Earnings call transcript Q2 2023

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Operator

Good day. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Second Quarter Fiscal Year 2023 Earnings Conference call. [Operator Instructions]

Richard Galanti, CFO, you may begin your conference.

Richard Galanti

good everyone. and Emma, you, afternoon to Thank

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

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

for for release, quarter February past weeks this past Sunday, press we second 'XX, XX as results well the XX. sales as operating reported February weeks the the today's retail X February ended fiscal of this In ended XX,

income diluted Reported per or to $X.XX or for $X.XXX an of $X.XXX billion XX%. share billion in $X.XX increase per at last compared net year, share quarter came the

reported the $XX.XX sales, In increased year to the $XX.XX sales billion second in a billion compared second net X.X% ago quarter. to quarter for terms of

and and excluding reported for e-commerce X.X% Other Our and U.S., reported X.X% minus X.X% reported and was as were X.X% X.X% inflation for gas excluding comparable the inflation, inflation sales reported FX; inflation X.X%; Canada, X.X% FX; the FX. XX Company, follows: X.X% ex for FX; X.X% and period, in International, second quarter weeks gas the and Total gas and excluding gas the for X.X% XX-week minus excluding

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

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

review dollar very sales our X.X%, by approximately negatively relative by impacted I'll sales and X.X%. Foreign results the later slightly inflation in price impacted positively the call. approximately February currencies sales to gasoline

the to second income That's or year $XXX on is Next increase compared income million dollars billion fee up statement for $XX the $X.XXX X.XX%. second X.X%. quarter, income. Reported a this quarter in year's million a of in so earlier, membership membership fee or

the the would $XX by million. $XX FX, headwinds Excluding been in higher increase have million additional

So on an basis, up just percentage FX-adjusted fee X was income points. over

quarter XX.X%, terms up second at end, Canada all-time represent rate X.XX% both our worldwide up quarter, highs. and in rate from In was renewal renewal rates, QX also end, from prior of U.S. X.XX% XX.X%, and at came the

remained is paid end, earlier. quarter ended has We year XXX.X than XX.X XX% XX.X X% more members end. increase a At XX% second paid strong. and during represent million paid about the since with an and versus members million we executive now had million memberships. QX growth quarter both Membership members Executive household cardholders, members the QX worldwide XXX,XXX of sales. of This XX-week up of

sales as XX.XX%. quarter On year-over-year of a Moving the earlier gross coming XX.XX% income compared gross our higher basis, is to basis margin was in statement, as a second at points, a margin. by at down reported X next percent year

the and up, up been inflation, Now X basis points. X basis then excluding points gas have

XX. charge we and had plus points. points a LIFO, reward, plus and ex X merchandise inflation, last reported a X since businesses nothing year-over-year; excluding columns, X Ancillary to plus X and we'll and As were this X fiscal X% XX and draw line I and the minus reported points it year little gas minus was items. Core and also quarter, you with down always inflation. minus chart basis ask minus was basis X gas go X plus then basis

basis points. points reported, X gas inflation, basis again, up up and X ex total, year-over-year; For

Starting with the core.

X basis by Our was core again points merchandise year-over-year. lower gross margin

general than of In where year-over-year Most sales, with by can Overall, and from core departments own margin basis competitive sales down XX traffic was in a core foods it drive you We're down, core. points. on major lower core-on-core margin, if businesses prices terms or benefited were our will, to fresh shifting sales their we more to and our improve drop hold to others. little from advantage. continuing other ancillary being

and was in e-com business by were X businesses pharmacy. higher and gross basis centers in LIFO X% executive QX and charge mentioned, a We reflective quarter. better a of in quarter members. Reward Gas that's this last year-over-year our and the Ancillary basis from plus coming offset as of points $XX other travel basis margins LIFO, X compared charge fiscal year. the million sales part again variance I by points. by gas XX no higher ex were lower penetration points, had X year-over-year, to

to Moving on expenses, SG&A.

second year-over-year SG&A higher XX it X.XX% the was reported Our the quarter for quarter was fiscal last This to of by second year. in basis X.XX% compared points. year,

gas points and for the minus columns, X, X the would be minus column points compensation, some then basis higher, all a second, being reported and and minus X numbers said, minus basis higher, central Jotting ex year-over-year down reported; by higher minus X; on X and points; central, points, ex minus and X so basis was X X Operations by -- minus inflation. inflation. X higher gas down XX told, I basis first basis in stock both X; -- that so

tax last X July X, fiscal operations wage years. as year. of as went basis was couple increase was increase I Central, of fourth a points covering in related X to a SG&A, audit pretty mentioned, basis several into X again, our expected, by year's implemented comp points that this points. which effect just higher quarter About prior the higher The and includes by year-over-year. Stock by and inflation. of half much charge This also and last basis a is third top-of-scale March increases quarter additional ex of higher benefits wage an core component last and

year-over-year. the expense $XX this million than million higher income other quarter Interest was $XX QX operating lower $X of year, $XX figure million interest cash year. interest was income the the unfavorable higher in by by both for rates by The due on interest last income million driven slightly being This offset higher increase to was income in FX. an line, balances. and earned Below in increase and interest was

was last income Overall, of was excluding to the taxes, the in items, figure QX be for our up income The terms discrete In XX.X% rate in about XX%. tax quarter the second year, rate continues net XX% from in down effective the range. projected slightly year. to XX% XX.X%,

In opened X X net X quarter, of we note, new expansion. in the second the U.S. In terms warehouses, of a few and other items Australia. warehouse in

new we'll during XX relocations, openings China. Sweden, to a the next in in with first fiscal quarter warehouse XX week, 'XX, our open fifth year this net quarter. and open including XX and each fiscal XX planned openings up this Zealand of warehouses. of includes In increase and both so XX we China, Additionally, XX open new our of International. Other in fourth of made a are fiscal the in International in opened first the along fiscal The in X our These fourth X Costcos so expect total which in with of new were scheduled to third Other of New the U.S. year, a of China, in X total China warehouses,

fiscal our second 'XX Regarding million. capital spend was expenditures, capital $XXX quarter approximately

billion Our in billion of range $X.X timing. year $X.X the estimate for remains the on to based

by down small driven decreased home warehouse In up mostly hardware, This QX, furnishings, in as These make in-line of departments, our online discretionary but were I only Big-ticket down make jewelry, majors, sales. electrics, up in FX X% these mentioned, total e-com terms by weakness X.X%. our departments warehouse in the of e-commerce, was same way, of the e-commerce quarter XX% mix of were sales XX% sales. like and XX% sales.

to Now was somewhat. year. comments to improve It for fourth fiscal prior last X% that a ended regarding few price August, continues year-over-year estimated in the inflation inflation. quarter, back our which fiscal Recall, seem

we estimate year-over-year X%. little the of During buyers. on than to to to estimate QX, inflation year-over-year X% to X% down the has even equivalent that according the the towards number to that X% and end down a the came range quarter, come In basis QX, lower a

fall some relief provide We some many Commodity are to like items. starting to pre-COVID prices things in to back levels continue bacon, continue not improvements nuts. to with butter, see but examples resin, chicken, some and steel,

inventories levels. up they were our fiscal Switching 'XX, were our year-over-year. there. over inventory a of first QX good improvement in And fiscal year, up and quarter in on Again, XX%, our both then basis, so year-over-year to this XX% in QX year-ends

X% of year-over-year. end, inventory year-over-year As of our was of quarter QX down the this end as

supply of of timing a Regarding to bit to a the ports. it's year inventory the at up last chain be causing ocean down XX-ish talking days. days. as just getting result were backed to the we the ago, year over-inventoried challenges, X% across back was their XX-plus Today, estimate things And buyers a of drop,

course, supply so And down. board of improvement coming and rates, the chain across

February Sunday, February Now turning past X XX. our to this weeks now sales, the ended

and February's New the about days XX Other As year. for Total The the Lunar billion XX on earlier Year X.X% Chinese billion, earlier from that sales January of this year Year, February. an by this net by a impacted about year, release, month positively $XX.XX increase Company reported sales results month in occurred in our X% of X.XX%. January the from Recall New shift $XX.XX International were

impacted for Additionally, side that this the a ticket Company was result we and estimate, worse most year. the side. of negatively both believe by of Total substantially I U.S. were weather as X%, rather year than over February's results approximately on traffic

X.X%; January as gas reported; gas, release, plus and without Other That's X.X% Total results. in again a and X.X; in XX.X% FX sales, to from X.X%; minus the of compared and minus Company, an FX, ex improvement XX.X% FX, Same-store gas XX.X%; U.S., X.X%; reported; X.X%; reported Canada actually X.X% reported, ex-gas e-com, e-com reported, International, our ex terms the ex was on FX.

X.X% February Our comp U.S. worldwide frequency up X.X% the in and in or traffic was

dollar impacted impacted by approximately sales mentioned. X.X%. essentially inflationary, X.X%, including International X.X for Canada, prices the flat. relative impact down FX just the transaction February I that Other year-over-year, by Foreign flat slightly were percentage the Gasoline currencies year-over-year follows: was ever by average to and but Worldwide, and so from approximately comparable negatively Total X.X% total been points, Company as negative essentially

of The terms merchandising normally for sales comp the U.S. regional the this do monthly Midwest, with the In strongest sales and we were regions in February general Northeast categories, that and the highlights Southeast. call.

digits terms Other results inflation nearly in to levels the still and a inflation Spain, saw in International, for Mexico. to elevated, and sundries strongest foods, we low fresh foods with single their and sundries mid-single year, fresh food Year-over-year U.K. lowest to in while of digits. and the local at currencies, In and were high dropping food the

to Better-performing the were were included with the worse departments apparel. highlights. Food were following which meat. Better-performing top low electronics included domestics merchandise foreign and were Food aids by businesses month there. aid strongest. mid-single up comparable results jewelry, bakery food impact items, were appliances and Ancillary hearing excludes electronics housewares, pharmacy the Majors, performers, mid-single and mid-single departments beauty court, were consistent up Non-foods and overall. sundries Cooler, Moving tires, were The positive hardware and the double Fresh sundries big-ticket and QX small sales digits. health performers were digits. and and exchange. digits. the sales negative and negative foods from digits. for category

we terms following for X, of weeks in announce after results Sunday, April Wednesday, upcoming market the ending our X, sales on releases, close. April Finally, X and March earnings the will sales

for and I'm Emma to turn And with Thank back it happy answers. you. questions over that, to

Operator

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

Simeon Gutman

want down up said guess, think those business? I guess, you do in, the mid-teens some Is I then to the February in you months. consumer, And continuum Is whole worse? of the part of with of consumer that diagnose how view the e-commerce sizing categories. it, of I I How see stable? that you kind

Richard Galanti

benefited I'll some seen of as the even about enjoyed not items. economy as we COVID to that the economist, we in think in think what the of that XX year I big-ticket course, out those but a not call in but ways a and quarterly I'm we, ago, big a an particularly that numbers, concerns well big-ticket Well, with last there items. discretionary as weakness it's with we've year only ago talked numbers strong prior I weeks combination

So those all think, I reflect numbers. things, those that in

started and just a out seasonal where weeks couple couple in of There's of a regions things to we set summer. for some spring

where country were items small even But literally data good, some set. like data of weather little the better, a parts it's equipment. comments lot small places. water is So anecdotally, points of some but small made it's on far, in But which has so the and camping things a a been not sports

to cross So see. we'll our fingers and hope

But us. I things some with overall, units are with the not fine. there's computer still just mean weakness there's side, like, generally on overall,

mentioned seeing we're I down. of selling this think decent on I first sales have televisions while average come units points price call, in the quarter the

I for are new coming think TVs where of weeks upcoming the it's just in season couple the out. the next

But other than course, what of frequency, shopping it's transactions we at, average that, our up. look or

X% are sign-ups continuing new on in X% sign-ups new openings. new up terms less Our of be to strong, than

them. dollars feel are but certainly So those should where well, spending things their bode be people they spending they

goes see so it where we'll from here. And

Simeon Gutman

This single but around of some below time. the has high or this takes. of Okay. it's and on a growth, because you I and A about I of lapping follow-up maybe fuel lapping guide, you don't are some over think, gross great averaged, puts year, little Curious the profit. XX% average business EBIT know the

that that have whatever expect So to grow, number get the the confident levers this you business dollars are to of EBIT you in there? you

Richard Galanti

what we the in in business we're look, driving good way growing our right feel Well, and about doing business.

have heard and you others line As company. top we're forever, a

can't more right everybody from money benefit and certainly, who cash we While I has on earning cash now. their give guidance,

least was going starting year-over-year improvement simply at in improvement because LIFO. in charges As we're each To $XXX we some trends a and gross comparison of to and We predict yesterday inflation. can't $XX this saw comparing what's QX. million of of the quarter, happen, that we're of in million margin to there $XXX in see to excess continues, extent that LIFO million QX the were in

well. So that's something look at that we as

some at got no Gas we've we levers quarters And rate But we're in than getting certainly, it's We're is pun puts about it's the renewing driving others. quite and in customer intended, different and more takes, think they're, profitable highest sales. the getting and that. will, But ultimately, volatile, and more do in. to been you that the if of them we again, know ever.

this others. through better, not go if as we'll than good, So

Operator

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

Michael Lasser

during it's economic might it time there business, and economic time. that well, last much come This an downturn bigger States Richard, the So was was pretty Costco in turnaround, globally, performed United able a to more sensitivity. and positive exhibit

quarters? And is So saw take b, the that how the negative comps to would you're about profitability what actions preserve Costco it? a, thinking in coming its it event that in

Richard Galanti

Well, market first we're things drive going to do foremost. share, and that

different, we're cognizant We to need we at And a this drive quarter we are a we've economic rates. certainly same example interest good little this token, sales long line. they're get interest the back rates high of that. and because I stuff, and is that. our more is think stuff. of a when good job But do buy this And the Again, they going recession going to with what buy to the and of of headlines in rising term, always to the one and do customer come done bottom downturn,

which But is that and so the than sense think beauty the a aids really I we've fresh fortunate now discretionary being sundries said, ticket multitude, in from and that cart has types past. food in and big business of health items right the businesses foods, we're to within more various and our driving it got

us, I what hotter And what more years and drive But worked on So slowing that's would sales equation sales said continue prices. we by we someone being about ago, we'll were do. continuing. see I generally, for even do that to we do. asked if remember down, we'd

Michael Lasser

question to follow-up your others than the that point, number cited you a experiencing. are lower inflationary is, And what are

into you more your the not you typically of widening, does need spring fact anniversary you which at And fess? they So somewhat be delivering arguably sense this value more and are said, whether maybe that this delivering around time would play are a X-year last mindset price consumer do raise pressured the presumably, believe your for that member time then how makes around fees gaps it to you're your and your it. where raised your with or you the time. and would your I value being

Richard Galanti

calls, in when, said our would not June And Actually, at last quarters last it's question X, X few over a we previous the think, if. of years anniversary. now be our the about Yes. sixth I view, looking or the is and months, month. last, is mentioned X I in that, averaged around they which what

way in competitive. But monies that directly we'll even we keep take become We one more And and those so you more mind, that's know. let even become competitive.

weekly relative our I assure limited other do then a XXX variety though, ever of gap forms might competitors that day, of view, competitiveness, continue to traditional we're add that. against our comp each those where all of is the items, rest to senior of comp budget shops our of do locations. competitive XXX greater. locations at end And meeting, can been. other is numbers. And much up key our But competitiveness going against the of level directly in of as we you and do direct to get the retail every and X-week, the other in regional show items, strong shops monthly executives it's And weekly as operations' X-day and

Operator

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

Christopher Horvers

label, that rate you guess, the at for around on consumers up are demographic? income relative to us, they're Anything consumer? you're you the that of So do think your time private the how question, the change all? what seeing deteriorated I price on last following the observations to first sensitive, buying, What spoke

Richard Galanti

David's probably January a recording. than quarter different terribly ago sales Not in or

And the and expected. aids so big-ticket only at and to stuff, compared go economy to we and there now big-ticket and food fresh it all then and not look of that. help COVID be year ago. in and strength and it our years to things some of a we with counter how look discretionary. sundries we and again, that interest had phew, rates, that Again, X kind the centers and So like health beauty that's at much around We so buying people strength foods ago

that's concern seen asked been Kirkland And past, sales is of trade One that day, made trading haven't first items. trade actually, down. our the in up But down, in a we have delta any of in I end course, interesting we than people comment penetration not months, this a comment my of have a seen equal, the last few I think trade inflation we've during that the normal. and the delta or Signature bigger at about own a the

of I'd we little say the see less penetration. increased over last XX or X.X% X.X% than year a a years,

little sales For this in you we're or year-over-year, name it. food percentage the anything dry packaged penetration quarter side, over wet, seen or increase on being a point X.X foods

we most seen that with that's consistent creates in That an are people guess loyalty. the And if concession of that. little it's save that's brand, have our a I bit of money. And increase so looking to course, great.

Christopher Horvers

a be in about point, then a in investing and you on terms the quarter, source LIFO benefit that price. Yes. of funds could And like could last talked have pricing/LIFO we of

about the get here stayed LIFO question, prices back as we essentially that year going you would So a today, we a forward? think two-part ago had headwinds if

some second mentioned consumer. there but, good ever was the your as time, is, you question price are the been same gaps then And in at change they've as

in further about funds that think as to a of should source LIFO So we price? invest

Richard Galanti

look, an $XXX or a as plus LIFO to in just year-over-year on a source numbers positive a is more looking delta. no but that, I basis, the and $XXX if QX, more as using was positive million and a on -- Those have, delta. a have QX of minus comparison, are million extent as to pretax charge delta example, was funds this positive at nice there you this and not it

to of as per plays standpoint a into cushion earlier from from sales. foremost, gives growth, share, about gasoline if part are you earnings that stronger or we So will, first cognizant looking reported does of that, of does, little time us earnings a of at time, question bit the there that as and

So all things play those that. into

what And room speaking, generally we're to that still to in I example the in occur and do to QX, little sales. QX our to think extent foremost. want do, we and that, that what's about us right, even going do it. first drive gives without to that thinking That's view, a

Christopher Horvers

automatically from levels on And accounting prices that if these then we at just the back should the get stay lap? perspective,

Richard Galanti

yes, If which comparing were ago, year-over-year a X, be so the lapping last extent to the even year LIFO to would delta. be yes, stays to a that, down you'd charge there would a charge, credit, To at year. no be new go would a it actually bigger relative have prices

Operator

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

Charles Grom

Richard, over trended. just from that's business and picture have curious balance if bigger you could a talk about more changed how and recently, gas the how standpoint then, the competitive gas years

Richard Galanti

Yes. blessing volatilely Gas profitable a is a It's business. as has been well. profitable. relative It

more. it's Sometimes

And it's overall, But it's in door, It's if competitive given will. the profitable people a an getting advantage you us of business. sometimes, less. additional

numbers percentage announced the is population whole. in the compared I've points. percent near was our early delta up in flat increases where that darn of U.S. I I were gallon where summer to for versus last a think and mid- sales into yesterday still us U.S. on it the about think high given teens this fall some that, as XX U.S. population XX-plus I the to

are parking share, still getting if lot. you the will, taking market and in we people so And

that in shops, value, we number, That's to improvement. year, member we in terms feel cases, at locations a at This in $X.XX. And our an many we a across value locations. do date, we I'm look where saved compared day some looking every to value of comp average single-digit

gone X Over from the to it's years, the last mid-XXs mid-XXs. the

Charles Grom

some price, down invested and on you've from demand in seen just as and curious measuring how taking? a appear the have started as to inflation, the success be context. That's perspective you're too, to price And Okay. of come then just of what helpful that those actions you you've prices

Richard Galanti

Well, an with where just is We'll shipping it's high-velocity because costs our at anecdotal was items last things, items. some on I On art, pass this science. not can big from a it make meeting, some we look mean difference, budget a and on jasmine coming in of big was really dramatically seen bags of the per based a that on it's rice, cost. we've sales XX-pound an XX- down, bag, a a item the uptick because freight that's skyrocketed heavy it pound, because size

And so we that as down, that comes see going.

doing we're issues have. with price, believer think we we're sales. MVM. lowering suppliers, overall, of around to more things the I drive on the the based improve if what value you changing more going you're by with our Part that's of firm of allocation But no,

Operator

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

Scot Ciccarelli

like away from So stable. gross categories, actually in But probably others, shift bunch you the a of many pretty a stronger are guys, discretionary seen have margins category. consumable strength sales

if were more question food the expect should start kind pressure on to go-forward that of shift of we gross mix and consumables? guess we lean continue towards kind basis margin So I to a to is, see

Richard Galanti

various make things a discretionary but electronics. -- course, on percentage the lower-margin categories categories percentage, in not things items. delta big-ticket dollars of between And per but and are big-ticket sundries, like unit, We weaker smaller to in they a those more -- fresh weaker, foods extreme food smaller as some like Frankly, as are of the fact, categories be. not and used

percentages more margin impacts than the that the dollars gross there. so And

is processing the go $X.XX little you chicken, to way. membership, cost homework a drive do in low if investment rotisserie prices maintain, a what our selling anything, a drive and an to big we If of sales which price, on the in

do, even notwithstanding relatively And of well. some costs there want are down in items as have that though inflation. wow bit, little we there a So come the things we some huge speaking, those

Scot Ciccarelli

just cash the net one Got you And as in guys really some generate onetime environment. that your over of obviously but low rate with follow-up always guys interest real was then here, it. on actually income, done returns years, a you a couple you your have interest reported dividends can now. And

is, does question discourage higher the that returning guess risk-free through capital I from rate actually you dividends? interest environment So future the

Richard Galanti

little helps now. right it Well, a

kind let think And news. But you XX.X done good it's point, dividend, again. we've we'll I that's quiver. our trying don't I'm last years, an the I So that like think, you the the over it's be view which changes still not arrow we it's it in of special at know it. question, when some something cute, membership to do see might our

Operator

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

Karen Short

made So of line. a the you're particularly that cognizant Richard, you bottom comment

it was think your commentary. exact I

what categories. the that can if you basis should So I'm to but net triangulate margin various think triangulate go-forward looking you're wondering that also pretax with commented you on that with to in a invest you like or numbers look also that fact price in share gain

Richard Galanti

are public for-profit price share, What a latter more our given do to a go for for to bigger to expense times, that living. being and or we're we line, on to There doing. mean have not for that to we're do quarter. those of Well, want shareholders you the we're to I take some going trying I hit comment, we're use that. know have a followed comment, when the Sure. us the do continuing particularly in on a we're what to bottom we that's gain company, we looking been I might what many cognizant like in less. was say years, It's think

we, have today example many fact, rotisserie things, chicken it was frankly, in the think, to ago, think, I I more adjust which levers years that helps us.

shareholders. earn line that driving and things prioritize the But to the a being top cognizant we're X money those company public because not to trying we're driving to from sales benefit will that going statement. all we're the other going But away things, get income for also on our

Karen Short

can inventory, how commentary. so relative sure was just given out parse down on think to fuel X.X%? that how of fuel but you inventory inventory on to much gas about was down just I'm thoughts going obviously, forward or maybe any not ex then And And relative to related, Okay. meaningfully, if that sales that it

Richard Galanti

Yes. turns stuff a reduction way, was relative small very all challenges up year darn port gasoline And is else. backed chain with everything inventory it a year-over-year the improvement in the and But By the near to inventory ago. or daily. of the the supply challenges lot

little better. now feel we examples stuff, going levels we good pretty flow little is much we or have of about too of always inventory The right to too less, shape. anecdotal something our feel a There's but good much we're in category. be a So even inventory by

categories on we but little few I'll the saw of call, over what were on a news, that up those pictures ports, nothing stuff and few a in-transit XX% the There's a on had you of, like the ships. literally a under, categories, lot when

And a that's improved so lot.

Operator

comes from TD line the question with Oliver Cowen. of next Your Chen

Thomas Nass

for point half Tom expected an just terms term the guys from business On additionally, on given color the some easing add of of the are in opportunities digital trend as near of comps view? engagement digital, can the to how you It's Oliver. And ahead lie back to compares in in what year?

Richard Galanti

got hire Digital on we've additional of was of of Well, that just was better We've lot a process little months project in we at activities new that least where we're did ago got going negative, marketing is things. Head don't a a there. But We glad X I than going. January. the doing February, that while

low quarters. the hanging opportunities over So of to fruit there's view, and several a do there'll lot more be next my to that. In report

computers, a years of part home, also business that just electronics, what's big-ticket a on last that biggest it. recognize at name to our huge we've We challenge X that, or had, numbers, been those things Costco hanging drive in couple not now acquisition thing, the we've current that's Logistics, it things so X successful it, years looking the But want X ago drove called you did for grow we're hat the was such way. we COVID over years. on sales. be and our furniture, the big business of televisions, only ago of Not The that

Thomas Nass

effects the those with that on Great. memberships, from could members executive the higher a the about higher you and relatively, behave on penetration the And additionally, talk business as follow-up just how penetration? there,

Richard Galanti

Well, spend frequently. they're stuff. more only It's more come and they more loyal, good they

we end spend X% Reward day, the $XXX benefits the at at get that, instead U.S. $XX drives definitely loyalty can look, that certain and of as of to, current consequential get with other and frequency. they some example, the in rates, somebody on transactions, an the the So drive if with

the get them so we also card, spends and that. better And than it's executive if member the shops to Citi And Visa more. co-branded get then even more

work, direction. So view, in all a things those our in positive

the in membership so fact we of it the few a we last smaller the said We've like helped. countries. And other brought couple that into years, executive penetration

core a to base need XX it. of You or locations do so

years did membership when penetration do And by way, the in we're so the job, other them increased job somebody we of benefits we in up, better as U.S. executive locations better that. than of But we've seeing still provided in up, as an do of it well. sign well. a comes explaining getting ago new We a to to the sign

Operator

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

Kelly Bania

us you of under so I particularly that that understand Are store? windfall that guess, Are the process And reinvesting the I'm like the investing of in in more believe. had to help that us I we've gas mix help any a The managing maybe X is down ask way? you low-margin margin in if back understand the some several shaking was question going margin in for out? the decline quarters big I you it has to row, Maybe core-on-core categories been core-on-core ticket about could maybe given just this here. a venture the core a thought even here. thought into quarters? comment past bit that your process wondering a just over other the little little bit the just Is intentionally? more pressure, way is surprising, this are

Richard Galanti

Yes.

QX fresh compared QX that basis biggest our I to component down. that the it, question margins is in up the looking of biggest points. X at ago, fresh XX we're XX, years the have of about to answer been think pre-COVID, margin coming still our piece And

were fresh things all that bakery of the of because sales proponent and in foods, created which places up areas, in spoilage, than labor sales cost like a drove that we is It of which growth in more COVID a meat less the Now and lot those tremendous productivity the did. department.

than pre-COVID. outsized And maintained improvement. were still we've was, We're sales. so we if And you better the it will,

These have doing and of are them say up not sales make and XX%, fine a XX-plus up front X% or that we but we're in positive. X% them now numbers, then not let's I real whatever or enjoyed nonetheless, And going still was, it X% year, I don't percent, but me, of of pre-COVID was fresh XX% or growth, with year a a up still couple believe. years to it's a

one that. key And shop gave last have last so pricing. people months, helps fresh outsized of of but rotisserie not I just we've also, we've where over in of lots the chicken, kept But And in month through of drive of And X example to the several fresh that that all the goes foods the categories but that's for. certainly, invested areas the come or those gains. late,

Kelly Bania

And managing back are you get little of let to in thinking for that levels? kind pre-COVID run time? would you of period of way to a some above Or that a

Richard Galanti

different smart the There's to think know core so ancillary manage components to don't I businesses, we're gas, things. departments different these the enough of how to margin gross is all to many the what now. from LIFO to

way too, managing fluid. So organized, it chaotic do day. in manage it it, really sometimes, an And it's things is we every change as but

of job we great do think I doing it. a

Kelly Bania

No, agreed. Agreed.

in that In LIFO dollars quarters. on I couple margin, relates to as you out think the the Or last in those Just, guess, of some magnitude, of the terms bigger order of the margin than way the of the or Is offset tailwinds? it up would gave of to gas numbers following the would those tailwind of kind about some smaller GAAP the be it? margin charges? LIFO

Richard Galanti

mean a try can on it or gas given honestly. smaller, good quite bigger month But in be fluctuates even, asking. a bit. I Sometimes,

Operator

Greg line comes with from the Melich question of Evercore. next Your

Gregory Melich

questions. of couple and that A membership The One, right. of executive I that's, just the terms timing of are how process seems that's the the fee, of hate sales, it members thought to $XXX point, to in the XX-some sales the you go what, the coming of that from but where now bulk percent price XX% of might do fact does membership? the change back

Richard Galanti

Not No. at all.

Gregory Melich

down? at getting is and is Great. items then still do growing items basket, because how in more, on wage basket all. and just second how comps disinflationary not slow, Not that imagine why we And inflation, it delever I SG&A trying still have think this that? out managing inflation, to the deflationary are per is traffic's environment? growth doesn't about as figure you're we Or dollar If SG&A in but

Richard Galanti

little Yes, it how still on think frankly, offsets more offset units inflation up. focus the keep efficiently. and And bit, bit, trying things little a do are it a helps to I figuring to price out it

do of a One improve of flow in the pretty the physically good things that certain operators about or warehouse. done that, whether to again, budget goods every that. the X meeting is we the done things weeks job hours items, overtime a improving religiously we've talking are something, at We've of focus automate it's

increases, months. off-season notwithstanding And we've over back, wage go if the to XX this last think, X increases you off-season done wage I year, that

given very impressive our there biggest pretty slight benefits single our So and category. expense that deleverage is labor leverage is a

And do continued job productivity. good I a with that. we've it's So to think

Gregory Melich

X the And items is just in then running X, up so is comp I'm getting the be is the and would math right down if basket X? running comp, but X, traffic inflation on

Richard Galanti

Yes, it's It's mix. mix.

Gregory Melich

It's Got That right. it. Good luck. XXX% great. ASP. All

Operator

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

John Heinbockel

by it's lot And can or Richard, you you analytic by I is of talked work, right, season about much know some targeted item? where early on investing I nonfood? where mid-course right, maybe share non-foods do with investments can category in data What price. work consumables. have think you softness, done those Is you elasticity there, there you guys want to and there not you context making begun a doing categories? more in correction is start the in Have elasticity price drive in on

Richard Galanti

A/B we Well, elasticity keep tests more focused if only the the doing we'll take test works more. past and do. pretty region, this don't basis other there let's doing we we pretty lower we're a on know do see are, analyze, frankly, it in price I what in different the works singularly down delta x which price or and think we straightforward. sales. in We're a better. We not It's y; than or up on one But historical this price, region,

John Heinbockel

do going so not on would you maybe think a to thing? you I'm nonfood, it's you Do follow Have And nonfood, it right, to you And you all up little want about get right. anything, anyway. dialed inventory? then -- it's you guess, I is again, can in do, back nonfood if right, to that, earlier. be get All early categories. product biggest not inventory in sure be get you said the weaker. certain any What

Richard Galanti

and is first early. extent things few the foremost, a stock, in and in bring being that Well, to we

mentioned there's the had about And parts early done as we water well. because that little country, the that bringing I the I in But day, some and at good anecdotal the think comment of no of think I we've room. sense pretty sports a given a brought earlier camping, now. we that of of weather stuff end job right always some there's the

big electronics The working are were thing COVID promotional example, more promotional. but very stories, there anecdotal challenges is and was chain were strong an There's Using years as while virtually these X now supply with there, suppliers. still during for no the sales things.

in. Yes, is of getting strength be that's top what focus. do. that with promotional Examples there HABA on out and of every being growing. out are our been strong stuff more now. getting right there Part we the focus categories apparel's apparel, and would are we are buyers a well-known that Our which that's of that on of That's like But us more penny for suppliers. making we're sure part very

Operator

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

Brandon Cheatham

have been. how to ever are Brandon is wider have. always want business to they I It Cheatham like the back on managing gaps. on price gaps But This comments your your sounds just Paul. you than for wider you're go kind price of

than wondering have Are categories I'm the they they responding that behavior So not Or like are certain has competitors' past? there how just changed? responding your to? slower they're in

Richard Galanti

gotten think or feel large But said wider. as that certain I it's direct is been. very we other categories, boxes as with. retailer, don't start they've they've if are. about a this a competitors gap recognizing there's price when bigger much against Well, they're good know I ever they to I on wide where And traditional

of despite items, also, items, like-branded the same and essentially fact want you better that we on remind club another I'll that to priced. we're the types And sell sure exact we warehouse make

detergent same item. color, customer There But feel cases, size, some everybody $XXX So look it's in to million, whether the behold are better differing that, a you or knows They're Tide or where items Advil and is to where plenty quality, those of we of quantity, are name we it, competitive, Pepsi the on or in key have that that the most at or that. million, Coke that's value. we $XXX that's items price that that. up

what and more any keep we item in And drive so We're how value we constantly to those just we're on doing. doing competitive items out figuring focusing do.

improving we anybody that X,XXX beyond the packaging by do upsize price, say increase of majority by within percent a eat percentage pack do big while on than lower to configuration price and manufacturing how Even increase a there more $XXX the because changing something, to units pack? by dividing it? there a was still on of billion in of size. points we billion per unit it Needless in taking a price how was extra it, the to but standpoint, inflation, the inflationary that a items. our do pack the figuring when that is more the little be the know increase, a in focus label, I private especially $XXX going XX% if also, eat how vendor standpoint or we, do from How little x out we're how we to we will but and pallet of get that, get the the We cost do cell few by a sales how

of that do many are good have we when $XXX And that, items. can million, we that $XX items So million, we think that. million a we million, $XXX $XXX job do

Brandon Cheatham

to to bit able So that's you've moves competitors, when a match a I you you got make of they're mean, you cost so advantage quite think not your little like say, maybe this. that over

Richard Galanti

that? I'm was sorry, what

Brandon Cheatham

a prices You have you can't advantage, cost quite match of little down, a you. competitors. a cost your advantage, bit take When compared they to

And so wide your have been? that's why as you're able they to get gaps price as

Richard Galanti

respect We own we're think to supermarkets. Well, do discounters our or box big maximize versus all And have models. respective or whether and it's model. I warehouse other our formidable other model very it's doing competitors, what clubs we can

So I competitors to in act certainly, our some in to others. things, think price when changes make cases not we we see them some and

every this our same better shops, and XX fewer see that fact that making I'm changed on lower comp X, out when items, the and that week, week. XXX know we're items and those think we and X this on I on those they up, XX we're higher I have there be merchants, there's the

the a I model, of And cost we're the on top compared can't traditional our have mark they but us are to But to we XXX. to that a in allows up speak it. so also. retailers know mid-XXs structure, teens our I I on in low assume to competitors, goods, average,

So we have a there. little room

Brandon Cheatham

same wondering, start preclude and area? you announced opening in Sam's plans? Club would does the your locate nearby? you impact changed opening it. course the opening recently knew all from even Got that at place on that if that you I'm Would you they'd they've Or be doors.

Richard Galanti

advance it's to open is real what's going in we're or want doing open to that we aware an of something all whether estate on in out existing where open what know way. going we we're based location everybody the No, activity which there, on in certainly a

They about say, going memo open it's a whether It more. close just so going impact so And see should next or respect we impact that they up somebody else, push soon. the apparently the asked we or we one X us? was what I'm they're it open some them Look, think over they this doors, going more announcing I And to XX competitor, or us and changing to more do. to don't as years, X you examples, I get them in does years. look, about may X to when Sam's some kidding. said didn't that they're

in it of think bodes even well, I of countries, so. country, though, plenty capacity other that there's this more still course,

Operator

Capital. the with RX line of today last from Mushkin comes Your question Scott

Scott Mushkin

business period? I just sales you California. the thing seeing lot you couple have have I a little my of of there's Are layoffs But which That's mean, a out to regional kind and I the underperform you I tech, in a tons. guess bit, obviously, were better. ask wanted regions in month huge been that of over a first business one. first to gave relative

Richard Galanti

Not really. here they're guy is looking not at My really. saying and numbers, the

One our not even gas And of that XXX-plus bigger with performers. higher the gas locations. down inflation the we and coming the things partly best XXX volume dramatically gas, have they're mentioned why XXX-ish a Josh is, of have well, percentage in California, year-over-year, units. location that's in U.S. that's

whole took out there's not you that difference there. big If a out,

Scott Mushkin

California, maybe the a with push especially And that and in just business, happens silly question, EVs? gas to this with is what curious,

Richard Galanti

a It's ahead. road carwashes. long have only XX We

happening from relative taking now. in And the not we of end gallons years. to very fact carwashes a such few in gas So day, that the we think for a positive. U.S. we're the road. at is it's have It's plenty of XX market general But long the share years room next still

or I X frankly. it's defer that years, question XX for we So a can think

Scott Mushkin

guy. tell Yes, I wondering this a term California long about initiatives. know little just long, has last My to this call the question, bit the gone

push several maybe change had there anything a a credit the it the ticket. the well. big fresh ago. We horizon grow that a business out bit It's had in We the like card. big the little obviously big will into had push really Is little You that, years worked and on faster?

Richard Galanti

general, in plenty there's opportunities. of international, Well,

than you they sales, percent U.S. If look of are the more foreign of some profitable countries, at the a as

road a the that's second big for even We anything a the that I down right activity things, We're did at consider. just and Coast Might plant commissary. East couple now of creates on few Midwest vertical integration. we some point, bakery our outside to coming a more still another but ago. years meat don't do see opportunity. of those poultry Chicago expanding So years

So couple there's on plus of hundred another going that. nothing, like million projects dollar

us that area produce prices freight ship bodes suppliers, of is case in continuing of another the we're I'll more out, elsewhere, down grow side, well people working And plenty to and think I of in time with that's terms I for work we concept, on hot you there's on U.S., from that that. call vegetables. to out. certain getting competitiveness or going elsewhere, waiting figure think But things takes of the figure but good there's to it air so house could trying the all what activity it in currently and for plenty

cost sold normally XX% as those of are Eastern as further something simple roasting, the ago, to and few countries. do, us. America all that dramatically the packaging out thing huge roaster lowered savings to they're China, portion on in and Historically, to then for then shipped and a of to Today, other cashews. and grew XX of to supplier in years gave Japan, are over amount The we time and think now of take I what example or They countries. that using shipped XX I ours. prepped ultimately do with of a or Australia for grown Africa, shipped quality roasting, Vietnam in the those lower XX% washed Korea, that And a dollars, we that roasting quality price an and Taiwan, even

of plenty opportunities. There's

the production than side, having on here as a we and as maintain we them produce particularly these there. hundred- big produced of ship and be dollar to long Now things of could these lower There's like whether can plastic of that that, overseas, quality. suppliers rather it's items, buy, we're now and talking goods, multi-hundred-million items that with them cost paper which items Asia

a think of little going for opportunities that become, to opportunity I And so total, lots in us. be there's good

Richard Galanti

we'll evening. thank week. to We're a you, few a or and today next Have I'm of around. good talking sure tomorrow afternoon be Well, and everyone. early you

Operator

concludes for call. today's you This Thank attending.

now disconnect. may You

Costco Wholesale (COST) 2 Mar 232023 Q2 Earnings call transcript