look, our pull in about we Well, in a traffic drive about a inventory ability supply got good harbor of extra without or we a thinks and be of months. drive can't mean, and our to back more or and weeks

in good stuff, just we're price On Christmas deep a in is stuff probably stuff out lot at it that fall. – because the it we've got freeze, late that put came of going values up. this put it all the to we're And out going seasonal of going that is and to pretty

masks other And that. then pretty made inventory about there's in where COD, have like we I prepared. to the we’re more feel we in think comment if that, some but – So able and makes of is move to sense good hiccup being well kind things like that just

like more non-environment than but – to we don’t little typically we're say might bit I a strategic, kind now. its a its of So carry inventory in want in

Karen Short

Okay.

one Sorry to sneak last one in.

to Is during a percent In filling conversion during update terms your huge stores. historically for store people and store any open I hours the draw into of the terms your in fuel, there that's think then obviously, been the you the on hours? of conversion tanks XX-ish because that's the open up going actually into

Bob Nelson

like overall we slightly. more came a come XX%. That more people I by number That and members off no. down what has through the number just we again, not is their But people coming probably where have have tank. been has I'm XX% the It's way earlier, the lot percentage buying up. down no, going mentioned from. shops because of of sure stations. And topping No, gas number is because from

is of is a relative bit, So the but number shops probably. down penetration up little the

Karen Short

but and it I Okay. thought maybe hours during I was XX XX% overall, wrong. open was

you. So, thank

Bob Nelson

Yeah.

Operator

line Your next from Fargo. with Wells comes Kelly Edward the question of

Edward Kelly

afternoon. good gross on QX. outlook was Hi fiscal maybe the thoughts the could that guys, I in some you for margin share hoping

to around curious start that's probably As pieces, not long are fuel a as good still seems we very the It it's like easier, obviously, of a we just of think should you're the kind a that don't think expectation and to but have have some rising -- all, I current margins the I'm but two-year quarter. maybe at gas the because is off LIFO. prices are just basis. it's going quarter? on about core year-over-year, to I like really compare

Bob Nelson

don't where in what more about everything, are don't guide we are wish I I of be. -- really going be but terms our could on Ed, margins gross to know transparent we Yeah, budgets

to I challenging be it think a environment. continues

good feel feel think good about we as it, we through I hold our prices. pass don't we and about to want other ability costs. In certain to areas,

be. you going it's tell think I to it's -- I So where can't exactly

it to I had looked a this other just it don't be Maybe kind I of maybe will looking -- we it's more. -- at guide. a little less, really -- that, -- quarter. But think than if don't we much you're little like what

Edward Kelly

Yeah.

the And other inflation I how you I that it is you touched Well, on ask product navigating right. pass would about, just wanted thing you're lag All know and competition. and helpful. cost to That's customers? through the historically, Okay.

the just of able don't those I some do because those lot So length like right? don't a true, sell vendor extent. -- think you SKUs, that there. from lag a maybe of to that standpoint color advantage products. if scale been has And have know then maybe you have to you real I reduced what been some that's within do

as curious I'm So as just to are well? negotiations how those going

Bob Nelson

figure -- very do our in more is it's said, is just always that's more to lot our we've goal any have more first the certainly you with a It's volume not we to But of these. as first it. like do look, areas. some SKUs suppliers price us. increase. and to to in important of it if in mitigate coming labor. of way terms the volume And number factors there's a It's raw goal material of there's cost, there's a our Well, our we because different small of from And vendor look, relatively were we times involved mitigate strategy. in partner to, pressures -- alluded for the It's difficult out both

item, being this. through best do pretty the we next as we're value we've some to about navigate item And those a able I effectively. so on about great. In a to -- proposition that into feel that's showing feel And QX the lot good through to on good have overall, costs, ability with great our of the the And the value shelf. us. extent of year. they I instances, some at had navigate I look do to day, and couple not maybe continue It's the pass and again, able able to work that it's that of we end fiscal And last to to But still quarters. as in in we and then about show our the out every I think think merchants it we're into

Edward Kelly

Okay, great. Thank you.

Operator

Baird. with Peter the of next line Your from Benedict comes question

Peter Benedict

question. how just rates Just maybe Hey Bob, guys, taking are curious A private And where behaving any thanks or stronger you the seeing consumer question maybe growth is on that to job. ago? areas traction year particular picking the for you're up label. where a Kirkland nice relative are penetration, getting sits around private label. there?

Bob Nelson

terms were and look took actually XX at in we Yes. of points. probably a that, I basis bit -- XX penetration, or a we up little

our earlier, don't there. But or So we're business when down not about lot a label. we're as -- still trade think from into -- talking out mentioned I into I of a lot we're not doing was of branded consumer, trade I seeing, again, private the

So are our way And we with makes consumers it, to they business. how us. it's grow for I a continue shopping our really but sense aren't in changing think that --

somewhere in X.X, of terms think, and up I we're change think global basis? around a on penetration XX number I

Peter Benedict

Got it.

I how long much an -- And the everywhere, seeing or US maybe helpful. numbers -- you've dynamic? mentioned it rate. Is then how a renewal think little that to Is that? just happening curious I'm just just Is been. That's international bit a it's Okay. maybe you been year the higher dynamic? better one frame it

Bob Nelson

sure. Yes,

depending to XXs now on the historically the XXs. country those country have the to depending kind XXs. XX, been, high are somewhere -- We low numbers maybe of XXs in sorry, the in area, to XXs And high on the in low low low

very members, because you will, lot So view years -- signed up first we've us. our started of over a seen we new renewal the tried year about obviously that a year first our the in if we gradually since bump hadn't favorable as last members which two pandemic XX%

members. pandemic, those out they tried the us, we're had seeing Before better of retention experience, rates good a and

Peter Benedict

direction. certainly Yes. Well, better it opposite going the to than

Thanks job. So very good much.

Bob Nelson

Peter. Thanks, Thanks.

Operator

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

Brandon Cheatham

supply Paul. that Cheatham just have is I gotten ask to Brandon about improved any on Any This particular that for chain wanted bottlenecks. categories have worse. Hey.

challenging. I have think some some merge furniture that of mentioned categories general as and have competitors your been

are seeing as Just all wondering, well. if that you

Bob Nelson

that pretty we're everywhere me we with that -- -- It's much the one XX he's our product think in from over part XXX we've or been XX here not kind to and Ron category. there's board, XXX, were. instead across get to Yes. in utilize indicating here. able where the or slightly own that now I'm any is sitting It's to and ships of I'm help of really of fact I improving particular just LA ships

think purchasing. we're bit the board it's improved in across little that just in -- I everything a all

Brandon Cheatham

would I slowed utilize be in shortages, kind existing you vendor you've past, member chain of improved? kind that to an has if And able product. Thanks. think because did new or supply you the for have a the -- out that Has mentioned switch vendor of

Bob Nelson

certainly we more have business. pivot are able look, we less more easily category item because Well, to and business

So hard to have having showing the value a extent we're time difficulty item. or a item a particular in particular in

here environment every something are day, over of don't in in else DNA. into warehouse. the our now -- we I the environment. normal operating put in we're whether able part to I We just and it think do pivot or in What that's a where it's

it's – business. think just our the structure based advantage of our I on a So competitive

Brandon Cheatham

Yeah. And good Thanks. it. Appreciate luck.

Bob Nelson

Yeah. Great. Thanks.

Operator

Rupesh with of Parikh Oppenheimer. line the from comes question next Your

Erica Eiler

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

you gas environment? I now, think more dynamic value to do I as perhaps traffic in guess, first, this out consumers on out just prices driving you gas and memberships to was clubs, all driving clubs at curious, more right given touched the seek So price that's there

Bob Nelson

Sure, Sure. yeah. Sure.

up think I in has absolutely, the extreme member in a that gas signs value that sure, now. but – every different reason, right given proposition particularly

Erica Eiler

then discretionary. kind gears of shifting Okay. back And just to

you're other now for? terms that date, now. that perhaps has category in right in hearing based to from what out of curious, you're on everyone planned on spend anything categories, seeing surprised by there seeing touched you seeing You just is hadn't which shift right what consumers I'm the you we're

Bob Nelson

like sporting the opening are that gyms all I Not mean, well, mentioned a exercise of the areas really. of it's equipment again lot goods, and sporting within goods, up – I some – really a were the ago. ago. a Office from working sold home And gyms. again, are bit. a year, is year back And little people people down a at year setting this we lot up

So it's little that year a that, surprise ago. us to bit is than department a softer no

bit that think a we be we to softer categories soft. a be I we're really, seeing expect So surprise. It's not not or little categories that expected than big the

Erica Eiler

Okay. Thank you. Great.

Bob Nelson

Sure.

Operator

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

Kelly Bania

well done, and thanks Bob. Well,

on on another the some you And of your of and how any pass ability Just that or versus you there discretionary side the either can of the question, consumables business. there? you the on in well, mentioned, food think about inflation X% us that inflation side as looks maybe give a that difference little as willingness is aisle to the side on color

Bob Nelson

seeing we're say in our non-food down. that would mix terms higher – of in although certainly areas, inflation I is certain bringing

less might piece be You're say, so. up say, going to sell an then to that smaller item. less going of priced you I'm that apparel are fewer on sets say, XX%, are, impact It's up, of up, making a this a but patio be

that inflation item an Again, the we're relatively the overall, we're think business. same. seeing is I

value, take about And value So and to the do the great little along on that. extent, our up And what is depends show or And to seeing think, need lower in proposition. take willingness our pricing it's the a to we to position marketplace. than all continue pricing the in we're other but keep easier it that again, higher than this certainly items of to in it's I some term, business. that using areas I

Kelly Bania

just talk Okay. conservatively, about ticket current general. environment? big about us thought just bit maybe big do And a more of follow-up big process maybe understand internal trending? ticket that's And just help or maybe you just little to Can the how ticket just planning about in you terms in the just in think

Bob Nelson

seeing great again, to a keep furniture not a ago. term, have right think patio. didn't but business, this Well, strength supplies now. in year item an great and strength seeing we're I We using good Yeah. inventory we're We're in

not or was cooking everybody selling items selling product. we're have year. certain isn't barbecue Those year, example. as and like inventory well now, because because as bought that this We equipment exercise home. are able move from that a much last -- barbecues, Everybody Things for like to so more home and as

is I thing for is I it we the strong look so Appliances are good that this terms broad-based really example. very ticket. guess, we merchandise in sell we're don't big think we year. at Appliances that as -- another the really us of don't

a selling appliances supply year, of that's more ticket had solved. we better are last we're And of a we're item. those ago. stock bit again, getting year not and better. year, in biggest more than the a Now this chips we did constraint little It's issues with certainly But

guys traveling, everybody up So Not big mad. taken years ticket, really what? for experience. are like And business about that travel. two What off my with has and an Oh, but a pent it? saying yeah, not

look a at So buildings you've notice on in of a you talk it. recession -- airplane an and if lot if you'd you there's never been look coming, our lately, about discussion and but

Kelly Bania

Perfect. Thank you.

Bob Nelson

Yeah.

Operator

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

Laura Champine

just few Thanks But question. for there. I'm great interested in in my Can those been taking at you rates about such had China? growth the I in what given they've past years? you first, talk over through how retained what that seeing customers, specifically you're know well member renewal you've

Bob Nelson

don't front Yeah. those have of me, I in actually. Laura,

in in a we've some we warehouses. maybe signed members bit you know so we up little I you more many do color. first If markets me two slightly can to they're ping seen give than that want because those offline, lower

there, a It's rates our we bit. retention coming is part the two percentage, on the of now with know are a going that was a we dynamics I the but first change to have little so only it lower third as Shanghai and the opened And buildings bit little building building, a that market. when

Laura Champine

just it. on vacation a holiday, something a just made a there? is one-time then And charge. add Got day that was going you or June else because there Did basically XXth [ph] on detail

Bob Nelson

was to to date use that each important It's floating they can each essentially it them. additional for employee every just and for fit. employee an that's No, use holiday specific as a

Laura Champine

Got it. Thanks.

Bob Nelson

Why two for off-line questions. David, myself more then don't some be we take will one and and or available Josh

Operator

Evercore the Melich from Okay. And line comes of with Greg your ISI. next question

Greg Melich

give that? the clearly into going back? coming insight ancillary a What's more that you us can travel driving Hi, Bob, up? business Is little margin thanks.

Bob Nelson

Well, the driver certainly, we beneficiaries. of gas And that also was in there. I biggest the one think mentioned was travel

Greg Melich

penny so gas, we and and -- was accept And was actually should year-over-year. that that, up profit

Bob Nelson

was price mind, But up XX% in year-over-year. was It up of Yes. keep the year-over-year gas so.

Greg Melich

margin, The yes.

Bob Nelson

yes. Yes,

Greg Melich

then And the for accrual that that in or each the is the the the the vacation, housekeeping should four and that an it. see charge, base Got million we next now a is on of -- year, day quarters? $XX

Bob Nelson

time both. the on It's And cost of It's that you correct. at book, the and to March benefit essentially quarter, that then in vacation if $XX million is on cost SG&A will. get ongoing employee cost was for our that of the each XX, each regular the

Greg Melich

it. Got

that… So

Bob Nelson

numbers. Those we're the eight QX say, costs in SG&A -- in weeks QX, for the or I regular just should

Greg Melich

Got it.

so was just -- can eight So now presumably look sort use of and forward? of that running and the QX, we that weeks at weekly

Bob Nelson

for the year. was what give didn't was it we it Well, you week. what That's by

Greg Melich

was for so was the it -- what $XX that's the Oh, year? the million for

Bob Nelson

Correct. weeks additional quarter There for benefit… that eight were cost to relating the

Greg Melich

it. Got

Okay.

Bob Nelson

I mean, guess... I

Greg Melich

great. That’s a right. All lot. Thanks

Bob Nelson

Greg. thanks, Yes,

Operator

Your Stephanie of question the next comes line from Jefferies. with Wissink

Blake Anderson

if talk existing see color of you trade and could new the any on food I you members a non-food you for but down if members know a members, It's joining new us specifically. about club for see could Blake maybe wanted savings lot talked gas Thanks didn't know didn't was growth. for I or Steph. squeezing to for to on member in. give you benefit on about attracting any I

Bob Nelson

grocery. of the a some growth of say, Well, our strength that of member The they're every sign in that proposition well. a on our And offerings I they some for percentage them -- and hit are think add more has value signing we online that terms there's really number to the don't become really sign particularly sign when is to entices up. of we as to of hoping in that ask can that's and grown why each pandemic members member up, getting that member that throughout different I do a and up up. and with thing one digitally bigger be I'm each

If away, pandemic, this, XX in you further had you don't But tried miles you or a of a XX experience. a good within the moved live you little club. bit

digitally and this might up you use stay and warehouse. half signed and digitally half in You you the digitally

It really. preferences. reason for your So I depends everybody, on different think it's a just

Blake Anderson

Okay. that in lastly, on And strong then the quarter. was renewal rate,

MFI versus Thank your Just expectations expectations and wondering also how was that the as well? your you. growth versus

Bob Nelson

line me a driving think have with My more telling tend pretty look know, to convert was take Okay. but kind that, and more members at we a base are see guys expectations rate we I that continue I executive much in to were. what's We continue That's who every when program didn't -- to the that. what week. with to -- at mean it I our higher of member loyalty you us. renew contributing

the help So we know that's rates. going to renewal

we that's – members. I signing and so based are and improving, well as going of up know think And that the first more renewal year course, the to number on rates help

will. to is those improved I think, contributing if all metrics, you So that,

Blake Anderson

Thanks, Bob. That's helpful.

Bob Nelson

yeah. In auto bill,

Bob Nelson

you in questions, we'll good no if dialing I are any more today. again, a follow-ups. available, and Okay. and myself appreciate Have And guys call If a David have there's it wrap. Josh everybody day.

Operator

for conference This today's you Thank participating. call. concludes

You may disconnect. now

Costco Wholesale (COST) 26 May 222022 Q3 Earnings call transcript