Q4 2020 Costco Wholesale Corp Earnings Call

September 24, 2020

[music].

Welcome and thank you for standing by welcome to the <unk> Q4 earnings call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you ever.

Why or any further assistance please press star zero.

I would now like to have the conference over to we tried galanti. Please go ahead.

Thank you Lori and good afternoon to everyone.

I will start by stating that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.

These statements involve risks and uncertainties that may cause actual events results in or performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in the Companys public statements and reports filed with the SEC forward looking statements speak only as of the date there.

Made and the company does not undertake to update these statements except as required by law.

In today's press release, we reported operating results for the fourth quarter and fiscal year 2020, the six.

16, and 52 weeks ended August Thirtyth.

Reported net income for the fourth quarter came in at $1.39 billion or $3.13 per diluted share compared.

Compared to 1.097 billion or 247 a share.

Diluted share last year in the fourth quarter.

This year's fourth quarter was negatively impacted by incremental expense related to covert 19 premium wages and sanitation costs totaling 281 million pretax or 47 cents a share as.

As well as a $36 million pretax charge or six cents per share related to early payment of the one point of 1.5 billion to $1.5 billion of debt.

These items were partially offset by an $84 million pretax benefit or 15 cents a share for the partial reversal of a reserve of 123 million pre tax 22 cents per diluted share related to a profit tax assessment taken in the fourth quarter of last year.

Net sales for the quarter increased 12.5% to $52.28 billion up from $46.45 billion in the fourth quarter a year earlier.

For the fiscal year and its entirety fiscal 2020 came in at $163.22 billion.

A 9.3% increase over the $149.35 billion in fiscal 2019.

Comparable sales for the fourth quarter fiscal 2020 were as follows.

On a reported basis for the 16 weeks U.S. was 11% excluding gas deflation in FX you EPS was 13.6% can.

Canada reported 9.1% up.

Again ex gas deflation and FX, 12.6%.

Other international reported 16.1%.

Gas deflation and FX, 18.8%, bringing the total company to a reported number of 11.4% comp and again ex gas deflation and FX up 14.1%.

For the company.

E Commerce reported was 90.6% up and X.

Ex gas and FX risk FX, 91.3% up.

In terms of the fourth quarter comp sales metrics foreign currencies relative to the U.S. dollar negatively impact sales by about 50 basis points and gasoline price deflation negatively impacted sales by approximately 220 basis points.

Traffic or shopping frequency on a worldwide basis was down 1.2% during the fourth quarter and.

And showed an increase of 1.2% in the us.

Our average transaction or average basket size was up 12.7% during the fourth quarter.

Notwithstanding the negative impacts from gas deflation and.

FX, which are included in that number.

We've kept you up to date in our monthly sales calls on the impacts from pandemic from the pandemic as we've been able to identify those overall merchandise sales in the core core being food and sundries, Hardlines softlines and fresh as well as pharmacy have all been strong while sales in our ancillary other ancillary and travel businesses, though now opened have been.

Soft.

Next moving down the income statement membership fee income.

We reported fourth quarter membership fee income of 1.106 billion.

Billion dollars.

Up $56 million from $1.05 billion in the fourth quarter of 19 the 50.

The $56 million increase ex FX would have been 60 million up.

During the quarter, we opened eight net new units.

In 13 for the entire fiscal year and.

In terms of renewal rates at fourth quarter, and our U S and Canada renewal rate remained at 91.0% and worldwide rate also remained at its similar number from a quarter ago at 88.4%.

In terms of the number of members at Q4 end, both member households, and cardholders total paid households at fourth quarter end was up was came in at 58.1 million.

And cardholders, one to 105.5 million.

In the fourth quarter, we standardized the membership count methodology globally, which we apparently done differently in different markets of North America versus others and.

And so that increase includes includes that slight adjustment the change resulted in adding approximately 1.3 million paid members and 2.0 million cardholders to our member base. So as an example from Q3 to Q4, when we showed going from 55.8 million to 58.1 are up $2.3 million.

That is at $2.3 million increase includes the 1.3 million adjustment upwards. Similarly, the 3.7 million increase from the end of third quarter to fourth quarter that 3.7 million increase includes $2.0 million of an adjustment I'd like to note. However that needed a membership fee income dollars, nor the renewal rate calculations were affected by this adjustment.

At fourth quarter end paid executive memberships totaled $22.6 million, an increase of 765000 during the 16 weeks since third quarter end.

Going down the gross margin line going down to the gross margin line.

Our reported gross margin came in at 11.24% up.

Teen basis points from last year's fourth quarter gross margin of 11.06% that 18 basis point increase excluding gas deflation came.

Came in what would have been minus four basis points and excluding a portion of the direct cobot expenses would have been up eight and I'll show you that in the numbers that I ask you to jot down here if you.

If you adjust down the following numbers two columns.

First column, the fourth quarter's reported cycle will be fourth quarter ex gas deflation.

The first line item would be core merchandise a year over year on a reported basis core merchandise was up 101 basis points ex gas deflation up 82 basis points, So plus one or one and plus 82 in the first line item ancillary businesses being the second line item reported minus 66 basis points and without gas deflation minus.

71.

2% reward minus four and minus two basis points.

Other minus 13, and minus 13 basis points.

And that would give you totals on a reported basis, plus 18 basis points, which I mentioned and ex gas deflation the minus four that occur.

Now the core merchandise component of gross margin again was higher by 101 basis points year over year, and 82 basis points higher ex gas deflation similar to last quarter and even more dramatic of an impact during this quarter, we had a significant sales shift from ancillary and other businesses to the core this resulted in a higher contribution of our total gross margin dollars.

I mean from the core operations versus last year.

Looking at the core merchandise categories in relation only to only their own sales. So.

So quarter to quarter fuel margins year over year were up by 70 basis points Fresh foods was the biggest driver of here with a strong sales and fresh we benefited from efficiency gains in both labor productivity and to significantly lower what we call DMD or damage and destroyed or products spoilage food.

Food and sundries, Softlines hard lines as well as as I mentioned fresh fruits already but in addition, food and sundries Softlines and Hardlines, all had higher margins year over year in the quarter as well.

Ancillary and other businesses gross margin again was lower by 66 basis points and 71 basis points ex gas deflation most of our ancillary businesses were lower year over year with the most significant negative impact coming from gasoline and travel.

Hi accounted for about three quarters of the decline.

Costco logistics, which was primarily our acquisition. This past March of that they can both year last mile carrier called enough, though that was our new.

That was our newly acquired business.

That impacted ancillary margins by minus eight basis points again, we acquired this this past March and we anticipated losses in this business as it ramps up not note.

Note that these losses do not take into account any added sales were extended product expanded product offerings lower delivered prices and improved member satisfaction.

Next 2% reward nothing really to say, they're a minus two basis points ex gas deflation and other the minus 13 basis points nearly all of this is attributable to the cost will coded 64 million $64 million of the $281 million. Previously mentioned these are direct cost for incremental wages and sanitation allocated to our.

Cost departments and to our merchandise fulfillment operation so it impacts cost of sales.

Moving to SGN eight rig.

Our reported EPS you'd eight percentage year over year was lower or better by 47 basis points coming to come in at 9.62% of sales. This year in the fourth quarter versus 10.9% last year in the fourth quarter ex gas deflation.

SDMA was lower or better by 66 basis points again, if you jot down the following two columns of numbers first column as reported year over year as DNA change and the second column would be ex gas deflation.

Core operations.

As reported were better or lower by 42 basis points.

And ex gas deflation lower or better by 57 basis points.

So plus 42, and plus 57 central plus one and plus three.

Stock compensation, plus three and plus four.

Other plus one and plus two.

And that gives you the total on a reported basis that has seen a being better by 47 basis points.

And ex gas deflation being better by 66.

SGT into core excluding Cobra related expenses, which I'll discuss in a moment was significantly leveraged of course with a strong quarter merchandise sales increases.

As I mentioned central stock compensation.

I'm showing small improvements year over year as a percent of sales and now the other a plus one and plus plus one basis point, you reported and plus two ex gas deflation as I.

As I discussed earlier in the call the quarter was positively impacted by an $84 million reversal of last year's fourth quarter $123 million pre tax reserve related to a product tax assessment taken a year ago in the fourth quarter that.

That in the net impact from this item was plus 43 basis points that plus 43 basis points is in this plus one and plus two basis point number.

Also included another or the incremental covert costs or $217 million of 281 million total amount that equates to 42 or 41 basis points without gas deflation offsetting it the other way. So thats why you have a very small number of that line again these are costs for incremental wages and safety and sanitation.

Next on the income statement Preopening expense that pre opening expense last year in the fourth quarter was $41 million. This year in the fourth quarter was $15 million last year coming in at $26 million last year in the fourth quarter. We had 12 gross openings 10, net and two relos and that compares to 10 openings gross or eight.

Net in the fourth quarter of this year the big difference in those two numbers. This year's fourth quarter relates primarily to warehouses opened during the quarter as well as warehouses scheduled to open in the first quarter last year's Preopening included $12 million and pre opening expenses related to our new are then new poultry complex.

All told reported operating income in Q4 increased 32% coming in at $1.929 billion. This year compared to $1 billion $463 million last year and it would be a slightly higher percent increase if you exclude the items that I mentioned.

Below the operating income line interest income interest expense was higher year over year by $6 million coming in at 51 million this year compared to $45 million last year.

Interest income and other for the quarter was lower by $83 million year over year as discussed earlier following the completion of the debt offering we prepaid $1.5 billion of debt during the quarter. There was a pre tax expense of or what's known as a make whole payment of $36 million related to the early retirement of that debt. That's in this interest income and other.

Her line actual interest income was lower by 28 million lower it was actually lower by $28 million year over year in the quarter due principally to lower interest rates being realized and lastly, FX and other was lower by $19 million.

Overall reported pre tax income in the fourth quarter was up came in higher by 25% coming in at $1.869 billion. This year compared to 1.492 billion last year again. These exclude those items I point, that's including those items I pointed out earlier.

In terms of the income tax rate our tax rate in Q4 of 20 was 24.9%.

A little lower than a year ago. When it was at 25.7% in the fourth quarter a year ago, So little benefit there.

You are the right of of a few other items of note in terms of warehouse expansion with co bid we had some delays in some of the planned openings for the fiscal year that just ended this past August thirtyth and few of those have been pushed into this year that we are now.

In the for the year, we opened 16 total units, including three low Relos. So last year, we opened a net increase of 13 locations our plans.

Our plans for this year is to open about 20, net 23, including three Relos Thats, our best guess and plan at this point.

And as of Q4 in our total warehouse square footage to stood at 116 million square feet in terms of capital expenditures for the 16 week fourth quarter, we spent approximately 100 spend it.

Spent approximately $852 million and the full year, we spent $2.8 billion our estimated capex for all of fiscal 21 is in the $3 billion to $3.2 billion range.

[noise] ecommerce overall, our E commerce sales as you've seen each month of have increased nicely for the fourth quarter on a reported basis up 90.6% and ex FX, 91.3% increase during the fourth quarter a few of the.

A few of the stronger departments there so.

There are several health and beauty AIDS food and sundries appliances, Tvs computers, and tablets housewares and small electrics tow.

Total online grocery grew total online grocery grew at a very strong rate in Q4 several hundred percent.

This ecommerce comp if you will.

Numbers the E Commerce numbers I, just mentioned above follow our usual convention, which we exclude the third party same day grocery program. If we included that third party same day, our ecommerce comps result would have been approximately 120% up during the quarter.

Overall, our E com sites were relatively smoothly during the quarter. Despite the dramatic volume increases and we were able to improve our delivery times throughout our delivery times throughout the quarter as we adjusted to the ramped up order volumes.

Now quickly turning to the covenant of Corona virus, and some of the issues and impacts surrounding it from a sales perspective as indicated by our past three monthly sales releases. We've enjoyed strong sales results. During the June July and August timeframe. Certainly these sales strength starts with our being Dean's essential resulting in strong sales of fresh food.

Ads in food, and sundries, and health and beauty AIDS and the like.

We've also benefited from the much improved sales and products and items for the home outside of the food area.

As people are spending less on travel air and hotel and dining out they seem to have redirected leased some of those dollars to categories like lawn and garden furniture, and mattresses exercise equipment bicycles, housewares cookware, Essex and the like and lastly, a few of our ancillary businesses, notably our optical and hearing aid operations were closed for two.

12 to 16 weeks and reopen.

During the mid summer from us.

From a supply chain perspective kind of a 40000 foot view in terms of China at least judging by the shipments to US most of the factories are up and running there are still some production challenges due to certain components downstream in the supply chain in areas like electronics computer in certain white goods, it is getting better and improving each week and like us.

We feel that our suppliers factories have gotten a bit better.

Over the last several months of instituting safety protocols, that's our best guess, India in terms of getting back to normal each week is showing improvement in catching up so a little behind food sundries, some limits on paper goods, but getting better toughest aerie overall is still sanitizing wipes as well as latex gloves in terms of others.

Peony, we're in pretty good shape, selling quite a bit of a of masks and the like milk.

Milk and butter things like that are generally okay. In terms of fresh foods proteins are all are currently all pretty good there had been some slowdowns over the past few months and some some allocations and some limits that we had to put on some sales of those items, but thats gotten back to normal at this point seafood and produce all good is it has generally been throughout.

In terms of holiday merchandise planning Halloween.

Yeah.

Few some a small reduction in the amount of costumes, some more basic candy items as well as for Christmas going a little more basic in some areas and as well as looking at things and needs and uses for the house, but.

But.

Viewing it given our strength of late that realm.

Typically optimistically.

And Costco travel has shown some very modest improvement, but still significantly impacted during the quarter due to reduced demand. We do see our members starting to book travel again, although generally further out than we have extort historically seen our out.

Our houses overall have remained open or back to regular hours with additional with additional hour uncertain weekday mornings in many markets for seniors and persons with disabilities. The warehouses are still of course, following the social distancing and sanitizing sanitation guidelines.

Sanitization guidelines and since May 4th as you know weve required all members and employees in the warehouse to wear masks.

Finally in terms of upcoming releases, we will announce our September sales results, which is for the five weeks ending Sunday October sport on the following on that following Wednesday October 7th after market close with that I will open it up to you in a and give it back to Laurie. Thank you.

Ladies and gentlemen, I don't mind just to ask a question. Please press star one on your telephone keypad.

I guess I got to ask a question. Please press star one.

I guess next question is from one.

Lin from Morgan Stanley.

Okay.

Hi, everyone Hey, Richard My first question is how should we think about or how you planning cobot cost for Q1 of the next fiscal year.

And if I'm not mistaken I thought that for this fourth quarter.

There was a range of I don't know if there was a range, but we were expecting them to be lower sequentially and I think they were pretty similar so you mentioned the basics, what what what it constituted but can you talk about why she.

Sure and as you may recall on our third quarter conference call. We indicated that such really such types of cost in the Q4 would be at least $100 million are over 100 million and of course to Eightys. One is over 100, but quite a bit larger but the reality is is the biggest factor is we should we chose to continue.

At least for the time being the two dollar an hour premium that reef that represents about $14 million a week today.

To date, we are doing that and we've we've committed to doing that at least through I believe.

I believe the first eight weeks of fiscal of this fiscal quarter and again, we'll take that time again, our numbers have been very good our employees are on the front line and and and so that mind you. The fourth quarter was a 16 week quarter versus Q3, which is a 12 week quarter. So on a per week basis, it's come down there is other things.

It has ever been.

That won't be repeated in the first quarter at least.

If you go back to the very beginning of time for the first four to five weeks when we stopped doing food samples, we employ those third party employees ourselves or we paid our third party to have them help us in the warehouse that was during those three to four weeks of craziness in late February through mid to late March when people were coming in and hoarding and what have you and.

And that helped quite a bit so theres some costs that have that I don't expect to be continued the biggest component of course would be the two dollar premium and well see at this juncture, we've committed to it to our employees for.

To our employees for the first eight weeks of this this quarter.

Okay. Thanks for that my follow up you mentioned the holiday and I think you said you're looking at it optimistically are favorable for now can you talk about maybe a little more.

Maybe a little more detail why it's.

It seems like the results speak for themselves for now, but there could be a lot of change over the next couple of months and as your as your customer diversified their basket with you and you think you'll be able to retain them across more categories and keep trips as more you know retail gets their traffic back thanks, Jay sure well look.

Yes, I mean.

The main data points that we look at is how strong things have been in the last three and a half four months June July and August sales results, which we've all shared with you guys.

The trend in traffic has improved so it's been positive the last couple of months instead of.

Slightly or even more than slightly negative going back to April and may.

While the average ticket or average basket size has continued to be relatively strong so.

That probably if you if you asked what's what are the what some of the biggest surprises that we've.

We had.

Looking at the last three months of sales results compared to what we had expected a few months before that I mean, the big surprises as we expected.

Fresh and food and sundries and paper goods and alike in health and beauty AIDS to be strong, particularly food because of the weakness people.

People.

Dining out.

But I think we were a little surprised by the strength in many of these.

Discretionary nonfood categories.

Thanks for the house and Big ticket items again, not only furniture for the inside the house, but that patio furniture live goods were particularly strong up where in some instances. We had tried to cut back a few orders back in March and April for seasonal summer goods like patio furniture.

Very quickly we were having to scramble for more of those and so so far so good we recognize that people are coming into Costco, we believe they feel safe given the safety protocols the mask requirements.

The sheer size of the building itself in the the width of the iOS.

So all those things have helped us in that regard we're also back to.

After a couple of months of not having our traditional multi vendor mailer coupon type of offerings because several key items, we're but we're limited or orange on allocation.

We've gotten back to that.

And so.

Yeah, I think our at least our most recent three plus month history is has given us some comfort at this point.

So as I say that things may change, but at this juncture, we feel very good about where how.

How how how will be held what it looks like going forward recognizing looking at some of these things with a more basic.

In terms of Halloween and Christmas and alike.

Okay.

Your next question is from Chris Horvers from JP Morgan Your line.

Thanks, Good evening guys. So my first question is what's driving that strong core on core margin outside of the fresh category, which clearly would benefit from from a shrink perspective is that it's that sell through in low clearance that mix within the categories or is it something else.

Well on fresh it's all the above I mean, its strong sales at a relatively high and higher initial margin business.

Within our small confines of margin range, but.

But then to come.

Two components of cost of sales and fresh is labor productivity and spoilage, we don't have spoilage, we sell out not literally but.

Almost literally to the piece on these and things and so you're not throwing stuff away or not yeah. There's it's.

It's that it's it's a great business from a gross margin dollar perspective, given the sales strength in it. So that's that's clearly the biggest thing but again if you look at the other three core areas core and core food and sundries Hardlines softlines, they're all up but up you know.

A nice amount, but nothing like fresh foods. So thats helped now mind you other things have offset that.

And the sum of all of those things are still a positive and the things that have offset it would be things like the fact.

The fact that certain ancillary businesses, which are higher margin businesses.

Were closed for 12 to 16 week period.

Our food Court of course has been limited of what we do there we took out all the tables, we limited the product offerings.

Travel wishes.

While small business is an extreme example of high margin many items and travel is just a brokerage fee, yes, almost sales minus no cost of sales equal gross margin. If you will the markup.

The commission on some of that stuff.

Portion of that so you know those things have calmed down, but the sum of all those negatives are outweighed by.

The overall strength and core merchandise sales.

As well as and pharmacy pharmacy has been relatively strong too.

And.

Within that fresh has been that the biggest driver.

Got it so a follow up question that youre surprised by a negative gas impact and silver aiming your your peer as well not the same quarter still at Sartell tailwinds for the periods that crossed over and so.

And so can you talk about how much of that 66 basis points. This specific like gas first is the other businesses and as you look forward you know considering that optical hope and then end food courts at least for the smaller menu opana and starting to see some try some.

Some traction around travel and gas prices being stable do you expect that at this point that in a day and Hillary headwind could abate.

Okay.

I think it'll it'll be less negative, but I think it's going to be around for a while I mean, if you look at gas.

Gas is as as more profit more profitable per dollar per gallon of sales than it was a couple of years ago.

Because I think the prices have come down traditional retail has not been as competitive which allows us to be more competitive but still get it makes a little more I added at our trough at the lowest point.

Getting back in April and May there was a week, where we our gallons were down close to half.

Today they are down.

Closer to maybe down 10%.

Maybe you know five to 15, depending on the day here in a week, but you know in normal times for the last few years pre cove. It when the U.S. gasoline industry had comps in the very low single digits, we'd be in the very very high single digits or close to 10 or 11, even sometimes so we've so.

Things have changed there, it's still a profitable business and but yes. When your sales kind of when your price per gallon goes down 20, 30% and your and your gallons are down even some small amount and it's a it's at 10 plus percent of sales of our business. It has it has that that effect on it at the end of the day.

The sum of all of this has still been quite good for us.

And could you break out that's the 66, that's specifically related to gas.

No what we said three quarters of it was a second trial gas and travel.

That's as good as we got here I don't have the deed front of me, but.

My guess is gas is more of it than travel, but they're both impactful.

Your your guess is better than mine, thanks very much.

Your next question is from top gone from Gordon Your line is open.

Hey, good afternoon curious Richard how you're thinking about the recovery of your of your gasoline business, particularly from a elds perspective, and I guess, how this interplay and holding back foot traffic into your stores, clearly getting better, but you know being impacted a little bit by the gas business.

Well yeah.

I don't know exactly.

I haven't seen numbers in the last week or two but I believe our call. It 10% negative gallon comps are still way better than the U.S. as a whole the U.S. gallon gasoline industry as a whole.

And so but yeah, we'd rather have plus 10 to minus 10.

The fact is is that.

People are.

Our coming in less but they are buying more each time in the sum of those two things as we've shown you know, we we used to enjoy 5% to 8% comps pretty cold in on a regular basis and the last three months we've enjoyed 14th.

If you will and so overall, the well take that but it's got to be some small impact still.

And I guess, just going along faster, but the crossover between customers that purchase gas and then shop in the store. Unlike kind hours do you have that number handy.

I haven't seen it lately, but historically it had been I for those during the hours that the the warehouse itself is open because we the station has opened a couple of hours, perhaps on either side of that it's in the low fiftys well.

Okay, Great and then just switching gears a little bit.

Capital allocation you ended the year with with over $3 per share in cash and cash equivalents and you obviously remains significantly under Levered curious how are you on the board our purchasing this high class problem.

Well, we have a regular quarterly board meeting in a couple of weeks, we'll see but at the end of the day, we talked about it every board meeting all the.

All the different alternatives certainly we are when we went out to borrow the 4 billion, which was really a net increase of two and a half going because we used a billion they have to pay off existing debt. The fact was is that we're planning for a worst case scenario, where we would need more there'd be a slew of seasonal summer merchandise that we may.

I'd have to hold for the year as well as there would be a lower inventory turn particularly on discretionary non food categories.

Up until June when we've seen the numbers really go in and the Northern way Yeah June July and August.

Much of that need has not occurred so yes, we are in a good position right now we'll continue to look at it but Uh huh.

You will notice after we know.

Got it thanks a lot.

Oh.

Your next question, it's from cannon slightly but we've seen meaningful.

Hi, Thanks very much.

I guess first question just on.

Just on that $2 premium I guess the real question is I mean, I know you called out the eight weeks, but would it be more prudent as we kind of model that to just kind of maybe that's more or less the new norm, meaning 14 million.

You can see kind of what we should add on on an ongoing basis. It just seems that it's hard to take something like that away once you've offered and that just thoughts on that.

Oh I don't know.

Yes.

It is completely hard to take away.

You know we communicate.

VR C O in our head of HR to our employees, we've done that and Weve continued extended but saying this albeit no. We've added a little more well I think we'll see I think something will.

Yeah, I I think it's.

I think it's it may be hard, but not impossible and we want.

We want to make sure we communicate to our employees of why we're doing it and we'll have to wait.

We'll have to wait and we'll just have to wait and see Karen.

Okay, and then I wanted to I guess.

I wouldn't necessarily budgeted then for the for the full fiscal year, but we don't know at this point.

Okay.

Then.

We know it's aimed at least eight of the 12 weeks in Q2, one it may be more.

Okay, and then just back to topic for a second so within your reported traffic numbers, obviously E com right. So I wanted to just ask a little about what your physical and store traffic looks like and then I think on the last call. You were asked on color on traffic, what you're more loyal executive.

There's versus.

The lower level members do you have any do you have any color on both of those.

Hi, looking real quick I really I don't I don't have color in terms of Uh huh.

Generally I mean executive members do everything spend more come in more frequently by mortgage time and renew at a higher rate.

[music].

Looking real quick here hold on.

Okay Thats it.

I don't have traffic comps.

Within our comp number or ecommerce benefits it benefits it by a little over 3%.

Of the comp yes.

Is that the traffic number.

Okay great.

In the area. The average ring has as has more than doubled.

Averaging on E com it Oh, I'm, sorry, the average ring on E com.

Versus the warehouse is.

That is about twice.

That's because you've got a lot of are you still even though we've expanded on.

Food and sundries and apparel, you still got big ticket items like electronics and furniture.

Exercise equipment related.

Okay.

Bob here, saying he is getting to the traffic impact would be one to two but we don't have.

We don't have that's broken out.

Your next question, if I might call too well I thought you'd be at your line is open.

Profit just my question. So looking now that we're six months into the pandemic taught come out of the situation in better position.

Great incremental marketing tools and overtime.

Tony.

Factor that you learn that would allow the company to generate more margin goals and that it would otherwise.

Well the more margin or we we can generate the more likely we are going to give some of that back.

In this case arguably given our strength weve certainly given it back but we remain very competitive, but we also maintained that $2 premium to our employees.

Which we appreciate I I I take.

The first part of your question. When you started asking about how do we feel were going to come out of the pandemic and as things change I mean look theres factors as people eat out more and go out more or travel more theres less for the home.

Thats on a macro basis.

We have to believe here and we do believe that we have picked up but new members. We've picked up exists sales from existing members.

From categories that they are buying more at Costco now relatively speaking in part because certain other venues or traditional venues error either closed or not frequently not frequent as often.

So again, yeah, we've been blessed in that regard.

Well I think the other thing that I've witnessed over the last several months is our merchants ability to pivot and to add items for that house houseware items additional items and so.

And so I think.

Net of all those things I still think on a macro basis when people started eating out more and start flying more in attending.

You only on vacations.

Some of those these monies that are now being used for purchasing things for the home is going to move move that way.

That I think there are several areas where weve.

We are retaining more of their dollars in some portion that will continue to retain when it gets back to normal.

Okay.

Then on an unrelated note.

Comment growth what percentage of your membership.

Buying some new online what's the profile of the member driving the growth.

You'll see a lot of it and the incremental because the spend of those numbers going up.

It seems how you are thinking about emphasizing we're investing behind.

Isn't it.

I don't have all those specifics what I know is is what was what was happening either before co would end has been exacerbated in a positive way since coated is more some members have signed up to utilize those services more members are utilizing those services and spending more on it if you think about the one day for.

Fresh it is up several hundred percent fold recognizing it was a smaller base.

Even as as it's gone down from its peak a couple of three months ago, It's still a lot higher than it was before and my guess is even as people get used to wanting to go out there. Some people right now that aren't going to the supermarket or aren't going out to show or to Costco shop. They love. The service. There are some people that are going to do that there's going be some group is going to like that.

That and given our quality and value you know we in a supermarket are not mutually exclusive of one another and we think we'll keep some of that so.

We are certainly doing more to market to members not only in store promotions, but online promotions as well.

Yeah, Yeah, we feel I feel better about our offerings today, certainly than a year ago, earning in two years ago recognizing.

There's a lot of low hanging fruit because of some of things we had done historically, we know that on the on the Oh I hate to use the phrase again, but on the big and bulky side.

A lot of those thing here for four years, we have talked at which is pretty good.

We had talked about going from 50 million in white goods sales in store in the U.S. with a limited sales penetration if you will.

Two fiscal 19 doing almost 700 million I think just under 700 million that businesses increased at a rapid more rapid pace in the last year for two reasons covidien. Thanks.

No we didn't think people buying things for the home as well as in our view.

The the regional things were seeing trends wise in terms of how to utilize better utilize a are big and bulky a indigo acquisition, what we called out what we now call Costco logistics for big ticket furniture items.

Lawn and garden items exercise it.

Exercise equipment and the like.

Okay. Thank you very much and good luck.

Thanks.

I just want to ask a question. Please press star one on your telephone.

Your next question is from Paul we won't have any your line is open.

Hey, guys, Paul that's right.

Richard can you maybe talk about what you're seeing in terms of spending by new customers relative to existing customers, but also relative to what you would typically see from from a new customer and then.

Trash or two day dry same day fresh you have to be within a market.

Trade area, where there's a costco today dry you can be anywhere I think almost anywhere in the United States and within the card is both the United States.

Part of Canada now.

And so we have some members if they weren't to remember their signing up just to get to lay dry and they're not near Costco Needless to say, they're just buying those types of basic dry grocery items.

And that's it.

Generally speaking what we've seen in any given remember whatever type of member.

They buy more each year over the first few years of their membership.

And then there's the age thing as well.

Spot for US is still 40 to 55 year olds as they've grown X.

Grown economically grown family wise and are not on the downside of that curve in terms of empty nasty and what have you.

Okay.

But I don't have any specifics beyond that to give you.

How 'bout club usage.

Club usage.

The same thing again I can tell you I don't have anything specific.

The last few months, but club other than traffic has improved greatly from its trough five months ago not back to where it was pre covid, but one of the things that we see is that the typical member.

Over the first three to five years is growing their total purchases, which is a combination of their basket and their frequency and.

Clearly.

When we.

When we can convert somebody to an executive member they are buying more and shopping more frequently than that.

Thank you good luck.

Your next question, what's from all of that song.

Hi, Thank you Richard E Commerce frontier, it's been really impressive you've done what what is some of the lower hanging fruit that you see.

There and also if you could brief us on the penetration now and how you might see that step change and where that will happen in the future.

Well I mean.

The main lower penetration things are if you go back three or four years ago. I don't think we had good email addresses for much more than a third of our member base and we didn't focus on that kind of stuff today, we have <unk>.

Well over 60% and growing.

We now require you when you sign up and more members are signing up online and in store in general anyway. When you sign up you sign up with an email address so we're doing a lot more to to collect and gather those email addresses and then communicating with them more often so that's probably the single biggest low hanging fruit.

The other thing is is we feel that we've been able to use.

E Mails, if you will not only to drive E commerce.

Special promotions, but also in store special promotions.

As well.

<unk>.

Were pleasantly surprised by the just the sheer increase and people using same day fresh.

Anecdotally I can't tell you how many people have mentioned to me how they love it.

And.

They may very well.

May very well be shopping same day fresh your same day whenever from their local supermarket as well, but we've got a lot of great items on there and and.

It's it's.

It's hitting your court.

And Richard as we look look to this holiday season, which is definitely like no other.

What factors would you prioritize as how you're planning and as best you can differently this year.

This year versus others.

The multi vendor mailer.

In good shape and are you going to leverage not a lot for holiday as well would love thoughts around dynamics of supply chain and marketing for holiday.

Well the multi menu about the multi vendor mailer is back and.

There may be a few items that we don't have because of certain supply limitations, but for.

For for the most part is completely back after I think two or three of those so six or nine weeks of multi vendor mailers a few although we didn't do.

The I think the biggest difference is again for for the Christmas holidays.

Getting back to basics.

But you are still going to see some how exciting items at Costco.

The again.

Again, as I mentioned, even on Halloween.

Still have costumes I think we brought in something like 80% of what we would've normally brought in.

890% and we're actually saw him so.

We.

We added some vendors over the last several months.

Given certain shortages what are the challenges is right now we've had great numbers and electronics.

And white goods notwithstanding the fact that the numbers would be better if there was greater supply we all read about their certain supply issues on laptops and computers and things like that on some of the gaming things on.

Some of the white goods there might.

There might be downstream, a shortage or at least some allocation of compressors. So.

We're doing very well on that we've added some some different vendors in some cases.

And I think.

I think the fact that we did so well this summer relative totally is anticipated is given us the confidence to to be still pretty aggressive going into the fall uh-huh or less.

Our last question on the same day fresh and the momentum there.

What are the margins like in what are your thoughts about that margin in the 10th grade and also I'm, taking some of those capabilities in house versus using the white label.

Well at this juncture, we have a very good relationship with other competitors I'm sure having a good relationship also with and start there's a few other smaller ones that were using.

We're not necessarily looking to take that in house at this juncture.

But we are always looking at.

Third parties and and we have good existing relationships and we want to keep going those as well.

Thank you best regards.

Yeah next customer Sunshine behind Buckle Guggenheim partner.

Okay.

Hey, Richard So there are a couple of things and gross.

Even if you take out Gertrude alright, it looks like the other three were up quite a bit.

Maybe dive into a little bit <unk>.

Similarities driving those three big categories versus what might be unique each and then how sustainable is that records. This is this obviously is one of the better core and of course, we've seen in awhile sure well first and foremost.

Well I guess two things, there's a little bit less promotional activity going on in your thinking about Tvs and electronics those have been such a strong category not just for Costco, but in general the menu.

The manufacturers haven't been doing as many promotional things so.

So.

The other thing is is given just the sheer sales strength when you're comping.

Compton whenever it was in August 14, and I don't have it in front of me.

Or whatever but in some of these categories that when you're talking about what was stronger you are talking comps in the end.

And to load a high twenties.

When you got those get that kind of sales strength you have very.

A much smaller scale you have you have less.

Less markdowns.

So.

You've got a whenever you're regular margin is on those categories.

Yes.

Less.

Without a little bit of an offset from from.

And a cycle or some of those cycles or 60 to 90 days by the way and some of those those those skews.

So that has helped you a little bit.

And then on an ancillary rights you said, 75% was gas and travel.

Gas the bulk of that.

And it's so guests more of the compare last year.

Is any any decision you made right to take less margin.

It's not bad to take less margin try to drive traffic. This market is just not there right.

Yeah, I think in terms of less margin that's more.

Of our DNA when things are really good we're going to drive sales, even further and do that or when things are good we're going to.

We feel a little more comfortable.

The $2 an hour for another month, whatever it might be but at the end of the day.

There's probably less price competition out there today than there was a year ago.

And.

So we are able to maintain our fair margins.

Alright, and then lastly, what's the current thought process on two things expanded bogus.

Right you haven't wanted to do for cost reasons and.

Third tier membership.

I don't know, if it'd be a higher tier or a middle tier but.

Yeah can sort of segmenting that a little more.

Yeah, well on my online and pick up in store.

We continue to look.

Look at what others do we can.

We continue to scratch or had a little bit.

It's not that will never do it but it's not on the agenda for for this week.

And.

As it relates to an additional tier membership.

Again, I don't think that's on the top of the priority played at this juncture.

Give it everything else that's going on.

Okay. Thanks.

Good luck with the question of stamps caught my skin.

Oh yeah.

Hey, guys. Thanks for taking my question.

So I guess I want to get back to Richard to the the E commerce of traffic mix and.

Comments that you've made prior.

About really wanting to get people into the club.

Pandemic shifts that where you're going to see permanently.

Traffic being an issue there how are we supposed to how are we thinking about like impulse purchases.

And just to Costco model once we exit the pandemic. If this if this kind of sticks with Omnichannel, just being a much bigger piece of the pie overall.

Well first of all human mind, if our if our.

If our online business was five ish percent a year ago and now it's eight ish percent.

That's a big Delta and one year and it'll continue it will probably continue to increase as a percentage from there and that.

And that excludes the the third party and streetcar type business one day grocery.

And so.

We've been pretty good at pivoting, along the way and we recognize there's lots of attributes to value.

First and foremost as the the lowest price on the greatest quality or quantity of goods server.

Services.

Trust that we've we've endured with our members I think that we'll figure that out as we go along where we're not.

We may be occasionally stubborn on something but we're not we're not.

We're not completely and transient if we see so we need to do something we figure out how to do things in a little different way than others, and we will continue to do that.

And as far as the pick up I know like if you were quoted in recent article on this I mean, how how are you thinking about.

Pick up over time and.

Is there a way to bring that to bring that arrow into what you guys are doing without.

Without at better economics, I know, you're always been cautious about those economics.

Well keep in mind when third parties do it their cost for picking.

We believe we don't know what exactly what they are but we believe based on our wages and benefits is less.

And they've created a model that works with their density and everything else and not just buying and delivering from Costco their volume delivering two others. So there are some economics in that model that makes sense.

The.

Are you also is is there some retailers that are doing it because they feel they have to.

One of the things the article you're talking about is the article today.

One.

My view V I would disagree in the article is.

We should be concerned because our our sales of started slowing.

Which is the contrary they are stronger than they've ever been the last three months. So we.

We don't have our head in the sand on it we look at it we have people here that study it.

Maybe it will surprise you one day, but at this juncture, we're not prepared to do that.

Hey, Thanks for taking my questions I appreciate it.

Okay. The question is from your fish Alright Oppenheimer.

Good evening. Thanks, Thanks for taking my question I guess, just you related question on real estate. So if you look at your restore growth for this year, what's the split between international and domestic and also just given some of the challenges of break anymore, mostly just curious if you're starting a few more opportunities on the real estate Brian.

Yeah, I mean, I think our general view is is that we still feel that we want to open.

This year in the next five years.

Somewhere between 20, and 25 year net new units.

About half of those little more than half.

My coming in the United States and that'll trend over the five years to maybe being slightly over 50 50 in the U S to slightly under 50 50 in the U S. We still thing we have plenty of opportunities a U S. It does take longer than certain other countries.

We're just about ready to.

Do a second unit and.

Okay.

And France.

Just opened our third unit and.

And Spain after having open our first Union, Spain, gosh five years ago.

We have one you didn't China with two planned for fiscal 22.

Now in fiscal 21.

And so some of these countries do take longer but we are also putting a little bit more emphasis on that <unk>.

<unk> been successful or we think we can be successful and but I think.

40000 foot level, if we did 20% to 25, a little more than half and the first couple of years is U S and by year for five or six it'd probably be instead of 60, 40, or 50 545 U S turned to.

Turned to be just the opposite.

Great. Thank you.

Yeah next question is from Scott Snake around obviously capital.

Hi, guys.

I actually another another store growth question, what is the limiting factor for you in terms of accelerating your store growth further like you've got Grand total of one in France, and Grand total of one in Spain, and you've been there for five years like it just seems to me like there could be a lot more store expansion. If you really wanted to push it and I guess, what I'm wondering is.

What keeps you from accelerating that further.

I think there are a couple of things first of all I've always said that.

Very hands on company and one of the things we've learned when we've gone a little too fast not to suggest one in five years is too fast.

Is not.

But I remember.

I remember in Japan, we got to 10 or 12 locations and then at about 18 months period, we open eight or nine and we had a little bit of operating indigestion as it relates to France. It took us close to 10 years to get our first open.

The level of of.

People and entities they can appeal that process and fight you to keep you out.

Is is unbelievable.

And again in Spain, we actually have three.

And of course this year general.

Generally speaking of had it look at various countries we'd open.

Five in the first five years that would be relatively fast for us and but again it gets back but I think we're getting that hands on.

And makes make sure that we feel comfortable how the market is doing what probably a little slower than we could be but we feel good about it.

It's worked for us and we will continue to do that.

Oh, Richard that's on the international front that that makes sense, you gotta get comfortable with the market to buy chain of course, but what about just in the U S. Like <unk>, you're obviously comfortable with all the.

How to navigate compound store openings and what what kind of restrictions you might have it just.

She wants to me like if you've got a decent amount white space.

Fair enough.

I think some of the white space.

Gets better each year.

If I look at even the Seattle market.

A multiyear period, where we didn't opening the additional units and then we open on the east side here Redmond, and a couple of others and and part of it is is cannibalising nearby units and.

And then.

No.

We try to be relatively methodical and disciplined.

Kind of the returns that new unit can generate net of cannibalization.

And.

Could we opened 20 instead of 12 or 13 in the U S absolutely, but it's how fast the real estate people in the regional operations people get with our CEO to go through that process and.

Alright.

The right properties, Yeah alright.

Got it okay. Thanks, a lot guys.

Yeah. My first question is semi.

HM HM HM HM HM.

Hi, Thanks, guys and it's getting late so I'll be quick but I wanted to ask you about the membership fee income up about five and change I think this quarter.

Which has been pretty consistent throughout the year, but I guess.

How much of that do you think is from new members that you're picking up because of the pandemic. Some of your competitors are seeing you know big increases in new members from the pandemic, it's hard to tease that out from your numbers and when you compare this we can compare it to pass M. A five numbers, but it's a little lumpy because of the fee increases.

So.

Any idea of what you're picking up in terms of new members because of the pandemic.

We don't disclose that it's it's still a smaller percentage of the total it's not a majority of the total.

And does it surprise you that that those membership numbers aren't accelerating more as you might see from some of your competitors.

Our view when we've looked at some of our competitors numbers.

Partly because they have a much lower number of members per location than we do.

And.

That's what that's our view.

But.

Fact is is when we look at and how penetrated we are in so many of our markets I mean, we are even in.

California, where we have 120 830, you that's all I forgot how many units we have there.

I believe we're north of 60 slightly north of 60% remember how household market share.

In states like Oregon, and Washington.

Well in excess of that so I think that's part of the issue in our view.

We've got a lot of people already.

Right, Yeah, yeah, it makes sense.

If I could ask one follow up on gas gallon sold.

You said you were at 10% today that that's not 10% for the quarter downtown percent that is I believe right that that's sort of a point in time did you.

Mentioned, how your gas gallons sold where the.

With a whole quarter.

We did not that is a more recent number in the last month, let's say.

I mentioned it may have been even in the end of Q3, which ended like made 10th or maybe whatever around them.

Like a minus 50, but my guess is is we're we're somewhere in the low to mid teens for the last month.

There's a lot of <unk>.

For the last quarter for the last month, the last month low teens, okay, and so the total quarter is somewhere in between those those who numbers presumably.

Yes, yes got it got it I'll just thank you.

Yeah.

<unk>.

Yeah.

Two more questions.

Yeah, Hey, Richard just a <unk>.

Just a question on how the product shortages issues that you guys had seen around covid might might be influencing your view on where you might go next.

In terms of vertical sourcing.

Don't assume there's anything electronics or white goods, but.

Is that the experienced the last four or five months maybe <unk>.

Sent the curve in terms of when <unk>.

Certain issues might be pull forward.

Well, yeah in terms of vertical initiatives, we've got to the last two or three years have been quite a bit not only a bakery commentary that serves U S and Canada.

Across the Canadian border not only.

Second meat plant in Illinois versus the one we've had for many years in California.

Not only the poultry complex and not only a couple of smaller produce initiatives, we've got going on right now.

And last but not even expected, but the acquisition of NFL or what we now call Costco logistics So <unk>.

So we've got to.

We got our hands full with a lot of things right now I don't necessarily see I think one of the things that we've learned from Covid.

We have great relationships with large companies both.

Touma product named companies and private label named companies do.

Doing literally multi hundreds of millions of dollars of one item.

When there has been some shortage of supply we've had to expand that vendor network a little bit there are some instances where human are sheer volume in Asia now can we find.

A comparable manufacturer or an existing supplier then wants to do something over there. So I think there's some there'll be some ways to continue to reduce costs.

He items, but in terms of what's the next big vertical I don't.

No if we know at this point.

Okay, well, that's fair and then just thoughts on the travel bookings you had mentioned it.

Starting to see a pick up there, but it's further out the normal can you give us can you frame, maybe what's normal and what you're kind of thing right now I thought that was interesting and this is.

This is my definition of what I understood previously it normal as if you go back pre covid.

And the majority of your bookings each day related to stuff in the next few months.

Maybe a little further out for five months before Christmas or five months before the beginning of summer.

Today, you've got people booking things out five to nine months in some cases.

Now there's two reasons one there are some great deals out there and two in many instances there's no.

Cancellation charges.

And so we will have to wait and see and part of that it'll be dictated by.

<unk> actually actually sold and.

Members go on some cruises of late still a very small number the car.

The car rental businesses picked up a little bit better than the other but still down relative to what it had been pre covid.

Overall craze and thank you so much.

Yeah overall in mind, you, if we books something out nine months, we don't taken into revenue until.

[noise] trip has taken so even though business has improved in terms of what we show in our numbers, there's very little button and it's just starting to.

First of all it's not negative right now there are a few months there in April May June or April may certainly where chance.

Cancellation costs were greater than.

And then just being taken.

Yeah that makes sense alright. Thanks.

Yeah next question is from Kelly, Yeah, I'll BMO capital you know.

Hmm.

Hi, Richard Thanks for taking a question.

Just wanted to ask maybe a two part question here.

Or more retailers are talking a little bit about advertising.

Maybe as a way to offset their lower margin E Commerce business and so I was curious one if you could talk about where R. E com margins just with all the acceleration and maybe just also remind us what bucket.

That is in in your and your cable.

But then also just philosophically how do you think about that.

Maybe any picking on any more AD revenue kicked here dot com business. Thank you.

Well.

We're we're taking on more AD revenue and we keep learning more about that as well as we drive that business and.

And but overall the.

And the margins.

It's lower gross margins part of that is category specific.

Electronic switches by far the largest single component of.

Of of ecommerce.

The commerce is a high single digit margin, we think about it.

Costco warehouse, you've got fresh that's in the low double digits.

Sometimes a pre teen or early teen and.

You've got.

And again, Conversely, electronics, which is.

Mid to high you all.

You also as we try to drive the business in certain new categories like apparel.

Bye to items yet.

$5 off or whatever the marketing or.

Promotional item is there is a lower realized margin on it.

Given category in some of those categories versus online versus in store. So overall you also have.

Less SG&A.

And.

I get back to what customers always been a topline company, we're looking to grow it topline certainly the profitability of E. Commerce as he has improved dramatically in the last year when the strong sales.

But.

It's part of the ecosystem.

Okay.

Alright.

Is it in the matrix, it's an ancillary.

It is and it's like okay yeah.

Thank you.

Your next question is from a large no problem.

It's all yeah lightning telephone just.

Just a quick one Richard.

Managed to improve inventory turns or grow inventories slower than sales since the onset of Covid I know that some of this has been supply chain issues or issues with certain.

Scuse sourcing, but that seems to be clearing up how long can you keep improving inventory turns at this pace.

Well, if we keep doing 14 per cent sales for awhile, but I'd say that tongue in cheek because.

We.

If you go back to April and May the inventory Trinity come down one of the reasons, we were planning for additional capital.

Working capital needs.

Yeah.

Look I think we've gotten to a point.

When we've enjoyed a turn based on how you calculated in the 12 to 13 range. When you get up to that range, it's difficult to some extent as well gas helps us because we turned gas everyday fresh foods helps it because we turned fresh foods every week or less I think.

I think about every week, maybe a little better than that.

And the fact that we didn't have a big denigration on non food items, which we had thought would be an offset to that so it has helped a little bit right now, but if you.

Have you asked me if I could just keep where we are right now I'd say sure.

Got it thank you.

Yeah.

One is from Christopher.

Oh, Jeffrey and Lightning telecom.

Hi, This is Blake on for Chris Thanks for giving us in here I was wrong.

I was wondering if you'd comment at all on the extent to.

Yeah, how much have existing customers you had before the pandemic that historically didn't buy journal merchandise better.

Better now shop in that category, how how much of that example have you seen.

Yeah, I don't know off the top of my head that sorry.

Okay.

And then just lastly.

Can you talk about renewal rates and your expectations on those should we expect them to maybe creep higher given given all the calm strength, you're saying now.

Yes, Sir.

Sorry.

Two.

We don't guide no we don't guys there.

There are things that helped the comp that helped the renewal rate getting people to executive getting people to do our credit card somewhere.

Some of the things we do now when you sign up online.

Auto Bill and so those are things that helped push it upward a little bit.

Yeah, the fact that to the extent, but Conversely, if we ramped up internationally and we are going to overnight, but if we ramped up internationally, you start and any new market our new.

New <unk>.

The first few warehouses in a new country, you were kind of much lower Reno right to start with but a much higher number of initial sign that's because there's a lot of lucky those and so.

All those things weigh in we feel so far that I know as soon as we show a minus 10th of a percent and a quarter, which.

Which knock on wood, we haven't of late people worry what's going on but our view is is that.

Onto our members we're getting them.

In most countries even in new countries, we've seen the trend.

More often improved and not.

And.

So I think we feel pretty good about that.

Got it thanks, so much while we take two more questions.

Okay next question is from Greg milk.

Okay.

Hi, thank brick or just one.

Just one clarification on one question.

Did you say E commerce was 8%.

And then over 10%, including <unk> was that for the year of the quarter.

Alright.

Roughly four.

Quarter in roughly.

Yes, eight <unk> got it and then.

And then yeah fish [laughter].

Yes.

Somehow traffic I guess that was my follow up.

You talked a lot about it and it's nice to see D. U S traffic come back for the quarter could you help us understand.

Why international traffic you know.

It remains negative and.

And if there's any outlier countries driving that order is really the U S. The outlier with traffic come back and if you're concerned that that could influence the renewal rates and I was international markets. Thanks.

Well known candidates the outlier internationally.

Remind you if.

S as seven little over 70% of our company's sales Canada's around 10, maybe 15.

<unk> I'm sorry.

I I'm, sorry, 15, and so you've got other international being less than a drive.

Yes, there have been more restrictions in Kenna, Australia also there have been more lockdowns of late but Canada, and we have no direct where else call competition in Canada, we've seen their traffic.

Yeah.

Yeah, more negative with a basket even bigger than the U S. So we still kind of mine and and we've seen that improve also.

It's <unk>.

Negative has been reduced so hopefully that will continue to as well.

<unk>.

Four months of bin.

On the up and up.

Got it so the friends the right direction, it's just taking longer for those countries specific reason.

It went further down to start with two I mean.

I think even shooting from the hip here, but even though several months ago. If the U S was the minus five traffic, Canada was minus double digit traffic alright.

Got it.

Great. Thanks, a lot.

Thank you.

So does he have like Moscow of credit.

Ask you a question you like.

Hi, Thanks for having me on the call.

Wanted to know if you're noticing any regional differences in terms of how consumers are behaving during that.

Yeah.

Arising in certain states.

Yes, there is a threat more.

I don't know, if it'll probably go to lockdowns or not but.

Did you see any differences in terms of how they're getting ready for Halloween or worried about trick or treating or anything like that and how are you responding to that.

I can't be specific day, you're specifically about Halloween the only.

Over the last several months the only thing that we saw was is when certain states.

Unlocked.

More quickly.

We saw little pick up their faster.

Earlier.

Because people are getting out Guinea out faster some of those in those states that.

Did that other than that we haven't seen anything dramatic.

Let's say honestly.

Right Yeah.

A good point here I think.

And we're all guilty of it is dependent make his progressed we're all.

Hopefully.

Hello.

Okay.

Hello.

We hear Ya Oh, you hear me now she thought I hung up on your I'm sorry.

I think it is the <unk>.

As the pandemic has continued people have gotten a little more comfortable hopefully still.

Maintaining the safety protocols, but can only out more often than and that's helped us the numbers picked up a little bit as well and overall, you're going to anecdotally, we feel that people feel more comfortable coming into a place where master required where the places the physical spaces are larger with more more cubic feet of open air. If you will so I think those things are probably helped us but.

The only the only real difference we saw was.

During those couple of months, where some states opened up a little faster than others. Okay.

Okay does that mean that reopening.

Actually improve that's a net positive for your business in 2021.

Well it's in there.

And that's positive, but we don't know does that also mean, there's people eat out more frequently they're going to buy less food fresh food or food items at supermarkets and Costco's, there's probably some some different offsets there.

Again, we believe that some of the things that we've picked up through this pandemic.

In part because.

A lot of these non food discretionary categories and big ticket categories. Some of that is going to be sticky and once they've shopped and had a good experience at Costco at a great value to hopefully continue that.

Okay. Thanks, so much.

Okay.

Well, thank you everyone.

Have a good day and we're around.

Have a good day.

John told me. This concludes today's conference call. Thank you for participating give me.

[music].

Ladies and gentlemen, thank you for standing by welcome to the Coast, How Q4 earnings call. At this time all participants are in only Sim only mode. After the speakers presentation, there will be a question and answer session Todd.

Good question during the session you will need to press star one on your telephone if you ever.

If you require any further assistance. Please press star zero I would now like to have the conference over to meet tried galanti. Please go ahead.

Thank you Lori and good afternoon to everyone.

I will start by stating that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that may cause actual events results and or performance to differ materially from those indicated by such statements.

The risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in the Companys public statements.

Ports filed with the FCC forward looking statements speak only as of the date. They are made and the company does not undertake to update these statements except as required by law.

In today's press release, we reported operating results for the fourth quarter and fiscal year 2026.

16, and 52 weeks ended August Thirtyth.

Reported net income for the fourth quarter came in at $1.39 billion or $3.13 per diluted share compared.

Compared to 1.97 billion or 247 a share.

Diluted share last year in the fourth quarter.

This year's fourth quarter was negatively impacted by incremental expense related to covert 19 premium wages and sanitation crosses totaling 281 million pretax or 47 cents a share as.

As well as a $36 million pre tax charge or six cents per share related to an early payment of the one point of 1.5 billion to $1.5 billion of debt.

These items were partially offset by an $84 million pretax benefit or 15 cents a share for the partial reversal of a reserve of 123 million pre tax 22 cents per diluted share related to a product tax assessment taken in the fourth quarter of last year.

Net sales for the quarter increased 12.5% to $52.28 billion up from $46.45 billion in the fourth quarter a year earlier.

The fiscal year in its entirety fiscal 2020 came in at 163.22 billion.

9.3% increase over the $149.35 billion in fiscal 2019.

Comparable sales for the fourth quarter fiscal 2020 were as follows.

On a reported basis for the 16 weeks U.S. was 11% excluding gas deflation in FX U.S. was 13.6% Ken.

Canada reported 9.1% up.

Again ex gas deflation and FX, 12.6%.

Other international reported 16.1%.

Gas deflation in FX, 18.8%, bringing the total company to a reported number of 11.4% comp and again ex gas deflation in FX up 14.1%.

For the company or ecommerce reported was 90.6% up and ex yes.

Yes, gas and FX risk FX, 91.3% up.

Traffic or shopping frequency on a worldwide basis was down 1.2% during the fourth quarter and.

And showed an increase of 1.2% in the U.S.

Our average transaction or average basket size was up 12.7% during the fourth quarter.

Notwithstanding the negative impacts from gas deflation and.

FX, which were included in that number.

Soft.

Next moving down the income statement membership fee income we were.

Reported in the fourth quarter membership fee income of 1.106.

<unk> billion dollars.

Up $56 million from $1.05 billion in the fourth quarter of 19.

$36 million increase ex FX would have been 60 million up.

During the quarter, we opened eight net new units and.

And 13 for the entire fiscal year.

In terms of renewal rates at fourth quarter, and our U S and Canada renewal rate remained at 91.0% and worldwide rate also remained at its similar number from a quarter ago at 88.4%.

In terms of the number of members at Q4 end, both member households, and cardholders total paid households at fourth quarter end was up was came in at 58.1 million.

And cardholders, one or 105.5 million.

In the fourth quarter, we standardized the membership count methodology globally, which we apparently done differently in different markets North America versus others.

And and so that increase include includes that slight adjustment. The change resulted in adding approximately 1.3 million paid members and 2.0 million cardholders to our member base. So as an example from Q3 to Q4, when we showed going from 55.8 million to 58.1 are up $2.3 million.

Adding to that 2.3 million increase includes the $1.3 million adjustment upwards. Similarly, the 3.7 million increase from the end of third quarter to fourth quarter that 3.7 million increase includes 2.0 million of an adjustment I'd like to note. However that needed a membership fee income dollars, nor the renewal rate calculations were affected by this adjustment.

At fourth quarter end paid executive memberships totaled $22.6 million, an increase of 765000 during the 16 weeks since third quarter end.

Going down the gross margin line going down to the gross margin line.

Reported gross margin came in at 11.24% up 18 basis points from last year's fourth quarter gross margin of 11.06% that 18 basis point increase excluding gas deflation came in.

If you jot down the following numbers two columns.

First call the fourth quarter's reported cycle will be fourth quarter ex gas deflation.

The first line item would be core merchandise a year over year on a reported basis core merchandise was up 101 basis points ex gas deflation up 82 basis points. So plus one on one and plus 82 in the first line item ancillary businesses being the second line item reported minus 66 basis points and without gas deflation.

And minus 71.

2% reward minus four and minus two basis points.

Other minus 13, and minus 13 basis points.

And that would give you totals on a reported basis, plus 18 basis points, which I mentioned and ex gas deflation the minus four.

Now the core merchandise component of gross margin again was higher by 101 basis points year over year, and 82 basis points higher ex gas deflation similar to last quarter and even more dramatic of an impact during this quarter. We had a significant sales shift from ancillary and other business is at the core this resulted in a higher contribution of our total gross margin dollars.

Moving from the core operations versus last year.

Looking at the core merchandise categories in relation only to only their own sales. So.

So core our core if you will margins year over year were up by 70 basis points pressure.

Fresh foods was the biggest driver of the here with a strong sales and fresh we benefited from efficiency gains in both labor productivity and see significantly lower what we call DMD or damage and destroyed or products spoilage.

Food and sundries, Softlines hard lines as well as as I mentioned pressures already but in addition, food and sundries Softlines and Hardlines, all had higher margins year over year in the quarter as well.

Which accounted for about three quarters of the decline.

Costco logistics, which was primarily our acquisition this past March of the Bacon bulkier last mile carrier called Annabel that was.

That was our newly acquired business.

That impacted ancillary margins by minus eight basis points again, we acquired this past March.

And we anticipated losses in this business as it ramps up.

Note that these losses do not take into account any added sales for extended product expanded product offerings lower delivered prices and improved member satisfaction.

Our next 2% reward nothing really to say there minus two basis points ex gas deflation and other minus 13 basis points. Nearly all of this is attributable to the costs will coded 64 million $64 million of the $281 million. Previously mentioned these are direct cost for incremental wages and sanitation allocated.

Through our cost apartments into our merchandise fulfillment operation so it impacts cost of sales.

Moving to SGN AG.

Reported EPS you'd eight percentage year over year was lower or better by 47 basis points coming to come in at 9.62% of sales. This year in the fourth quarter versus 10.9% last year in the fourth quarter ex gas deflation.

SJ was lower or better by 66 basis points again, if you jot down the following two columns of numbers first column as reported year over year as DNA change.

The call would be ex gas deflation.

Core operations.

As reported were better or lower by 42 basis points.

And ex gas deflation lower or better by 57 basis points.

So plus 42, and plus 57 central plus one and plus three.

Stock compensation, plus three and plus four.

Other plus one and plus two.

And that gives you the total on a reported basis.

As you know being better by 47 basis points and ex gas deflation being better by 66.

SGT into core excluding Cobra related expenses, which I'll discuss in a moment was significantly leveraged of course with a strong core merchandise sales increases.

As I mentioned central stock compensation.

Showing small improvements year over year as a percent of sales and now the other up plus one and plus plus one basis point, you reported and plus two ex gas deflation as.

And then the net impact from this item was plus 43 basis points that plus 43 basis points is in this plus one and plus two basis point number.

Also included another or the incremental cobot costs or $217 million of 281 million total amount that equates to 42 or 41 basis points without gas deflation offsetting it the other way. So thats why you have a very small number on that line again these are costs for incremental wages and safety and sanitation.

Next on the income statement Preopening expense that pre opening expense last year in the fourth quarter was $41 million. This year in the fourth quarter was $15 million less coming in at $26 million last year in the fourth quarter. We had 12 gross openings 10, net and two relos and that compares to 10 openings gross or eight.

Net in the fourth quarter of this year the big difference in those two numbers. This year's fourth quarter relates primarily to warehouses opened during the quarter as well as warehouses scheduled to open in the first quarter last year's Preopening included $12 million in Preopening expenses related to our new are then new poultry complex.

All told reported operating income in Q4 increased 32% coming in at $1.929 billion. This year compared to $1.463 billion last year and it would be a slightly higher percent increase if you exclude the items that I mentioned.

Below the operating income line interest income interest expense was higher year over year by $6 million coming in at 51 million this year compared to $45 million last year.

Thats in this interest income and other line actual interest income was lower by 28 million lower.

That was actually lower by $28 million year over year in the quarter due principally to lower interest rates being realized and lastly, FX and other was lower by $19 million.

In terms of the income tax rate our tax rate in Q4 of 20 was 24.9% little.

A little lower than a year ago. When it was at 25.7% in the fourth quarter a year ago, So little benefit there.

A few other items a few other items of note in terms of warehouse expansion with co bid we had some delays in some of the planned openings for the fiscal year that just ended this past August thirtyth and few of those have been pushed into this year that we are now.

In the for the year, we opened 16 total units, including three low Relos. So last year, we opened a net increase of 13 locations our plan.

Our plans for this year is to open about 20, net 23, including three Relos Thats, our best guess plan at this point.

And as of Q4 in our total warehouse square footage to stood at 116 million square feet in terms of capital expenditures for the 16 week fourth quarter, we spent approximately 100 spend it.

Spend approximately $852 million and the full year, we spent $2.8 billion our estimated capex for all of fiscal 21 is in the $3 billion to $3.2 billion range.

Ecommerce overall, our ecommerce sales as you've seen each month have increased nicely for the fourth quarter on a reported basis at 90.6% and ex FX, 91.3% increase during the fourth quarter a few of the.

A few of the stronger performance there.

There are several health and beauty AIDS food and sundries appliances, Tvs computers, and tablets housewares and small electrics.

Total online grocery grew total online grocery grew at a very strong rate in Q4 several 100%.

This ecommerce comp if you will.

Numbers, the ecommerce numbers I, just mentioned above follow our usual convention, which we exclude the third party same day grocery program. If we included that third party same day, our ecommerce comps result would have been approximately 120% up during the quarter.

Overall, our E com sites were relatively smoothly during the quarter. Despite the dramatic volume increases and we were able to improve our delivery times throughout the delivery times throughout the quarter as we adjusted to the ramped up order volumes.

Now quickly turning to Taco.

Covenant, the Corona virus and some of the issues and impacts surrounding it from a sales perspective as indicated by our past three monthly sales releases. We've enjoyed strong sales results. During the June July and August timeframe. Certainly these sales strength starts with our being Dean's essential resulting in strong sales of fresh foods in food and sundries and health and beauty AIDS.

The like we've also.

We've also benefited from the much improved sales and products and items for the home outside of the food area.

As people are spending less on travel air hotel and dining out they seem to have redirected lease some of those dollars to categories like lawn and garden furniture, and mattresses exercise equipment bicycles housewares cookware sticks and the like and lastly, a few of our ancillary businesses, notably our optical and hearing aid operations were closed for two.

12 to 16 weeks and reopened.

During the mid summer.

From a supply chain perspective kind of a 40000 foot view.

Terms of China at least judging by the shipments to US most of the factories are up and running there is still some production challenges due to certain components downstream and the supply chain.

Areas like electronics computer in certain white goods is getting better and improving each week and like us. So we feel that our suppliers factories have gotten better over the last several months of instituting safety protocols.

Our best guess, Andy in terms of getting back to normal each week is showing improvement in catching up so a little behind.

Food sundries, some limits on paper goods, but getting better toughest aerie overall is still sanitizing wipes as well as latex gloves in terms of other PPD, we're in pretty good shape, selling quite a bit of masks and the like.

Milk and butter things like that are generally okay. In terms of fresh foods proteins are all currently all pretty good there had been some slowdowns over the past few months and so.

Allocations and some limits that we had to put on some sales of those items, but thats gotten back to normal at this point seafood and produce all good is it has generally been throughout.

In terms of holiday merchandise planning Halloween.

Yes.

Some small reduction in the amount of costumes, some more basic and the items as well as for Christmas going a little more basic in some areas and as well as looking at things and needs and uses for the house, but.

But.

Viewing it given our strength of late.

Actively optimistically.

And Costco travel is shown some very modest improvement, but still significantly impacted during the quarter due to reduced demand.

We do see our members starting to book travel again, although generally further out than we have a store historically seen our EPS.

Our warehouses overall have remained opened or back to regular hours with additional with additional hour uncertain weekday mornings in many markets for seniors in persons with disabilities.

Houses are still of course, following the social distancing and sanitizing sanitation guidelines.

Standardization guidelines and since May 4th as you know weve required all members and employees in the warehouse to wear masks finally.

Finally in terms of upcoming releases, we will announce our September sales results, which is for the five weeks ending Sunday October's fourth on the following on that following Wednesday October 7th after market close with that I will open it up to you in a and give it back to Laurie. Thank you.

Ladies and gentlemen.

Why did you ask a question. Please press star one on your telephone keypad Bob.

Okay last question Ralph Lauren.

Your first question is from.

Lin from Morgan Stanley.

Hi, everyone Hey, Richard My first question is how should we think about or how you planning cobot costs for Q1 of the next fiscal year and if I'm not mistaken I thought that for this fourth quarter.

Sure and as you may recall on our third quarter conference call. We indicated that sets related such types of costs in the Q4 would be at least a $100 million are over 100 million and of course to Eightys. One is over 100, but quite a bit larger but the reality is is the biggest factor is we chose to continue.

Can you at least for the time being the two dollar an hour premium.

That represents about $14 million a week.

To date, we are doing that and we can we've committed to doing that at least through.

I believe the first eight weeks of fiscal this fiscal quarter and again, we'll take that time again, our numbers have been very good our employees are on the front line and and.

And so that the mind you the fourth quarter was a 16 week quarter versus Q3, which was a 12 week quarter. So on a per week basis has come down there is other things that have EPS.

Ben.

That wont be repeated in the first quarter at least.

And that helped quite a bit so theres some costs that have that I don't expect to be continued the biggest component of course would be the $2 premium and well see at this juncture we've committed to it.

To our employees for the first eight weeks of this this quarter.

Okay. Thanks for that my follow up you mentioned the holiday and I think you said you're looking at it optimistically are favorable for now can you talk about maybe.

Maybe a little more detail why.

Seems like the results speak for themselves for now, but there could be a lot of change over the next couple of months and has your cut as your customer diversified their best deal with you and you think you'll be able to retain them across more categories and keep trips as more retail gets their traffic back.

Sure sure well look I mean, I I mean.

The main data points that we look at is how strong things have been in the last three and a half four months.

June July and August sales results, which we've all shared with you guys.

The trend in traffic has improved so it's been positive the last couple of months instead of.

Slightly or even more than slightly negative going back to April and may.

While the average ticket or average basket size has continued to be relatively strong so and.

And that probably if you if you ask what's what are the what some of the biggest surprises that we've.

That we had.

Looking at the last three months of sales results compared to what we had expected a few months before that I mean, the big surprises as we expected.

Fresh and food and sundries and paper goods and alike in health and beauty AIDS to be strong, particularly food because of the weakness.

Dining out.

But I think we were a little surprised by the strength in many of these.

Discretionary nonfood categories.

Thanks for the house and Big ticket items again, not only furniture for the inside the house, but patio furniture live goods were particularly strong.

Where in some instances we had tried to cut back a few orders back in March and April for seasonal summer goods like patio furniture.

The sheer size of the building itself into the width of the iOS.

All those things that helped us.

In that regard we're also back to after it.

After a couple of months of not having our traditional multi vendor mailer coupon type of right of offerings because several key items were but we are limited or orange on allocation.

We've gotten back to that.

And so.

Yes, I think our at least our most recent three plus month history is as is giving us some comfort at this point.

So as I say that things may change, but at this juncture, we feel very good about how.

How how how will be what it looks like going forward recognizing looking at some of these things with a more basic.

In terms of Halloween and Christmas or the like.

Yes. Our next question is from Chris Horvers from JP Morgan Your line is helpful.

Thanks, Good evening guys. So my first question is what's driving that strong core on core margin outside of the fresh category, which clearly would benefit from from a shrink perspective is that is that sell through in low clearance is it mix within the categories or is it something else.

Well I'm fresh it's all the above I mean, its strong sales at a relatively high and higher initial margin business.

Within our small confines of margin range, but.

But then if you could.

Two components across the sales and fresh is labor productivity and spoilage, we don't have spoilage, we sell out not literally but.

Almost literally to the piece of this and things and so you're not throwing stuff away or not theres.

It's a great business from a gross margin dollar perspective, given the sales strength in it. So that's that's clearly the biggest thing but again if you look at the other three core areas core core food and sundries Hardlines softlines, they're all up but up.

A nice amount, but nothing like fresh foods. So thats helped now mind you other things have offset that.

And the sum of all of those things are still a positive and the things that have offset it would be things like.

The fact that certain ancillary businesses, which are higher margin businesses were closed for 12 to 16 week period. Our food Court of course has been limited of what we do there we took out all the tables, we've limited that product offerings.

Travel which is a.

While small business is an extreme example of high margin many items and travel is just a brokerage fee yes almost.

Almost sales minus no cost of sales equal gross margin if you will the markup.

The commission on some of that stuff.

Portion of that so those things have calmed down, but the sum of all of those negatives are outweighed by.

The overall strength and core merchandise sales.

As well as and pharmacy pharmacy has been relatively strong too.

And.

Within that fresh has been the biggest driver.

Got it so a follow up question that you were.

Youre surprised by a negative.

Have gas impact and then and silver aiming your your peer as well in that same quarter. So at Sartell tailwinds for the periods that crossed over.

And so can you talk about how much of that 66 basis points as specifically.

Got it versus the other businesses and as you look forward considering that optical zone ban and food courts at least for the smaller venue opened and starting to see some track.

Some traction around travel and gas prices being stable do you expect that at this point that into that and celery headwind could abate.

Okay.

I think it will it'll be less negative, but I think it's going to be around for a while I mean, if you look at gas gas is.

As more profit more profitable per dollar per gallon sales than it was a couple of years ago.

Because I think that prices have come down traditional retail has not been as competitive which allows us to be more competitive but still get it makes a little more.

And if you look at our trough at the lowest point and.

Im guessing back in April and May there was a week, where we our gallons were down close to half today.

Today they are down.

Closer to maybe down 10%.

Maybe.

Five to 15, depending on the day or week, but.

It's at 10 plus percent of sales of our business. It has it has that that effect on it at the end of the day.

The sum of all of this is still been quite good for us.

And could you break out thats, the 66 that specifically related to gas.

No what we said three quarters of it was a second trial gas in travel.

That's as good as we got here I don't have the detail front of me.

My guess is gas is more of it than travel but.

They are both.

Impactful.

Your guess is better than mine, thanks very much.

Your next question is from Chuck Grom from Goldman Sachs. Your line is open.

Hey, good afternoon curious Richard how you're thinking about the recovery of your of your gasoline business, particularly from a balance perspective, and I guess, how this interplay is holding back foot traffic into your stores, clearly getting better, but you know being impacted a little bit by the gas business.

Well I I don't know.

I don't know exactly.

I haven't seen numbers in the last week or two but I believe our call. It 10% negative gallon comps are still way better than the U.S. as a whole the U.S. gallon gasoline industry as a whole.

And so but you know, we'd rather have plus 10 to minus 10 the fat.

The fact is is that.

People are.

Our coming in less but they are buying more each time and the sum of those two things is weve shown you know, we we used to enjoy 5% to 8% comps pre cobot on a regular basis and the last three months we've enjoyed 14 so.

If you will and so overall, the we'll take that but it's got to be some small impact still.

And then just going along to asset, but the crossover between customers that purchase gas and then and then shop in the store a unlike kind hours do you have that number handy.

I haven't seen it lately, but historically it had been a further during the hours that the the warehouse itself is open because we the stations open a couple of hours, perhaps on either side of that it's in the low fiftys.

Okay, Great and then just switching gears a little bit.

Capital allocation, we ended the year with with over $3 per share and cash and cash equivalents and you obviously remains significantly under Levered curious how are you on the board are approaching this high class problem.

Well, we have a regular quarterly board meeting in a couple of weeks, we'll see but at the end of the day, we talked about it every board meeting and all the different alternatives certainly we are when we went out to borrow.

The 4 billion, which is really a net increase of two and a half billion because we use a billion they have to pay off existing debt. The fact was is that we were planning for a worst case scenario, where we would need more there'd be a slew of seasonal summer merchandise that we might have to hold for the year as well as there would be a lower inventory turn particularly on discrete.

Moving onto categories.

Up until June.

June when we've seen the numbers really go in and.

The northern way junior.

June July and August.

Much of that need has not occurred so yes, we are in a good position right now we'll continue to look at it but you'll know us.

You will notice after we know.

Got it thanks a lot.

Your next question is from Catlin slow, but what we've seen when you sell.

Hi, Thanks very much.

I guess just on.

Just on the Ti dollars premium I guess the real question is I mean, I know you called out the eight weeks, but what it would be more prudent as we kind of modeled it [laughter], that's more or less the new.

The new norm, meaning 14 million.

On a weekend kind of what we should add on on an ongoing basis. It just seems that it's hard to take something like that away once you've offered and that just thoughts on that.

Oh I don't.

I don't think is it.

Is it completely hard to take away.

Well you know what you mean.

We communicate the our COO and head of HR to our employees.

We've done that and Weve continued extended but saying this'll be it and we've added a little more well I think we'll see I think something will yeah.

I think it's it may be hard, but not impossible and.

We want to make sure we communicate to our employees of why we're doing it and we'll have to wait.

We'll have to wait and we'll just have to wait and see Karen.

Okay, and then I wanted to just.

I wouldn't necessarily budgeted then for the for the full fiscal year, but we don't know at this point.

Okay.

Then we say we know it's aimed at least eight of the 12 weeks in Q2, one it may be more.

Okay, and then just back to traffic for a second so within your reported traffic numbers, obviously E com right. So I wanted to just ask a little about what your physical and store traffic looks like and then I think on the last call. You were asked on color on traffic with your more loyal executive my.

<unk>.

First as you know that.

Lower level numbers do you have any do you have any color on both of those.

Hi, looking real quick I really I don't I don't have color in terms of general.

Generally I mean executive members do everything spend more come in more frequently by more each time and renew at a higher rate.

I'm looking real quick here hold on.

Okay Thats it.

I don't have traffic comps.

Within our comp number or ecommerce benefits it benefits it by a little over 3%.

Of the comp yes.

Yeah, it's not the traffic number.

Okay great.

In the area. The average ring has this has more than doubled.

The average yield on E. Com is Oh, I'm, sorry, the average rig on E com.

Versus the warehouse is.

That is about twice.

And that's because you got a lot of you still even though we've expanded on.

Food and sundries and apparel, you still got big ticket items like electronics and furniture.

Exercise equipment like yes, that's right.

Okay.

[noise], Bob here, saying, he's guessing that the traffic impact would be one to two but we don't have.

We don't have that's broken out.

And your next question is from Michael that's true.

Oh from you'd be asked your line is open.

Thanks for taking my question. So looking now that we're six months into the pandemic costs come out of the situation is better you can keep screaming incremental margin expansion overtime.

Bernie.

Back your burn that would allow the company to generate more margin goals and that it would otherwise.

Well the more margin or we we can generate the more likely we're going to give some of that back.

In this case arguably given our strength weve certainly, giving it back but we remain very competitive, but we also maintain that $2 premium to our employees.

Which we appreciate I I I T.

The first part of your question. When you started asking about how do we feel were going to come out of the pandemic and as things change I mean look there's factors as people eat out more and go out more or travel more theres less for the home.

That's on a macro basis.

We have to believe here and we do believe that we have picked up with new members. We've picked up exists sales from existing members.

Categories that they are buying more at Costco now relatively speaking in part because certain.

Other venues or traditional then use either closed or not frequently not frequently is often so.

So again, you know we've been blessed in that regard.

Well I think the other thing that I've witnessed over the last several months is our merchants ability to pivot and add items for the house housewares additional items and so.

And so I think.

Net of all those things I still think on a macro basis when people started eating out more start flying more in attending.

You only on vacations.

Someone noted these monies that are now being used for purchasing things for the home is going to move move that way.

<unk> said I think there are several areas where weve.

We are retaining more of their dollars in some portion that will continue to retain when it gets back to normal.

Okay.

Then on an unrelated note.

Commerce growth.

What percentage of your membership is currently buying some new online what's the profile of the member driving the growth.

Presumably a lot of the family incremental because the spend to those numbers going up.

It seems how you are thinking about emphasizing we're investing behind <unk> comedy isn't it.

I don't have all those specifics what I know is is what was what was happening either before kellwood and has been exacerbated in a positive way since coated is more some members have signed up to utilize those services more members are utilizing those services and spending more on it if you think about the one day for.

Rush It is up several hundred percent fold recognizing it was a smaller base.

Even as it as it's gone down from its peak a couple of three months ago, It's still a lot higher than it was before and my guess is even as people get used to wanting to go out there. Some people right now that aren't going to the supermarket are ongoing censorship or to Costco shop. They love. The service. There are some people that are going to do that there's going be some group is going to like that.

That and given our quality and value you know we in a supermarket are not mutually exclusive of one another and we think we'll keep some of that so.

We are certainly doing more to market to members not only in store promotions, but online promotions as well.

Yes, yes.

Yeah, we feel I feel better about our offerings today, certainly than a year ago, earning in two years ago, recognizing there's a lot of low hanging fruit because of some of the things. We had done historically, we know that on the on the Oh I hate to use the phrase again, but on the big and bulky side.

A lot of those things for four years, we have talked it was just recovered.

You talked about going from 50 million and white goods sales in store in the U.S.

Limited sales penetration if you will to fiscal 19 doing almost 700 million I think just under 700 million that business has increased at a more rapid pace in the last year for two reasons.

No we didn't think people buy things for the home as well as in our view.

The the regional things were seeing trend wise in terms of how to utilize better utilize our big and bulky Indigo acquisition, what we call now what we now call Costco logistics for big ticket furniture items.

Lawn and garden items.

Exercise equipment and the like.

Okay. Thank you very much and good luck.

Thanks.

I just want to ask a question. Please press star one on the telephone Bob.

Next question is from Paul <unk> of Citi. Your line is open.

Hey, guys, Paul that's right.

Second I guess I'm curious if you look at the club usage by numbers at all what percent of your members use the club this quarter versus last quarter any way to frame that thanks.

And Rob can answer all those specifically, but.

Keep in mind some of our new members signed up simply for same day fresh or two day dry seemed a fresh you have to be within a market.

Trade area, where there is a costco two day dry it can be anywhere I think almost anywhere in the United States and with Instacart is both United States and.

The part of Canada now.

And so we have some members if they were to member, but they are signing up just to get to day dry and they're not near Cosco leaves say, they're just buying those types of basic dry grocery items and thats. It.

Generally speaking.

What we've seen in any given member whatever type of member.

They buy more each year over the first few years of their membership.

And then there's the age thing as well.

The sweet spot for US is still 40 to 55 year olds as they've grown economically grown family wise and are not on the downside of that curve in terms of empty nesters and what have you.

But I don't have any specifics beyond that to give you.

How about club usage.

Club usage.

Same thing again I can tell you I don't have anything specific right.

The last few months, but club other than traffic has improved greatly from its trough five months ago.

Not back to where it was pre cobot, but.

One of the things that we see is that the typical member.

Over the first three to five years is growing their total purchases, which is a combination of their basket and their frequency.

And so clearly when we.

Well, we can convert somebody to an executive member they are buying more and shopping more frequently than that.

Got it. Thank you good luck.

Your next question is from Oliver Chen of Cowen Your line is open.

Hi, Thank you Richard on the ecommerce frontier its been really impressive up you've done what what is some of the lower hanging fruit that you see ahead, there and also if you could brief us on the penetration now and how you might see that step change and where that will happen in the future.

Well I mean.

The main lower penetration things are if you go back three or four years ago. I don't think we had good eat email addresses for much more than a third of our member base and we didn't focus on that kind of stuff today, we have well.

Well over 60% in growing.

We now require you when you sign up and more members are signing up online and in store in general anyway. When you sign up you sign up with an email address so we're doing a lot more to to to collecting gather those email addresses and then communicating with them more often so thats, probably the single biggest low hanging fruit.

The other thing is is we feel that we've been able to use.

Yes E mails, if you will not only to drive E commerce.

Special promotions, but also in store special promotions.

As well the covert you know we.

We're pleasantly surprised by that just a sheer increase and people using same day fresh.

Anecdotally I can't tell you how many people have mentioned to me, how they love it and and.

They may very well they may very well be shopping same day fresher same day whatever from their local supermarket as well, but we've got a lot of great items on there and and it's.

It's a it's hitting a cord.

And Richard as we look look to this holiday season, which is definitely like no other.

What factors would you prioritize as that's how you're planning in as best you can differently on this.

This year versus others and.

As the multi vendor mailer and.

In good shape and are you going to leverage that a lot for holiday as well would love thoughts around dynamics of supply chain and marketing for holiday.

Well, the multi vendor down the multi vendor mailer is back and as you know there may be a few items that we don't have because of certain supply limitations, but for that.

For the most part is completely back after I think two or three of those so six or nine weeks of multi vendor mailers. If you will that we didn't do.

The I think the biggest difference is is again for for for the Christmas holidays is.

As getting back to basics.

But you are still going to see some had exciting items a costco the.

The again as I mentioned, even on Halloween.

We still have costumes I think we brought in something like 80% of what we would have normally brought in.

80, or 90% and we're actually selling them so.

We we.

We added some vendors over the last several months.

Given certain shortages you know one of the challenges is right now we've had great numbers and electronics.

And white goods notwithstanding the fact that the numbers would be better if there was a greater supply. We all read about there are certain supply issues on laptops and computers and things like that on some of the gaming things.

Some of the white goods, where there might be a downstream a shortage or at least some allocation of compressors. So.

We're doing very well on that we've added some you know some different vendors in some cases.

And Oh.

I I think.

I think the the fact that we did so well this summer relative to what we had anticipated has given us the confidence to to be still pretty aggressive going into the fall.

Our last question on same day fresh in the momentum there.

What are the margins like and what are your thoughts about that margin and the take rate and also I'm, taking some of those capabilities in house versus using the white label.

Well at this juncture, we have a very good relationship with other competitors I'm sure. Many of you really should also with Instacart. There's a few other smaller ones that were using.

We're not necessarily looking to take that in house at this juncture.

But we are always looking at various third.

Various third parties and and and we have good existing relationships and we want to keep growing those as well.

Thank you best regards.

Thanks.

Your next question is from John Heinbockel of Guggenheim Partners.

Okay.

Eric It's a couple of things on gross if you even if you take out fresh food right. It looks like the other three were up quite a bit.

Dive into a little bit similarities are driving those three big categories versus what might be unique each and then how sustainable is that right. Because this is obviously one of the better core and core as we've seen in a while sure well look first and foremost.

There is and well I guess two things.

Well I guess, two things theres, a little bit less promotional activity going on and you think about Tvs and and electronics those have been such a strong category not just for Costco, but in general.

Manufactures haven't been doing as many promotional things so.

So and the other thing is given just the sheer sales strength when you are comping.

We comped at whenever it was in August 14, and I don't have in front of me.

Or whatever but in some of these categories that we've talked about what was stronger you're talking comps in the in the low to high Twentys when.

When you got those get that kind of sales strength you have very low on a much smaller scale you have you have less markdowns.

So.

You've got a whatever your regular margin is on those categories less a little bit less.

With that a little bit of an offset from a from a.

End of cycle or in some of those cycles are 60, and 90 days by the way and some of those those those skews so.

So thats helped you a little bit.

And then on on ancillary rights, you said, 75% was gas and travel it was.

It was yes, the bulk of that and there it is.

And if so what was gets more the compare last year versus any any decision you made right to take less margin I imagine, it's not that to take less margin try to drive traffic. This market is just not there right.

I think in terms of less margin that's more.

Of our DNA, yeah, when things are really good we're going to drive sales, even further and do that or when things are good we're going to you know we.

We feel a little more comfortable do.

Doing that $2 an hour for another month, whatever it might be but at the end of the day.

There's probably less price competition out there today than there was a year ago.

And.

So we were able to maintain our fair margins.

All right and then lastly, what's the current thought process on two things or expanded BOPUS right.

Right, which you haven't wanted to do for cost reasons and.

Third tier of membership.

I don't know could be a higher tier or a middle tier but sort of segment.

Sort of segmenting that a little more.

Yeah, well on buy online and pick up in store.

We continue to look at what others do we.

We continue to scratch your head a little bit.

It's not that we will never do it but it's not on the agenda for for this week.

And.

As it relates to a a an additional tier membership.

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