Q3 2021 Costco Wholesale Corp Earnings Call

[music].

Good day, and thank you for standing by walking them through to quarter 3 earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

The question during the session you will need to press star 1 on your telephone. He spent 5 for today's conference is being recorded and if you require any further assistance. Please press star zero, how do I like to hand, the conference over to your speaker today, Mr. Richard Galanti, Sir you may begin.

Thank you Sarah and good afternoon to everyone I'll 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 <unk> performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not.

Emitted 2 those outlined in today's call as well as other risks identified from time to time in the company is public statements and reports filed with the SEC forward looking statements speak only as of the day. 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 third quarter of fiscal 2021. The 12 weeks ended this past may 9th reported net income for the quarter was $1 billion and $220 million or $2.75 per diluted share last year's third quarter. Net income was 8 came in at $838 million or $1.89.

Per share this.

This year's third quarter included $57 million pretax or <unk> <unk> per share and COVID-19 related costs.

Last year's third quarter included $283 million pretax for 47 per share of COVID-19 related costs net.

Sales for the quarter increased year over year in the quarter by 21, 7% for $44.$3.8 billion.

For $44.3 billion. This year from 36 point for $5 billion a year ago.

Comparable sales for the third quarter of fiscal 'twenty..1 were as follows in the U S. On a reported basis sales were comparable sales were up 18% ex.

Gas inflation up 15, 2%, Canada on a reported basis up 32, 3% ex both gas and a strong Canadian dollar ex ex gas and FX up 16, 7% other.

Other international reported plus 22, 9% ex gas and FX plus $13.1 per cent all told company reported comp sales of 26% and again ex gas and FX, a 15, 1% up E Commerce on a reported basis was 41, 2%.

Ex FX was up 38, 2% and that's on top of a year ago in the third quarter. When it was up 66, 1% in Q3, a year ago versus the prior year to that.

In terms of Q3 comp sales metrics traffic or shopping frequency increased 12, 5% worldwide and plus 11, 9% in the U S. Our average transaction or ticket was up 7.3% worldwide and up 5.7% U S. During the third quarter and debt. These numbers include the positive impact both of gas inflation and FX so adjusting for that.

Net they would be in the 1.8% and 2.7% in U S. Adjusted for those.

Foreign currencies relative to the U S dollar positively impacted sales by approximately 290 basis points and gasoline price inflation inflation positively impacted sales by approximately 260 basis points.

Going down the income statement membership fee income reported for the third quarter $901 million or 2 pointed out 3 per cent of sales.

We had strong FX and so adjusting for debt out.

The $86 million reported increase would have been up $67 million. So ex FX of 8.2% on a reported basis up 10, 6%.

In terms of renewal rates the U S and Canadian rate came in at <unk> 91 per cent. The same as it was at Q2 end.

Worldwide. Our total company renewal rate was 88, 4 percentage Q3 end or 110th of 1% lower from the prior quarter and.

China entered the renewal calculation for the first time this fiscal quarter for sure renewal rates generally lag those of later years and excluding China. The world right rate would have actually improved 110th of 1% versus the prior quarter.

A number of members at Q3 end, both member households, and total cardholders at the end of third quarter total paid households, $60.6 million up from $59.7 million 12 weeks earlier total card holders of $109.8 million up from $108.3 million at the end of the second quarter of 12 weeks ago at Q.

3 end paid executive memberships totaled $24.6 million members an increase of 817000 during the 12 weeks since Q2 end.

Moving down the gross margin line, our reported gross margin for the quarter was lower year over year by 35 basis points coming in at 11, 1.8% compared to a year ago at 11.53 per cent.

As I, usually do ask you to jot down a few numbers 2 columns, both reported year over year change in gross margin and the second column ex gas inflation.

Merchandise core reported -52 billion Mark.

<unk> 52 basis points year over year, and ex gas inflation -29 basis points.

Ancillary and other businesses reported plus 2 basis points and ex gas inflation, plus 7 basis points.

2% reward plus 1 basis point and -2 basis points.

Other plus 14 basis points in both columns.

Total therefore reported gross margin again year over year was reported down 35 basis points and ex gas inflation down 10 basis points.

The core merchandise component is that you show here was as I mentioned here was down 52 basis points year over year on it.

Down 29 on an ex gas inflation.

This is primarily a function of sales shifting from core to ancillary versus last year as we begin to revert back to more historical sales penetrations recall last year, we saw a significant shift of sales out of ancillary and other businesses and into the core.

In terms of the core margin on their own sales in third quarter. The core on core margin were better by plus 27 basis points.

With non foods up significantly rebounding from last years lows food and sundries flat year over year and fresh foods down from last year. The ladder still strong by historical standards fresh as we've mentioned over the last few quarters is lapping exceptional labor productivity and low product spoilage that occurred from the outside sales that <unk>.

Dan a year ago in Q3 with the onset of Covid.

Ancillary and other business gross margins again ex gas inflation was up 7 basis points year over year in the quarter, we have a lot going on here.

As of last year as last year, we had closed the hearing aid in optical departments and had.

Severely limited the service and selection at our food courts for most of Q3 last year.

Jeff had a particularly good quarter, a year ago, which had helped to offset some of those closures a year ago. This year, where we're showing margin improvement optical food court E com and hearing AIDS somewhat offset by gas.

The 2% reward was again on ex excluding gas inflation was.

Lower by 2 basis points, indicating higher sales penetration to our executive members in the rewards associated.

And other is plus 14 basis points 9 of the 14 basis points is attributable to lower COVID-19 costs year over year $44 million hit to margin in Q3, a year ago versus a 14 million dollar hit to margin this year in the third quarter.

Last year, we incurred 10 weeks of the incremental $2 an hour premium wage.

That portion of you see here relates to the labor associated with our fulfillment manufacturing businesses. This year, we incurred 2 weeks of the incremental 2 are in the incremental $2 an hour premium wage at the program was discontinued at the end of the second week of Q3 after 52 weeks.

And place the.

The other plus 5 basis points for $19.7 million came from accruing reserve last year in Q3 for certain third party gift cards and ticket programs that were adversely impacted by the onset of Covid.

1 other comment as I as I discussed during our March for Q2 earnings conference call in conjunction with the discontinuing of the $2 an hour premium pay we implemented a permanent wage increase for our hourly employees as well as most of our salaried manager employees.

Which took effect in week 3 of this fiscal quarter since it's a permanent wage increase going forward. Its impact is simply in our reported numbers and not separated out as COVID-19 related.

Moving to SG&A.

Our reported SG&A in the third quarter was lower or better year over year by 107 basis points again to jot down. These are following 2 columns of numbers first column is reported and second column excluding gas inflation.

In terms of operations year over year, plus 37 basis points mean, meaning lower or better by 37 basis points ex gas inflation, plus 20 basis points central plus 4 basis points and plus 1 basis point.

Stock compensation, plus 5 and plus for.

Other plus 61 and plus 61 for.

For a total on a reported basis again.

SG&A year over year was lower or better by 107 basis points on a reported basis and excluding gas inflation better by 8 or lower by 86 basis points.

Jeff.

Again, I'm looking here the core operation was better by 37% and plus better by 'twenty, excluding the impact of gas inflation. A good result, particularly given the debt we implemented a permit dollar an hour wage increase for the last 10 of the 12 weeks that can price Q3.

Central nothing surprising there same with stock comp and.

And other than the plus 61 basis points ex gas inflation 56 of the 61 was attributable to the lower costs from Covid 239 million hits SG&A in Q3, a year ago compared to $44 million in Q3. This year the balance for plus 5 basis points lower by 5 basis points was $18.5 million.

Were costs associated with the acquisition and integration of <unk> a year ago.

Next on the income statement is pre opening expense.

Basically this year it came in at $10 million $2 million higher than the $8 million in Q3 of fiscal 'twenty nothing out of the ordinary with the pre opening this quarter. All told reported operating income in Q3, 'twenty, 1 increased 41% coming in at $1.663 million this year compared to $1 billion 179.

Millions of dollars a year ago in the quarter.

Below the operating income line interest expense was $40 million this year versus 37 million a year ago.

Interest income and other for the quarter was higher by $6 million or better by $6 million interest income was actually lower by $2 million year over year due to lower interest rates. Additionally, FX and other was higher by $8 million year over year.

Overall reported pre tax income in the third quarter was up.

Reported pre tax income was up 42% coming in at $1.650 million this year compared to $1 billion $163 million a year ago.

Terms of E Commerce, our e-commerce sales as I mentioned earlier I'm, sorry, before I go to ecommerce our tax rate in the third quarter came in at 25, 2% compared to 26, 7%.

Earlier this quarter benefited from onetime discrete tax items that benefited our number of level for all of 'twenty..1 based on our estimates which of course yourself is subject to change we anticipate that our effective normalized total company tax rate for the year to be in the $26.27 per cent range.

A few other items of note in terms of warehouse expansion in Q3, we opened 6 new warehouses 1 in the U S..3 in Canada and 2 internationally. We also have plans in Q4 to open 7 additional ones 5 in the U S and 2 others had internationally.

That would put us at a total of 21 net new warehouses for the fiscal year 'twenty 3.

<unk> included 2 relocations, so 21 net and.

In addition to the 21 planned openings for fiscal 'twenty..1 we are looking to open about 25, new units net new units in each of the next 2 fiscal years.

<unk>, a second warehouse in China.

In fiscal 'twenty 2.

Which would be the end of towards the end of calendar 'twenty, 1 and a third expected to open in late calendar 'twenty, 2 which would be early fiscal year 'twenty 3.

Regarding capex the third quarter of fiscal 'twenty, 1 spend was approximately $1.3 billion for our full year Capex spend is now estimated to be in the 3.3% to $3.5 billion range increased a little from our estimate made 12 weeks earlier to include the recent $340 million purchase of a distribution facility on the west Cote.

To support our big and bulky delivery activities.

Now going turning to e-commerce.

Again e-commerce sales in the third quarter ex FX ex FX increased 38, 2% year over year stronger departments included jewelry home furnishings sporting goods hardware and majors, which of course includes both everything from appliances to consumer electronics.

In terms of Costco logistics in an update there we we anniversaried the purchase of <unk> now called Costco logistics for this fiscal quarter.

Logistics continues to drive big and bulky sales with the U S E Com E comm sales on these items up 53% during the quarter.

Costco logistics fulfilled about 70% of all U S big and bulky orders and.

And we also continue to add some new big and bulky vendors overall, we've improved delivery time on many items for them up to 2 weeks to in several cases down 5 to 7 days as well we've taken several items that were previously vendor drop shipped there now and they are now being direct them.

Direct imported allowing us to not only speed up delivery, but reduce prices to our members.

For much supply chain perspective.

Port Port delays are continuing to have an impact we are utilizing additional carriers in some cases to help alleviate some of that.

Containers and palace, we're also facing shortages anecdotally, 35% to 50% increase in income and containers this year versus a year ago.

That's pent up demand, but just from the low points a year ago debt.

Turnaround.

Container hitting the U S delivering its contents and being back to the U S ports.

Overseas has gone from approximately 25 days to 50 day, so a combination of things in terms of delays.

Chip shortages are impacting many items from an inflation standpoint, some items more than others and again as I mentioned with regard to containers and shipping and transportation costs have increased as well.

These issues, we continue to work to mitigate cost increases and supply chain delays and a variety of different ways as best we can the biggest way we've handled.

Supply.

The biggest way we've handled supply chain delays as adjusted ordering and Frontloading. If you will orders of many items and we think we've got that pretty well under control.

This will continue and our feeling is that this will continue for the most part of this calendar year.

And we've got a lot of questions about inflation over the past few months there have been there have been and are a variety of inflationary pressures that we and others are seeing.

Inflationary factors abound. These include higher labor costs higher freight costs higher transportation demand along with the container shortage and port delays that I mentioned increased demand in various product categories.

Some shortages various shortages of everything from chips to oils and chemical suppliers by facilities hit by the Gulf freeze and storms and in some cases higher commodity prices.

Some inflationary soundbites, if you will price increases on items shipped across the ocean with suppliers paying up to double for containers and shipping.

Price increases of pulp paper goods sum things up 48% plastic resin increases from trash bags to plastic cups plates et cetera, and plastic reps.

Metals aluminum foil mid single digit cost increases also cans for sodas and other beverages.

Higher input prices on cheeses.

Combination of the product itself as well as some FX strength of some foreign currencies as well as rate.

Anywhere from 3% to 10% increases on certain apparel items not all.

In terms of fresh higher protein prices for example, meet overall year over year is up 7% beef in the last month has been up as much as 20%. Some of that is due to feed labor and transportation costs as well as restocking some of the additional data increased demand coming now from institutional needs as restaurants start to reopen.

And the list could go on and on now all of this being said I was asked back on our March for second quarter call.

At what level, we felt inflation was running overall at that time with our goods I stated that our best guess was somewhere in the 1 to 1.5 per cent range as of today, we'd guess that overall price inflation at the selling level and excluding gasoline sales would be estimated to be probably more in the 2.5 to 3.5 per cent range set items are up more.

And some items the sell prices haven't changed.

Items or even down a little bit.

We think we again we've done.

Pretty well in terms of controlling that as best we can but.

Inflation pressures abound.

In terms of sampling and demos into warehouse as you all know we eliminated our popular food sampling and demo activities in our warehouses last March at the onset of the pandemic as various states opened and closed last summer and fall we tried a few sampling events.

Few single serve items like cookies, and crackers takeout only no cooked prepared sample items and a few enhanced talking demos such as items for display only.

I'm happy to report that over the next couple of weeks, we're beginning a phased return to full sampling.

Come in waves. The first wave of locations about 170 of our 550 locations in the U S will be activated by the first week of June with most of the remaining locations returning towards the towards the end of June the first wave will actually determine how fast we rollout and what and when restrictions are lifted I am sure there are.

B, a few states debt with unique restrictions as well.

Increased safety protocols will are and will be in place, including all samples prepared behind plexiglas prepared in smaller batches for better safety control and distribute it to members wanted at a time.

Food courts same thing as well I am pleased to report that our food courts, you're kind of also coming back over the next few weeks in a bigger way.

Last month last March again in 2020 as a percentage.

As the pandemic took hold we pared back the menu basically to hotdogs and pizza and soda and smoothies and we eliminated all ceding takeout only we began several weeks ago, adding back tables and seating and a handful at a handful of outdoor food courts in a few states over the past few months. We've also added back for a few more food items, including bringing back for it.

New and improved zero, which will be at all U S locations by the fourth of July and adding a high end soft ice cream to replace our frozen yogurt.

And by June 7th we plan to have tables and seating back at most locations, but with more physical separation tables are for instead of 6 to 8 and about half the seating capacity as we had before again. These are still subject to doing this in waves and see how it goes and is subject to any additional state rules and restrictions in a few cases.

Finally in terms of upcoming releases, we will announce our may sales results.

For the for weeks ending Sunday May 30th next Thursday June 4th after market close closes with that I will open up to questions and answers and I will turn it back over to Sarah Sarah.

As a reminder to ask a question you will need to press star 1 on your debt following the lead.

A question gross to banking again, if I would like to ask a question growth Alright, and then number 1 on your telephone keypad.

Standby, while we compile the Q&A right.

Yes.

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

Good afternoon, Richard you outlined a variety of inflationary pressure.

Thank you Dan.

How is that impact gross margin over the next couple of quarters.

And then to move more slowly changing prices than others.

We expect this to be a pressure point.

You have a period of strong gross margin given the good sell through last year.

Well I mean, we will have of course, Michael will have to wait and see I mean, our view is as debt while historically, we wanted to be.

Mitigate those increases in work with our vendors.

Try to be as efficient as possible to lower those pressure points.

Some of it will pass through and some of it has pass through.

From a competitive standpoint, our view is as it has not really impacted our margins in any big way.

Some of the inflationary pressures.

Very simple examples might be things like.

Our 499, rotisserie chicken and our 290.940 pack of water. Those have stayed the same notwithstanding theres been some pressure on some cost components of these items. So those are already impacting our margins a little and I don't I think overall relative to competition.

That's not going to be an impact a big impact of where we go margin wise.

Okay.

Follow up question is on the value of the Costco membership Amazon is enhancing the value of its membership with more media and content Walmart.

On the value of membership offering.

These factors are.

We're influencing that pricing power that Costco ahead to read it.

He's associated with either with Golder executive membership and do you feel like there's been a sharp increase in net value of Costco membership over the last 4 years as debt.

Thank you.

Normal cadence.

Typically raise your EPS you could do it again.

Sure well look.

We focus first on driving more value and I would like to think that some of that.

Benefits that we've had in terms of strong business over the last not only the last year with Covid certainly we've been helped by the fact that we've been deemed an essential business and the strength in fresh and food items has helped us quite a bit as well and buying things for the home.

I think we've gained market share on top of that and and Thats all about value.

<unk>.

Our model is our view is our model is intact as it relates to.

The best prices on the best quality goods and services and certainly our buying power keeps improving in that regard.

We've added things.

As it relates to.

Different forms of procuring the merchandise, whether it's in store or.

Big increase like many people with with E. Commerce, certainly our acquisition of what's now called Costco logistics has been a big Boon for we believe for our sales strength and competitiveness in those areas. So we think from a value proposition standpoint the value.

What we offer our members keeps going up as it relates to our fee increases historically, we've done it about every 5 years. So we would expect now to start getting questions census, a year before that and our answer is pretty straightforward and we'll have to wait and see but we certainly feel good about our.

Our competitive position.

Sounds great. Thank you so much and best of luck.

Thanks.

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

Hey, Richard the core on core I think for set up 27% and I know you don't guide on that I just wanted to ask maybe about the puts and takes if you talk about are there categories that are higher margin that have yet to recover on the positive side and then on the other side and spoilage and some other things that helped you last year I sort of come back to just kind of think garner more good guys and bad guys.

Another way to think about the gross margin core on core going forward.

Sure well, there's always different pieces to that equation.

Yes, as I mentioned.

1 of the things that we mentioned over the last few quarters was particularly strong fresh foods margins with.

Higher labor productivity and much lower sport product spoilage, while again, we're still above where we were pre COVID-19, it's come down a little from its peak a year ago in Q3, but still nonetheless, better historically than historical numbers 1 of the things that I mentioned picked up with non foods again there.

That we've seen in non foods has continued it really started in the summer when people buying things for their home outside of that certainly I would expect on an ancillary business taking gas out of it for a minute because that goes up and down.

With a lot of factors, causing it who the heck knows but at the end of the day. If you look at some of the other ancillary businesses.

I would expect to see of course margin improvement with optical and hearing aid.

Relative to a year ago for sure EBIT in Q4.

Thing with travel the travel is coming back as we see on the news every night travelers coming back in a big way with.

The improvement with Covid as well as probably a lot of pent up demand and we're seeing that ourselves in our travel business and Thats a high margin business, although a small piece of the total sales action for the company.

So I think.

Overall, we seem to figure out how to get there in different ways.

Even something like Costco logistics that in the last 3 or so quarters I had pointed out it was a 5% to 7 basis point hit to margin.

It's finally anniversary some of that and hopefully we will start to show some improvement, but there is little things like that that might show you a little improvement in the future.

But overall it gets back to our ability to price our goods for.

Great value and being competitive and still hopefully improving the bottom line will continue but you know.

Well, let you know each quarter.

Okay sorry.

Sorry about the noise, but 1 quick question.

Inflation it sounds like.

Maybe the other retail for the raising price.

For your price deduction letting the lag.

Yes.

The demand staying healthy what are you seeing the environments as the rationale all across the board and Thats, allowing you to take pricing up.

At the same time.

Costco.

Look I think for first of all we look at it what we can do with our own blinders on.

There's been a lot of CPG companies both in paper goods.

Soda pop debt have announced increases in many of them are sticking because we and other retailers are aware of the underlying costs associated with it I think.

I'd like to think we can do as good a job as any given our purchasing power and limited limited number of Skus that can mitigate that as best we can to the extent that those are happening. The fact that on average our competitors are taking those probably.

As fast if not a little faster for us.

As a positive but we've taken some price increases on things that have gone up.

Yeah.

Okay. Thanks Richard.

Your next question comes from the line of Bob <unk> from Citigroup. Your line is open.

Hey, it's Tracy Kogan filling in for Paul.

Thinking about your customer.

Thank you Dan go over the past year during the pandemic and I was wondering if you could talk about maybe the demographics of that customer.

And what that would keep purchasing for looked like and how they are spending might differ from your core group of customers. Thanks.

Right.

I guess most interesting is as other than.

From an age standpoint, being a demographic that's the.

The next young generation of Gen Z or.

Millennials before that Gen y or whatever else, we're getting our share of them.

We did see over the.

As Covid hit there was of course, a spike not only.

There was a big spike in Big increase with same day fresh delivery in many in most cases with us with our relationship with <unk>.

And also doing ourselves 2 day dry grocery and some other items and.

Anecdotally, we know that debt we garnered some additional members that way.

The 2 day since that is done via mostly UBS.

We've got some members that are outside of our geographic market areas of physical warehouses, but not not a big giant number.

So overall.

I think if anything we've seen are.

Our continued strength of adding net new members to existing warehouses.

Certainly opening new warehouses helps and perhaps getting a few related to.

The online.

Next day delivery of fresh and things like that.

And that again when we see.

Who.

From again from a from a for.

Age demographic, we're getting we think that we're getting are good share of younger people as we did in previous that was historically that was sometimes a concern of some on wall Street.

Is this for the older generation and what we're finding is as long as we keep changing our product mix to 2 geared towards art to the member is in our case when you see what we've done with organic over the last 10 years or more now and then.

Some are sporting equipment and you name it we get our fair share of those people.

Great. Thank you.

Yes.

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

Hey, Richard inventory dollars were up 27 per side, which is much higher than you guys are currently Ron just curious if theres any pull forward of items.

I guess, how do you feel about the current currency, but position right now.

Good point.

I think what's interesting is as last.

Last year.

Yes, it was a little lower last year, because we were just being hit with it and so while we were scurrying to get merchandise. Then we would also if you recall back in March and early April as we were realizing like everybody else that this was going to last longer we are starting to cut back where we could seasonal orders might have reduced our patio furniture.

Needs for the part of the summer season in some of our Halloween needs and Christmas needs and then we found out that we needed to even more so probably some of it has to do with the fact that being a little lower and then as what I talked to earlier in this call about front loading and buying early.

We are happy to have some extra import inventory, we clearly have a lot of.

We have plenty of cash to do that and certainly the cost of buying forward a little bit on some of these things is de minimis relative to what we earn on our cash.

Okay, Great makes sense.

On the consumer.

Curious what youre seeing over the past few weeks or over the past couple of months from a behavior perspective, both frequency and in your clubs.

Sizes, particularly in states that are further along in the reopening process.

Well yeah.

It's hard to figure all this out because so many things were happening, particularly last year in April May June timeframe.

What we saw is as the states that opened a little early.

We started seeing a little bit more shopping frequency a little earlier.

And like Texas and Florida.

But not in a meaningful discernible language trend wise, yes, but not like let's wait for that everywhere, but even in states that have been a little bit more closed I mean.

The U S. In particular has opened up quite a bit in the last month month and a half.

As evidenced by new CDC guidelines and.

I think for spring weather in general and so just the pent up interest in doing that so.

I think a lot of that's already in there and if other credit.

For use in Canada, there is still some for for much of the last fiscal quarter.

And about 38 of the 101 or 2 Costco, Canada..1 of the main provinces. There was limitations, we had a cordon off non essential items for so non food items, we can always sell food and cleaning supplies and paper goods and health and beauty AIDS and alike. So but.

Even that is I think in a big way pretty much over.

Okay, Great. Thanks, and then just last 1 for me cover costs were down meaningfully here in the third quarter I would imagine relative to the $281 million in the fourth quarter last year, we would expect them to come down a lot.

For <unk>.

Yeah.

Yes, yes, I mean again, a big chunk of that is that $2 an hour premium which has been eliminated and again mind you that there'll still be a charge related to.

The dollar permanent mostly dollar permanent wage increase that we did.

Okay got it thanks Bob.

Your next question comes from the line of Karen short from Barclays. Your line is open.

Hi, Thanks, very much actually just following up on that last question. So looking at <unk>.

Sales growth versus your SG&A growth recognizing that within SG&A dollars you did still have.

The $2 for part of the quarter.

It's been it's a much wider gap.

We've seen for a long time like even kind of looking at pre COVID-19.

I'm wondering if there's anything you could point to on that specifically and how to think about that going forward and then I had 1 other question sure I think first and foremost a sales strong sales.

This is a business that we know the benefits the operating leverage we got when we could do a 7% comp instead of a for a 5.

And enjoying the comps that we have now.

The biggest single piece of it.

If anything in the quarter.

Health care cost probably were little higher because people werent going for their regular doctor visits a year ago in the third quarter and so that was probably a little bit of hit but more what offsets all those types of anecdotal things.

Strong sales and just the.

For core labor costs.

Okay, and then Oh.

Gas gas as well.

Taking gas inflation out of there.

Would reduce debt a little bit.

Okay.

And then my second question, Eric maybe 2.

Mark.

With respect to the membership fee, obviously, recognizing the value of the membership fee to your members how are you thinking about timelines.

Next possible increase.

Cause I think we did.

3 what would be the 5 year Mark.

No actually the 5 year Mark is as next June.

Okay.

So what's how are you thinking about that philosophically for.

Philosophically I get to think about not thinking about it for several months.

Right.

No.

Jokes aside.

Again, we feel good about our member loyalty needless to say with our renewal rates, we feel very good about our.

Our competitive position, but we really haven't given it a lot of thought yet.

Okay and then just my last question in terms of E com.

You gave a 6% of sales and the growth that doesn't include third party can you actually give us that number can you just give us an update on where that stands.

Third party and food.

Yeah, I think it's my guess is it's probably not as impactful now.

Third party, most particularly the same day fresh delivery really peaked last I.

I want to say it may.

For the late April.

And where it was huge and I mean, it was tenfold increase.

And it's now probably halved still huge relative to pre pandemic.

So it's not as impactful as well so again I think there are a couple of quarters, where we had a couple of quarters ago, We had like an 86% comp in E Commerce, and we said that if you added back the stuff that we don't put in there like same day fresh it's third parties come in and buy it in the warehouse and take it to you.

That 86 that 85% or 86 was up towards 100.

If you just.

This is a shooting from the hip here, but that was 15 percentage points, let's assume it's 5 to 8 percentage points, but but not certainly not 15.

Okay, great. Thank you.

Your next question comes from the line of Jon Hocking backhaul from Guggenheim. Your line is open.

Richard Let me start.

Costco logistics, where are you guys now with capacity utilization.

And where will you be when you add this new facility.

And to the degree that costs are coming down have you yet invested in price or are you investing more in delivery.

Timetable quickness of delivery.

Well, we were improving not to say that we don't have a few complaints every day from someone that we screwed something up but at the end of the day, we are improving in a big way, we actually were aggressive on pricing immediately it's kind of like when we went into a new country, like France, or Spain, where pricing.

Low volume less efficient.

<unk> like fresh as if we were doing a lot of volume and so those are examples where it's hurting us to start with as it relates to and we're going to we're going to price the goods or lower the price of a mattress or furniture.

Furniture set delivery based on what we can do before we actually do it now.

Thankfully catching up for itself.

So in terms of capacity it has a lot of capacity as I mentioned right now about 70% of our big and bulky as has now delivered through Costco logistics. Some of it was being delivered by <unk>.

Third parties.

We're doing fine, but now we're doing it ourselves that business as I mentioned is continuing to grow very handily not.

Not only for us, but industry wide with furniture and things for the home exercise equipment.

Tvs and alike and.

We think that we have tremendous capacity available.

What we bought was was that of capacity.

Less than 50% of what it had been doing itself.

A few years before but again.

Those arent completely.

Uh huh.

You can completely compare those 2.

What we just bought was a huge facility in.

Acreage that will allow us to do more big and bulky and recognizing so many things come in from overseas and big and bulky.

Again on the West Coast in California, and so it's going to help us continue to grow that business. We think we have a lot of growth.

Way before Covid, and more big and bulky and everything else, we recall in the U S. What we saw over the last 5 years I think it was 5 years ago, We said and just white goods. When all we did was sell them in store, we did about $50 million in the year pre COVID-19.3 years, hence, we did about $7.50 or something.

We're well beyond that now.

Both natural growth as well as what Covid has done in terms of people buying things for the home and then us being able to become more competitive on pricing, we've seen items non across the board, but items, where we've lowered the price by 10% and 15% or more.

<unk> greatly improved the delivery time and are driving that business.

And then just real quick lastly, b.

The Covid frozen delivery program, the 2 day program.

How is that being fulfilled.

You think about that conceptually right in terms of consumer uptake versus.

Dry grocery that you did previously.

All right.

It's really too early John to tell we just started that 3 weeks ago and something that our our people in that operation wanted to try.

And business centers.

We think it is.

It's something that.

Yes.

<unk> itself, well to our business customer needs as well and we will see.

Okay. Thank you.

Your next question comes from the line of Scott in Washington from RFID Capital. Your line is open.

Hey, Thanks for taking my questions. So Richard I actually wanted to get back at this big and bulky.

That we were talking about before kind of hoping you could maybe size. The opportunity. Obviously you guys are putting a lot of money into it.

What kind of maybe you can give us like what percentage of your sales are in those items now where do you think is going to go like how much do you think you can drive sales I was just wondering if you could do anything to size. It because it's obviously a big focus for the company and a big capital capital investment.

Right.

Yes.

You know I don't have that detail in front of me.

We're seeing.

30% and 50% increases on.

Items within some of those categories.

From outdoor patio furniture indoor furniture mattresses to exercise equipment for Tvs, along the way.

And is your expectation for bringing more vendors and I don't know, how many skus, you're offering but David will have more skus and how you think about advertising. It's your membership base.

Well thank you.

Yes, I mean first of all I think that when we look at our 3 to 5 year plan, we think there'll be outsized growth for certainly for the next 3 plus years, we will see.

In terms of adding Skus, yes, but we're not going crazy certainly theres more skus online furniture sets.

Sofa and share sets, we might have 1 or 2 on display sometimes in a warehouse, we will have a dozen or so.

Online.

So we are adding both menu vendor names as well as additional.

<unk> selection, but still greatly limited relative to the traditional retail of those items.

Perfect and then my second question is something we've talked about all the time and if I could go at it again, it's just on the openings I know you said 25, this year over 22% and $25.23 I guess.

I mean, obviously our research suggests you guys can do a lot more and I know we've talked about the <unk>.

I guess, the hard thing of getting the right people the right locations and everything else, but what would it take to get that to 30% to 35 again on a more permanent basis and is that something you guys would.

Strive to do because it clearly for market opportunities there.

Yeah.

Hello, Sir this is Jeff.

Operator, I'm, sorry, Hi, Dan lineup of speakers got disconnected.

For a second.

Yeah.

Okay.

Should I just hold on.

Yes, Sir okay.

Okay, So everyone got disconnected.

Thank you for your line of the Speaker.

Yeah.

Okay. Thank you.

No.

Are you back hi, sorry about that.

Scott, Let's go back for your question I apologize.

So my question was I don't know what I don't know what did you guys hear any of my question or no.

Start again, okay. So basically you said for fiscal 'twenty, 2 and $23.25 clubs and 25 clubs. We've talked about this a number of times about trying to get that number up obviously the market opportunity is there.

<unk>.

Can you beef up the real estate department like whats the.

What's holding you guys back to getting the 30 to 35 again, because it looks like the opportunities there at Asa for the research.

Yes.

I think some other countries tend to be a little slower and challenged but we have beefed it up.

That's 1 of the reasons I think debt.

Went out as far as I did by saying 25 in each of the next 2 years, we feel relatively.

Confident that the.

<unk>.

The items that we have in the fire right now in both U S and Canada as well as other parts of the world.

We feel good about we've got a lot of things going on.

Going from 25% to 35 I'm not sure we're prepared to do that yet could we do it yes, but.

Certainly in some of the countries that are smaller.

We like to go slow.

I mean, we pick up the pace in China.

By now, having 2 ready either under construction or getting ready to be under construction and to open over the next 18.

18 months and.

For us that's faster than we would have gone and you'll see more announcements both there and elsewhere over the next few quarters.

Terrific. Thanks, a lot of good growth ahead. Thanks Richard.

Your next question comes from the line of Brokeback Bari from Oppenheimer. Your line is open.

Good afternoon.

For the past thanks for taking our question.

First I wanted to touch on your services business.

With me about that channel and optical IP acquired.

Is there any way you can help us frame at this point how much interest okay.

How about Byrd Firstly Bob.

Okay.

Well, there's a few different things I mean, if I look at travel I think in the last months, we probably had.

10 of our top 15 days ever in our history. So even at holiday time in 19.

Part of that again, though is the pent up demand so we'll see where it normalized out right now both car rentals. We also pivoted and added in addition to while cruises are still down there being booked again now but still down.

We did a big push starting several months ago.

Negotiate and offer some great deals on other what I'll call U S, Mexico, and Hawaii type type trips.

Vacation trips.

Yes, so bookings not revenue, yet, but bookings are particularly strong now.

And.

And here you had a little bit of the same issue.

When they were essentially closed down because of direct 1 to 1 contact when youre getting fitted for hearing aid.

There was a lot of pent up demand that we've seen and we continue to see the same with optical we think that will continue and continue to be normalized but we'll have to wait and see.

Food courts.

Probably going to take another several months.

Having tables out there will help expanding the menu will help.

And of course pharmacy didn't really ever see a big drag.

Dramatic downturn.

Okay, Great and then the third category for product really Wow.

By that lapping difficult comps.

Garrison brassiere.

Maybe just an update on how youre thinking about.

Non consumption from here.

Well I mean.

Our 40000 foot view of that is as debt.

What was gained because of.

Food away from home.

Stopping a year ago and while it picked up some we've taken takeout and delivery.

Now starting to improve a little bit, but some of thats going to be sticky.

I don't know what the exact number is going to be but our view is is that it's still certainly hasnt.

Reverted back.

Net restaurants are just beginning to open in a bigger way.

Many cases still people are reluctant to go in in many cases. The tables are further separated so some of thats going to continue for the next 6 plus months is my guess beyond that when all is said and done well some of it still be sticky our view is probably the fact that we.

As a company have done a pretty good job of staying in stock.

And certainly the quality of our fresh foods I think that we not only benefited from that I would like to think that we gained market share from other traditional food retailers in that regard, particularly on the fresh side.

Okay, great. Thank you for Max.

Yeah.

Your next question comes from the line of Kelly Bania from BMO capital markets. Your line is open.

Hi, Richard Thanks for taking our questions for.

Just wanted to ask about executive.

Membership at the penetration I guess up over 800000. This quarter is this high as I can see it in our model here just was curious if that's still happening in a meaningful way in the U S or if theres any other countries just any color you can provide on that point.

I think the 1 factor that was a little bit of anomaly as we just in the last year.

<unk> expanded executive membership to Japan, where we have 29 locations 28 locations.

29 locations and.

And.

Including 2 new Japan locations this quarter and as a company I think overall, we continue to get better at signing people up as executive members.

Telling them what the virtue of it is in and doing a better job of having a higher percentage of every 100, new members sign up as well as converting I think within that 817, something just under 200 was Japan, so even taking that out I think was 180 something.

So even taking that out the 630% or 40 pluses. It was still a very strong number for the quarter outside of that.

Okay. That's helpful and then just any update on the.

The pickup test that's happening.

It's still a test we're still just $1 billion in new Mexico and in 3 locations.

<unk>.

Yes.

The utilization of it when we first did it we margin is a little bit.

The utilization is not set the world on fire in terms of where its trending.

Okay. Thank you.

Your next question comes from the line of Laura Champine from Loop capital. Your line is open.

Okay.

Thanks for that so so Richard you mentioned the negative impact on renewals from the.

The Chinese store.

Wrapping.

Are they were a new wing at about the same pace that you would normally expect first year renewals relative to prior store openings in new geographies well 1 of the unique things if I go back over the last 15 years, when we've opened in new countries.

Have outsized new sign ups and frankly, probably some that are just looking at Lowe's and so you have a lower than average renewal rate to start with when I look back at the.

7 or 8 countries outside of the U S and Canada, I mean, there is 10 or 10 or so but.

What we've seen is debt.

Instead of in.

In the U S or Canada, we might add anywhere from 5 to 20000 members in the first year.

Recognizing some of these are existing markets. So you've got people shopping more often because they're close to the new opening we've enjoyed in Korea, Taiwan, Japan, and even more so in China.

50 to 100000, new member sign ups, when we open up and then a year later or a year and a half later when they are renewing when that first batch is renewing for the first time.

To get to that 88, plus worldwide renewal rate and the 91 in the EU and the U S and Canada.

Starts off it could be anywhere from the high <unk> to the mid <unk> in that first year.

And I don't I don't have in front of me what what China is for China is also outside in that regard I think we have close to 400000 members in that 1 location.

Mind, you, it's a very large city in Costco entered is a well known entity notwithstanding the fact that it was our first 1.

For all those reasons it.

It alone affected that worldwide renewal rate.

Okay, and then it sounds like we're not surprised by the way even whatever renewals non renewals.

That had been incurred we've gotten more than that in terms of new sign ups I think at the end of about 3 months. After we opened in China, which was August of 19.

We had.

Around 300000 members and I think now we have about 400000.

So even if we've lost a bunch we've gained a bunch plus some more.

Understood and then secondly on the.

Roughly 30 basis points decline in core margins on an ex gas basis, you mentioned that that is related in part to the sales shift that lower margin ancillary business was this the quarter, where youre lapping the most extreme move away from ancillary or is it are we likely to see a similar <unk>.

<unk> as we move through the year.

I think.

Q3 was probably the most.

There'll still be it'll still be impactful in Q4, probably not as much.

Got it thank you.

Your next question comes from the line of Gregg Melnick from Evercore ISI. Your line is open.

Hi, Thanks, Jeff 2 questions first on e-commerce and multi channel.

Do you have an update on the penetration now for ecommerce and that's a 10 per cent or close and what are you seeing in terms of the percentage of members that use multi channel and what their renewal rates look like right.

First of all in total I think it's about 7.5 or 8.

And part of that is a huge strength in gas.

Got it.

And what was the other part of the question Greg.

Just for people that debt.

Like what percentage of your members actually used multichannel offering like used either 2 day or in the car.

The majority that have used it and then what are their renewals look like.

Once they have used your multiple channel.

Okay.

Where around 45% of our members have used ecommerce.

And the renewal rate is slightly better.

Bob.

The new members that signed up that are just using commerce I'm talking about just how many people how many existing members I'm using commerce.

Got it.

Great. Thanks, and then the second question was on gasoline just want to make sure I got this right do you have a number for what the gallonage growth was and if and if penny profit was up or down I think I know it hurts the mix, but just where we are in that cycle right now with gas inflation.

Yes.

The dollar profits word.

We're down because we had it was interesting notwithstanding the fact that.

Well, if you think back again, the third quarter last year. It was mid February effectively the mid Mark to mid May.

The first.

For 3 to 4 weeks of that there was the frenzy. It was either pre COVID-19 or the frenzy of people hoarding and everything so gas was pretty strong in those first few weeks.

Then it plummeted and notwithstanding the fact that it plummeted pricing was less competitive so.

So we had a very strong P&L as I think I'm I'm sure I've mentioned last year in the quarter.

It was particularly strong we had a.

Fine.

Gas profit this quarter, but.

Last year was fine with a capital F.

Got it.

The pressure on any penny profit that you can get 1 gallons for recovering when gallons are recovering now are we at that stage, yes, very much so okay.

Okay, and what do you have a number that you can give us in a corner I have 1 that can't get cannot give you.

No I can't.

Gas has been.

For those of you who have known us for many years.

Cash used to be business debt on a given day or week on a fully allocated P&L.

Actually lose a little or all the way to make a lot and it would be very volatile and as a matter of a week or 2 it could switch from from the top to the bottom there.

Normal over the last few years has been it is a profitable business.

There is still some outlying big profitable days.

A lot more days that are just regularly profitable, but the fact that it's coming out and the fact that it is probably overall a little less competitive out there, but thats not just in the last few weeks that's been over the last year.

Last years, Okay, great. Thanks, and good luck.

Yeah.

Your next question comes from the line of for Robert Moskow from Credit Suisse. Your line is open.

Hi, Thanks for the question.

I wanted to know.

Do you have any data you can share about the demographics are income levels of the new members that you've picked up in the past year is it trending any differently.

And your typical new member growth you know it was a younger I think I think Tracy kind of asked this question already but I Wonder if you had any specifics and then lastly, I wanted to know do you think you've got any benefit this quarter from consumers, having more money in their pocket from stimulus payments or is that not really.

Characteristic of your membership.

I don't have any economic.

Average income demographics in front of me I know is when we look at.

New member sign ups currently versus a year ago versus 2 or 3 years ago, we still are getting our share of younger people.

Maybe a little younger than that right now simply because of E com and what have you has helped a little bit on that area.

But nothing to certainly different as it relates to <unk>.

Where we helped when we've looked at things in the past as it relates to some unusual stimulus. Our view is is we haven't seen as big a benefit as some of the other discounters or general merchandise discounters have seen.

But it can't hurt.

So my guess is it certainly has probably helped us some but not as much as others.

But probably helped a little not a lot okay.

Thanks, a lot.

Hi.

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

Hey, Richard first question just on the sourcing challenges around the pandemic I'm just curious any updated thoughts you have on your vertical sourcing.

<unk>.

Any anything being sped up or slowed down just what's your what's the latest update on that.

Yeah.

Yes, well look I mean in a big way I think the fact that we've got to meet plants in the chicken plant at a bakery commissary in a couple of.

Optical grinding labs.

Those things have helped us a little bit.

They are at full production.

In a big way.

When feed costs go up and the chicken plant for example, we go out somewhat with feed costs, but I'm sure.

We don't hedge ourselves completely in either directions, but we've done a pretty good job of managing those costs.

And okay.

Yeah, No nothing major there and then what was the other question.

Yes.

Was just wondering if you.

Accelerated any initiatives that you may be adding the pipeline given what you've seen in color or if theres been any maybe new areas of the business.

Maybe werent considering vertical before but maybe now you are.

Okay.

Yeah, I think the big 1 that has again.

And that has surprised us in the sense that we think there's lots of opportunity there as the whole Costco logistics side.

For a variety of reasons, not only handling of ourselves and controlling the destiny of delivery times, but actually yes.

There's a number of items that we historically have.

Drop shipped if you will the supplier carries the inventory the supplier sends it needless to say theres a cost associated with that as we get bigger and higher volume in some of those things direct we're able to to basically improve the delivery time and lower the price and we've seen that.

And then we're getting better and installation.

Ah.

That's something that we will continue to improve on as well. So I think that's probably the 1 area I don't there is nothing currently plan in terms of the next big Chicken plant if you will.

There is.

There's going to still be significant money spent on fulfillment and distribution.

Logistics as I, just mentioned earlier about our capex.

Beyond that there was 1 other thing I was going to mentioned.

Which I can't remember now.

Why don't we take 2 more questions.

No worries Richard just 1 follow up on self checkout.

That effort you have how penetrated is that across the chain right now and what's been the member feedback are you guys pleased with the service you're getting there obviously volume is really high for the clubs I was just curious on that thank you.

Some share count works.

It's a 90 plus percent of our warehouses I've seen locations, where we started with 6.

2 stacks of 3 and now we're at 9% and 12 in a couple of locations. So it's working for certainly the customer likes it.

And it improves the frontline and service.

And if it's cost efficient.

Okay, great. Thanks, so much.

Okay.

Your next question comes from the line of Scot Ciccarelli from RBC capital markets. Your line is open Wednesday, Hi. This is James Chen on for Scott. Thanks for fitting me in.

I know you've done a couple of things to stay more in touch with members, especially on the ecommerce side. For example building a database of updated member emails. So can you just give us an update where that might be for my progression standpoint, and any results you've seen from that.

Well I think we are improving and a lot of improvement and we are doing in terms of.

A better mobile site and.

And better service to our members.

Thanks.

And the ability to communicate to our members hold on 1 second here.

And the last.

Quarter I'm, sorry in the last year, we've gone we've increased the number of E Mail E mailable addresses by 24%.

And.

We're seeing higher conversion rates.

I mentioned already and we are doing more things into warehouse with.

Drive traffic online as well so I think all of those things are working and will continue to improve our mobile all makes.

A point on the next earnings call to talk about I mentioned on Q2 earnings call. They were kind of like 3 phases of of upgrades to our mobile site.

<unk>.

Starting in September and then over the next 6 or so months after that I will make a point of appointing some of those things out recognizing some of those things others have been doing and we're just getting around to do.

Why don't we take 1 more question and that'll be it.

I know.

Your next question Sir comes from comes from the line of Edward Kelly from Wells Fargo. Your line is open.

Okay.

<unk>.

Okay.

Excuse me Mr. Edward Kelly. Your line is open you may ask your question.

Hey, guys, sorry, I was on mute.

So thanks for squeezing me in here.

Just first 1 for you Richard on the timing and ex openings in China anymore detail on when that next door is going to open and then you talked about you know good news coming on pace of maybe opening beyond that.

Thoughts on the potential to accelerate there now that you've had that first store opened for a while.

Well.

Yes, I mean.

Our view originally was we'd opened 1 and even before that opening.

Where would it be 5 year sense, maybe we'd have 3 and my guess is today.

We'll shoot for a number a little bigger than that maybe for a 5.

There is there is a lot of Theres a few irons in the fire over there, but those are the 2 that are signed.

Signed sealed and under construction.

And the next opening when is that scheduled for.

I believe the fall wholesale.

Yes.

Great.

Latest late next summer.

Got it.

Morning, Greg.

'twenty, 2 which would be Q1 of 'twenty 3.

Got you Okay, and then just 1 for you on your on your business customer just remind us of your business customer mix and then what.

What are you seeing in that customer as that as things start to recover.

Do you think theres any permanent damage to that.

Thanks for that business at all or do you expect that just sort of come back with reopening.

But look theres fewer businesses.

Yes, I think 1 of the things that recognizes changed over our 37 years or so in business.

If you go back in the first few years, it was probably $75, 25% or 80.20 business to consumer.

And the consumers were buying a lot of institutional business items today, arguably while we're still a wholesale or and certainly our business members are important to us. It's probably 70.525, the other way 75 consumer.

And recognize 1 of the reasons, we've done our business centers to focus more of that as well in fact, I think all 3 openings in Canada.

Coming quarter or this past quarter, our business centers.

And our deliveries are starting to come back looking at the end of the day I don't have the statistics in front of me, but if there were for every.

100, small restaurants be it a food truck or takeout or ethnic.

I don't know how many of them closed.

Probably not a lot, but it was a 10 or 20 I don't know.

And the others are coming back so there is probably a little bit of detriment, there and as I mentioned earlier, though our view is as debt.

We think some of the business not just in the food area it will be sticky to us as well.

Alright, thank you.

Yes.

At this time, Sir you may continue.

I would like to just say 1 last thing at the end of the call before opening up for Q&A I mentioned that our may sales release for the for weeks ending May 30 would be on Thursday June 4th It's actually Thursday June <unk>. So thanks for that correction.

Thank you everyone and have a good day.

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

[music].

Thanks, David.

[music].

[music].

[music].

[music].

Good day, and thank you for standing by walk them through the quarter 3 earnings call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session. She asked the question. During the session you will need to press star 1 on your telephone. He spent 5 for today's conference is being recorded.

And if you require any further assistance. Please press star zero I would've liked you had the conference over to your speaker today, Mr. Richard Galanti, Sir you may begin.

Thank you Sarah and good afternoon to everyone.

I'll start by stating that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and these statements involve risks and uncertainties that may cause actual events results <unk> 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 rich.

Ex identified from time to time in the company is public statements and reports filed with the SEC forward looking statements speak only as of the day. 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 third quarter of fiscal 2021 to 12 weeks ended this past may 9th reported net income for the quarter was $1 billion and $220 million or $2.75 per diluted share.

Last year's third quarter net income was 8 came in at $838 million or a dollars 89 per share.

This year's third quarter included $57 million pre tax or 9 cents per share and COVID-19 related costs last year's third quarter included $283 million pre tax for 47 per share of COVID-19 related costs.

Net sales for the quarter increased year over year in the quarter by 21.7 per cent from for $44.38 billion.

For $44.3 billion. This year from 36 for a $5 billion a year ago.

Comparable sales for the third quarter of fiscal 'twenty..1 were as follows in the U S. On a reported basis sales were comparable sales were up 18% ex gas inflation up 15, 2%, Canada on a reported basis up 32, 3% ex both gas and a strong Canadian dollar ex.

Guests and FX up 16, 7%.

Other international reported plus 22, 9% ex gas and FX plus 13, 1% all told company reported comp sales of 26% and again ex gas and FX, a 15, 1% up E Commerce on a reported basis was 41, 2%.

FX was up 38, 2% and that's on top of a year ago in the third quarter. When it was up 66, 1% in Q3, a year ago versus the prior years for that.

In terms of Q3 comp sales metrics traffic for shopping frequency increased 12, 5 per cent worldwide and plus 11, 9% in the U S. Our average transaction or ticket was up 7.3% worldwide and up 5.7% U S. During the third quarter and that these numbers include the positive impact both of gas inflation and FX so adjusting for that.

They would be in the 1.8 per cent and 2.7 per cent in U S. Adjusted for those.

Foreign currencies relative to the U S dollar positively impacted sales by approximately 290 basis points and gasoline price inflation inflation positively impacted sales by approximately 260 basis points.

Going down the income statement membership fee income reported for the third quarter and $901 million or $2.3 per cent of sales.

We had strong FX and so adjusting for that out.

The $86 million reported increase would have been up $67 million. So ex FX of 8.2% on a reported basis up 10, 6%.

In terms of renewal rates the U S and Canadian rate came in at 91 per cent. The same as it was at Q2 end.

Worldwide. Our total company renewal rate was 88, 4% excuse me and or 110th of 1 per cent lowered from the prior quarter and.

China entered the renewal calculation for the first time this fiscal quarter for sure renewal rates generally lag those of later years and excluding China. The world right rate would have actually improved 110th of 1% versus the prior quarter.

Terms of number of members at Q3 end, both member households, and total cardholders at the end of third quarter total paid households, $60.6 million up from $59.7 million 12 weeks earlier total card holders of $109.8 million up from $108.3 million at the end of the second quarter of 12 weeks ago at Q.

3 end paid executive memberships totaled $24.6 million members an increase of 817000 during the 12 weeks since Q2 end.

Moving down the gross margin line, our reported gross margin for the quarter was lower year over year by 35 basis points coming in at 11, 8% compared to a year ago at 11, 53%.

As I, usually do ask you to jot down a few numbers 2 columns, both reported year over year change in gross margin and the second column ex gas inflation.

Merchandise core reported -50 to -52 basis points year over year, and ex gas inflation -29 basis points.

Ancillary and other businesses reported plus 2 basis points and ex gas inflation, plus 7 basis points.

2 per cent reward plus 1 basis point and -2 basis points.

<unk> plus 14 basis points in both columns.

Total therefore reported gross margin again year over year was reported down to 35 basis points and ex gas inflation down 10 basis points.

The core merchandise component is that you show here was as I mentioned here it was down 52 basis points year over year on them.

And down 29 on an ex gas inflation.

This is primarily a function of sales shifting from core to ancillary versus last year as we begin to revert back to more historical sales penetrations recall last year, we saw a significant shift of sales out of ancillary and other businesses and into the core.

In terms of the core margin on their own sales.

Third quarter the core on core margin were better by plus 27 basis points with non foods up significantly rebounding from last years lows food and sundries flat year over year and fresh foods down from last year, the ladder still strong by historical standards for.

As we've mentioned over the last few quarters is lapping exceptional labor productivity and low product spoilage that occurred from the outside sales that began a year ago in Q3 with the onset of Covid.

Ancillary and other business gross margins again ex gas inflation. It was up 7 basis points year over year in the quarter, we have a lot going on.

As of last year as last year, we had closed the hearing aid in optical departments and had.

Severely limited the service and selection at our food courts for most of Q3 last year.

Jeff had a particularly good quarter, a year ago, which had helped to offset some of those closures a year ago. This year, where we're showing margin improvement optical food court E com and hearing AIDS somewhat offset by yes.

The 2 per cent reward was again on ex excluding gas inflation it was.

Lower by 2 basis points, indicating higher sales penetration to our executive members in their rewards associated with it.

And other is plus 14 basis points 9 of the 14 basis points is attributable to lower COVID-19 costs year over year $44 million hit to margin in Q3, a year ago versus a 14 million dollar hit to margin this year in the third quarter.

Last year, we incurred 10 weeks of the incremental $2 an hour premium wage.

That portion Youll see here relates to the labor associated with our fulfillment and manufacturing businesses. This year, we incurred 2 weeks of your incremental to our India incremental to dollar an hour premium wage. It's a program was discontinued at the end of the second week of Q3 after 52 weeks.

And place the.

The other plus 5 basis points for $19.7 million came from accruing a reserve last year in Q3 for certain third party gift cards and ticket programs that were adversely impacted by the onset of Covid.

1 other comment as I've as I discussed during our March for Q2 earnings conference call in conjunction with the just continuing into $2 an hour premium pay we implemented a permanent wage increase for our hourly employees as well as most of our salaried manager employees.

Which took effect in week 3 of this fiscal quarter since it's a permanent wage increase going forward. Its impact is simply in our reported numbers and not separated out that's COVID-19 related.

Moving to SG&A.

Our reported SG&A in the third quarter was lower or better year over year by 107 basis points again to jot down. These following 2 columns of numbers first column is reported and second column excluding gas inflation.

In terms of operations year over year, plus 37 basis points mean, meaning lower or better by 37 basis points ex gas inflation, plus 20 basis points central plus 4 basis points and plus 1 basis point.

Stock compensation, plus 5 and plus for.

Other plus 61 and plus 61.

For a total on a reported basis again.

SG&A year over year was lower or better by 107 basis points on a reported basis and excluding gas inflation better by 8 or lower by 86 basis points.

Jeff.

But again I'm looking here the core operation was better by 37% and plus better by 'twenty, excluding the impact of gas inflation. A good result, particularly given the debt we implemented a permanent dollar an hour wage increase for the last 10 of the 12 weeks that can price Q3.

Central nothing surprising there same with stock comp.

And other than the plus 61 basis points ex gas inflation 56 of the 61 was attributable to the lower costs from Covid 239 million hits SG&A in Q3, a year ago compared to $44 million in Q3 this year.

Balance for plus 5 basis points lower by 5 basis points was $18.5 million were costs associated with the acquisition and integration of <unk> a year ago.

Next on the income statement is pre opening expense.

Basically this year it came in at 10 million $2 million higher than the $8 million in Q3 of fiscal 'twenty nothing out of the ordinary with the pre opening this quarter. All told reported operating income in Q3, 'twenty, 1 increased 41% coming in at $1.663 million this year compared to $1 billion 170 <unk>.

$10 million a year ago in the quarter.

Below the operating income line interest expense was $40 million this year versus $37 million a year ago.

Interest income and other for the quarter was higher by $6 million or better by $6 million interest income was actually lower by $2 million year over year due to lower interest rates. Additionally, FX and other was higher by $8 million year over year.

Overall reported pre tax income in the third quarter it was up.

Reported pre tax income was up 42% coming in at $1.650 million this year compared to $1 billion $163 million a year ago.

In terms of E Commerce, our e-commerce sales as I mentioned earlier I'm, sorry, before I go to ecommerce and our tax rate in the third quarter came in at 25, 2% compared to 26, 7% year earlier this quarter benefited from onetime discrete tax items that benefited our number for all of 'twenty 1 based on our.

Estimates, which of course yourself is subject to change we anticipate that our effective normalized total company tax rate for the year to be in the 26 to 27 per cent range.

A few other items of note in terms of warehouse expansion in Q3, we opened 6 new warehouses, 1 in the U S..3 in Canada and 2 internationally.

We also have plans in Q4 to open 7 additional ones 5 in the U S and 2 others had internationally.

And that would put us at a total of 21 net new warehouses for the fiscal year 'twenty 3.

Which included 2 relocations, so 21 net.

In addition to the 21 planned openings for fiscal 'twenty..1 we are looking to open about 25, new units net new units in each of the next 2 fiscal years, including a second warehouse in China.

In fiscal 'twenty 2.

Which would be the end of towards the end of calendar 'twenty, 1 and a third expected to open in late calendar 'twenty, 2 which would be early fiscal year 'twenty 3.

Regarding capex the third quarter of fiscal 'twenty, 1 spend was approximately $1.3 billion of our full year Capex spend is now estimated to be in the $3.3 million to $3.5 billion range increased a little from our estimate made 12 weeks earlier to include the recent $340 million purchase of a distribution facility on the west Cote.

To support our big and bulky delivery activities.

Now growing turning to e-commerce.

Again e-commerce sales in the third quarter ex FX ex FX increased 38, 2% year over year stronger departments included jewelry home furnishings sporting goods hardware and majors, which of course includes both everything from appliances to consumer electronics.

In terms of Costco logistics in an update there we we anniversaried the purchase of <unk> now called Costco logistics for this fiscal quarter.

Logistics continues to drive big and bulky sales with the U S E Com E comm sales on these items up 53% during the quarter.

Costco logistics fulfilled about 70% of all U S Big and bulky orders and we also continue to add some new big and bulky vendors overall, we've improved delivery time on many items for them up to 2 weeks to many several cases down 5% to 7 days as well we've taken several items that were previously vendor drop shipped there now.

And they are now being direct.

Direct imported allowing us to not only.

Feed up delivery, but reduce prices to our members.

For much supply chain perspective.

Port delays are continuing to have an impact we are utilizing additional carriers in some cases to help alleviate some of that containers and pallets. We're also facing shortages anecdotally, 35% to 50% increase in income and containers this year versus a year ago.

Some of that pent up demand, but just from the low points a year ago the turnaround.

Container hitting the U S delivering its contents and being back in the U S ports.

Back overseas has gone from approximately 25 days to 50 day, so a combination of things in terms of delays.

Chip shortages are impacting many items from an inflation standpoint, some items more than others and again as I mentioned with regard to containers and shipping and transportation costs have increased as well.

Despite these issues, we continue to work to mitigate cost increases.

Supply chain delays and a variety of different ways as best we can the biggest way we've handled.

<unk>.

The biggest way we've handled supply chain delays as adjusted ordering and Frontloading. If you will orders of many items. We think we've got that pretty well under control. This will continue and our feeling is this will continue for the most part of this calendar year.

And we've got a lot of questions about inflation over the past few months there have been there have been and are a variety of inflationary pressures that we and others are seeing.

Inflationary factors abound. These include higher labor costs higher freight costs higher transportation demand along with the container shortage and port delays that I mentioned.

Demand in various product categories.

Some shortages various shortages of everything from chips to oils and chemical suppliers by facilities hit by the Gulf freeze and storms and in some cases higher commodity prices.

Inflationary soundbites, if you will price increases on items shipped across the ocean with suppliers paying up to double for containers and shipping.

Price increases of pulp paper goods sum things up 48% plastic and resin increases from trash bags to plastic cups plates et cetera, and plastic reps.

Metals aluminum foil mid single digit cost increases also cans for sodas and other beverages higher input prices on cheeses combination of the product itself as well as some FX strength of some foreign currencies as well as rate.

Anywhere from 3% to 10% increases on certain apparel items not all.

In terms of fresh higher protein prices for example, meet overall year over year is up 7% beef in the last month has been up as much as 20%. Some of that is due to feed their labor and transportation costs as well as restocking some of the additional data increased demand coming now from institutional needs as restaurants start to reopen.

And the list could go on and on now all of this being said I was asked back on our March for second quarter call at what level. We felt inflation was running overall at that time would our goods I stated that our best guess was somewhere in the 1 to 1.5 per cent range as of today, we guess that overall price inflation for the selling level and.

Excluding gasoline sales would be estimated to be probably more into 2 and a half to 3.5 per cent range set items are up more than some items for sale prices having had changed.

Items or even down a little bit.

We think we again we've done.

Pretty well in terms of controlling that as best we can but.

Inflation pressures abound.

In terms of sampling and demos into warehouse as you all know we eliminated our popular food sampling and demo activities in our warehouses last March at the onset of the pandemic.

As various states opened and closed last summer and fall. We tried a few sampling events a few single serve items like cookies and crackers takeout only no cooked prepared sample items and a few enhanced talking demo such as items for display only.

I'm happy to report that over the next couple of weeks, we're beginning a phased return to full sampling.

Come in waves.

Wave of locations about 170 of our 550 locations in the U S will be activated by the first week of June with most of the remaining locations returning towards the towards the end of June the first wave will actually determine how fast we rollout and what and when restrictions are lifted I'm sure there'll be a few states.

Nick restrictions as well.

Increased safety protocols.

And we will be in place, including all samples prepared behind plexiglas prepared in smaller batches for better safety control and distributed to members wanted to time food.

<unk> same thing as well Im pleased to report that our food courts, you've kind of also coming back over the next few weeks in a bigger way last month last March again in 2020 as a percentage as the pandemic took hold we pared back the menu basically to hotdogs and pizza and soda and smoothies and we eliminated all ceding it was take out only.

We began several weeks ago, adding back tables, and seating and a handful at a handful of outdoor food courts in a few states.

Over the past few months. We've also added back for a few more food items, including bringing back for a new and improved zero, which will be if all U S locations by the fourth of July and adding a high end soft ice cream to replace our frozen yogurt and.

And by June 7th we plan to have tables and seating back yet most locations, but with more physical separation tables are for instead of 6 to 8 and about half the seating capacity as we had before again. These are still subject to doing this in waves and see how it goes and is subject to any additional state rules and restrictions in a few cases.

Finally in terms of upcoming releases, we will announce our may sales results.

For the for weeks ending Sunday May 30th next Thursday June 4th after market close closes with that I will open up to questions and answers and I will turn it back over to Sarah Sarah.

As a reminder to ask a question you will need to press star 1 on your Jonathan direct Guy.

A question, perhaps to banking and Dan if I would like to ask a question growth there number 1 on your telephone keypad. Please standby, while we compile the Q&A right.

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

Your line is open.

Good afternoon, Richard you outlined a variety of inflationary pressure.

We're seeing it.

How is it the impact total gross margin.

Couple of quarters.

A little more slowly with changing prices than others.

Expect it to be a pressure point.

GAAP a period of strong gross margin.

Given the good sell through line here.

Well I mean, we will have of course, Michael will have to wait and see I mean, our view is as debt while historically, we wanted to be.

Mitigate those increases in work with our vendors and tried to be as efficient as possible to lower those pressure points.

It will pass through and some of it has pass through.

From a competitive standpoint, our view is as it has not really impacted our margins.

In any big way.

Some of the inflationary pressures.

Very simple examples might be things like.

Our 499, rotisserie chicken and our 290.940 pack of water. Those have stayed the same notwithstanding theres been some pressure on some cost components of these items. So those are already impacting our margins a little and I don't I think overall relative to competition that's.

That's not going to be an impact a big impact of where we go margin wise.

Okay. My follow up question is on the value of the Costco membership.

Amazon is enhancing the value of its membership with more media and content Walmart.

The value of its membership offering.

Accurate.

Influencing that pricing power that half go ahead to read it.

The fees associated with either with Golder executive membership and do you feel like there's been a sharp increase in net value of hospital membership over the last 4 years its debt.

<unk> approach normal cadence of when you would typically.

Raise your teams you can do it again.

Sure well look.

We focus first on driving more value and I would like to think that some of that.

Benefits that we've had in terms of strong business over the last not only the last year with Covid certainly we've been helped by the fact that we've been deemed an essential business and the strength in fresh and food items has helped quite a bit as well and buying things for the home.

I think we've gained market share on top of that and and that's all about value.

Our model is our view is our model is intact as it relates to.

The best prices on the best quality goods and services and certainly our buying power keeps improving in that regard.

We've added things.

As it relates to.

Different forms of procuring the merchandise, whether it's in store or <unk>.

Big increase like many people with with E. Commerce, certainly our acquisition of what's now called Costco logistics has been a big Boon for we believe for our sales strength and competitiveness in those areas. So we think from a value proposition standpoint the value.

What we offer our members keeps going up as it relates to our fee increases historically, we've done it about every 5 years. So we would expect now to start getting questions census, a year before that.

And our answer is pretty straightforward, we will have to wait and see but we certainly feel good about our competitive position.

Sounds great. Thank you so much and best of luck.

Thanks.

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

Hey, Richard the Corp.

Non core I think for set up 27, I know you don't guide on debt I just wanted to ask maybe about the puts and takes if you talk about are there categories that are higher margin that have yet to recover on the positive side and then on the other side of the spoilage and some other things that helped you last year I sort of come back to just kind of thing for are there more good guys Dan guidance another way to think about the gross margin.

Non core going forward.

Sure well you know, there's always different pieces to that equation.

Yeah as I as I mentioned.

1 of the things that we mentioned over the last few quarters was particularly strong fresh foods margins with.

Higher labor productivity and much lower sport product spoilage, while again, we're still above where we were pre COVID-19, it's come down a little from its peak a year ago in Q3, but still nonetheless better historical.

Dan historical numbers, 1 of the things that I mentioned picked up with non foods again, the strength that we've seen in non foods has continued it really started in the summer when people buying things for their home outside of that certainly I would expect on an ancillary business taking gas out of it for a minute because that it goes up and down at.

With a lot of factors, causing it who the heck knows but at the end of the day. If you look at some of the other ancillary businesses.

I would expect to see of course margin improvement with optical and hearing aid.

Relative to a year ago for sure even though in Q4.

Same thing with travel that travel is coming back as we see on the news every night travelers coming back in a big way with the.

The improvement with Covid as well as probably a lot of pent up demand and we're seeing that ourselves in our travel business and Thats a high margin business, although a small piece of the total sales action for the company.

I think.

Overall, we seem to figure out how to get there in different ways.

Even something like Costco logistics that in the last 3 or so quarters I had pointed out it was a 5 to 7 basis point hit to margin.

It's finally anniversary some of that and hopefully we will start to show some improvement, but there's little things like that that might show you a little improvement in the future.

But overall it gets back to our ability to price our goods for.

Great value and being competitive and still hopefully improving the bottom line will continue but.

Well, let you know each quarter.

Got it.

Sorry about the noise, but 1 quick question.

Inflation it sounds like.

Maybe other repeat for the raising price.

Your price is up and not letting them lag.

You're seeing them.

The demand staying healthy or are you seeing the environments as they rational all across the board and Thats, allowing you to take price up.

At the same time.

Costco.

Look I think for first of all we look at what we can do with our own blinders on.

There's been a lot of CPG companies both in paper goods.

Soda pop debt have announced increases and many of them are sticking because we and other retailers are aware of the underlying costs associated with it I think we are.

I'd like to think we can do as good a job as any given our purchasing power and limited limited number of Skus that can mitigate that as best we can to the extent debt those are happening. The fact that on average our competitors are taking those probably.

As fast if not a little faster for us.

As a positive but we've taken some price increases on things that have gone up.

Okay. Thanks Richard.

Your next question comes from the line of Bob.

Citigroup Your line is open.

Hi, It's Tracy Kogan filling in for Paul I had a question.

And about your customer products.

Thank you Dan go over the past year during the pandemic and I was wondering if you could talk about maybe the demographics of that customer.

And what the repeat purchases have looked like and how they are spending might differ from your core group of customers. Thanks.

Right.

I guess most interesting is the other then.

For me from an age standpoint, being a demographic that so you know the.

Young generation of Gen Z or.

Millennials before that in Gen y or whatever else, we're getting our share of them.

We did see over the.

As Covid hit there was of course, a spike not only.

There was a big spike in Big increase with same day fresh delivery in many in most cases with us with our relationship with instant card and and also doing ourselves 2 day dry grocery and some other items and.

Again anecdotally, we know that we have that we we garnered some additional members that way on the 2 day since that is done via mostly EPS.

You may have we've gotten some members that are outside of our geographic market areas of physical warehouses, but not not a big giant number.

So overall.

If anything we've seen are.

Our continued strength of adding net new members to existing warehouses.

Certainly opening new warehouses helps and perhaps getting a few related to.

The online.

As next day delivery of fresh and things like that.

Beyond that again, when we see.

Who.

From again from a from a for age demographic. We're getting we think that we're getting are good share of younger people as we did in previous that was historically that was sometimes a concern of some on wall Street.

Is this for the older generation and what we're finding is as long as we keep changing our product mix to 2 geared towards art to the member is in our case when you see what we've done with organics over the last 10 years or more now and in the summer.

Some are sporting equipment and you name it.

We get our fair share of those people.

Great. Thank you.

Yeah.

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

Hey, Richard inventory dollars were up about 27 for sandwiches much higher than what you guys are currently run.

Im curious if theres any pull forward of items.

How do you feel about the current currency, but position right now.

Definitely.

I think it will.

What's interesting is last year.

Yes, it was a little lower last year, because we were just being hit with it and so while we were scurrying to get merchandise. Then we would also if you recall back in March and early April as we were realizing like everybody else that this was going to last longer we are starting to cut back where we could seasonal orders and reduced our patio for now.

Your needs for the part of the summer season in some of our Halloween needs and Christmas needs and then we found out that we needed to even more so probably some of it has to do with the fact that it being a little lower and then as what I talked to earlier in this call about front loading and buying early.

We are happy to have some extra import inventory, we clearly have a lot of.

Plenty of cash to do that and certainly the cost of buying forward a little bit on some of these things is de minimis relative to what we earn on our cash.

Hi.

Okay, Great makes sense for them and then just on the consumer curious what are you seeing you know over the past few weeks or over the past couple of months from a behavior perspective, both frequency and in your clubs.

Appetizers, particularly in states that are further along in the reopening process.

Well you know again, it's hard to figure all this out because so many things were happening, particularly last year in April May June timeframe.

What we saw is as the states that opened a little early.

We started seeing a little bit more shopping frequency a little earlier.

And like Texas and Florida.

But not in a meaningful discernible language.

Why is yes, but not like let's wait for that everywhere, but just even in states that have been a little bit more closed I mean.

The U S. In particular has opened up quite a bit in the last month month and a half.

As evidenced by new CDC guidelines and.

I think the spring weather in general and so just the pent up interest in doing that so.

I think a lot of that's already in there and in other countries in Canada. There is still some for for much of the last fiscal quarter.

And about 38 of the 101 or 2 cost goes in Canada..1 of the main provinces. There was limitations, we had cordon off non essential items for so non food items, we can always sell food and cleaning supplies and paper goods and health and beauty AIDS and alike. So that but even that is I think a.

Big way pretty much over.

Okay, Great. Thanks, and then just last 1 for me a couple of costs were down meaningfully here in the third quarter I'd imagine in a relative to the 281 million that you booked in the fourth quarter last year, we would expect them to come down a lot because that's not a fair assumption for for care.

Yeah.

Yes, yes, I mean again, a big chunk of that is that $2 an hour premium which has been eliminated and again mind you that there'll still be a charge related to the debt.

The dollar permanent mostly dollar permanent wage increase that we did.

Okay.

Got it thanks Bob.

Your next question comes from the line of Karen short from Barclays. Your line is open.

Hi, Thanks, very much actually just following up on that last question. So looking at where sales growth versus your SG&A growth and recognizing that within SG&A dollars you did still have.

The $2 for a part of the quarter.

And it's a much wider gap than.

Have we seen for a long time like even kind of looking at pre COVID-19. So I'm wondering if there's anything you could point to on that specifically and how to think about that going forward and then I had 1 other question sure.

First and foremost as sales strong sales.

This is a business that we know the benefits the operating leverage we got when we could do a 7% comp instead of a for a 5 and enjoying the comps that we have now.

That's the biggest single piece of it.

If anything in the quarter.

Health care costs, probably were a little higher because people werent the only for their regular doctor visits a year ago in the third quarter and so that was probably a little bit ahead, but more what offsets all those types of anecdotal things as strong sales in just the.

Core core core labor costs.

Okay, and then Oh, yes.

Gas gas as well.

Taking gas inflation out of there.

Would reduce debt a little bit.

Okay.

And then my second question, Eric maybe tomorrow.

With respect to the membership fee, obviously, recognizing the value of the membership fee to your members how are you thinking about timelines.

Next possible increase.

I think we did anniversary.

What would be the 5 year Mark.

No.

No actually the 5 year Mark is as next June.

Okay.

So what's the thought how are you thinking about that philosophically.

Philosophically I get to think about not thinking about it for several months.

No no no.

Jokes aside you know again, we feel good about our member loyalty Needless to say with our renewal rates, we feel very good about R. R.

Our competitive position, but there is we really haven't given it for a lot of thought yet.

Okay and then just my last question in terms of E. Com. Obviously, you gave us think that percentage sales in the growth that doesn't include a third party can you actually give us a number can you just give us an update on where that stands. When you include the third party and food.

Yeah, well I think it's my guess is it's probably not as impactful now yeah. The third party most particularly the same day fresh delivery really peaked last I.

I want to say may.

Our April late April.

And where it was huge and I mean, it was tenfold increase and it's now probably halved still huge relative to pre pandemic.

But so it's not as impactful as well. So again I think there are a couple of quarters, where we had a couple of quarters ago, We had like an 86% comp in E Commerce, and we said that.

If you added back the stuff that we don't put in there like same day fresh since you have third parties come in and buy it in the warehouse and take it to you.

That 86 that 85% 86 was up towards 100.

If you just and this is I'm shooting from the hip here, but if that was 15 percentage points, let's assume it's 5 to 8 percentage points, but not certainly not 15.

Okay, great. Thank you.

Your next question comes from the line of Jon Hocking backhaul from Guggenheim. Your line is open.

Richard Let me start.

Costco logistics, where where are you guys now with capacity utilization.

And where will you be when you add this new facility.

And to the degree that costs are coming down have you yet invested in price or are you investing more in delivery.

Timetable quickness of delivery.

Well, we were improving not to say that we don't have a few complaints every day from someone that we screwed something up but at the end of the day, we're improving in a big way, we actually were aggressive on pricing immediately it's kind of like when we went into a new country, like France, or Spain, where pricing and.

Low volume less efficient mark departments like fresh.

As if we were doing a lot of volume and so those are examples where it's hurting us to start with as it relates to we're gonna.

Are you going to price the goods or lower the price of the mattress or for.

Furniture set delivery based on what we can do before we actually do it.

Now that's kept thankfully catching up for itself with itself in terms of capacity. It has a lot of capacity as I mentioned right now about 70% of our big and bulky as has now delivered through Costco logistics. Some of it was being delivered by <unk>.

Third parties that were doing fine, but now we're doing it ourselves that business as I mentioned is continuing to grow very handily non.

Not only for us, but industry wide with furniture and things for the home exercise equipment Tvs.

T V's and alike and we.

We think that we have tremendous capacity available.

What we bought was was that a capacity of less than 50% of what it had been doing itself.

A few years before.

But again.

Those arent completely.

Uh huh.

You can completely compare those to what.

What we just bought was a huge facility and an acreage that will allow us to do more big and bulky and recognizing so many things come in from overseas and big and bulky and that's again on the West Coast in California, and so it's going to help us continue to grow that business. We think we have a lot of growth.

Way before Covid, and more big and bulky and everything else.

Recall in the U S. What we saw over the last 5 years I think it was 5 years ago. We said just white goods. When all we did was sell them in store, we did about $50 million in the year pre COVID-19.3 years, hence we did about 750 or something.

Well beyond that now both natural growth as well as what Covid has done in terms of people buying things for the home and then us being able to become more competitive on pricing, we've seen items not across the board, but items, where we've lowered the price by 10%, 15% or more.

Greatly improved the delivery time and are driving that business.

And then just real quick lastly.

Cold and frozen delivery program, the 2 day program.

How is that being fulfilled.

How do you think about that conceptually right in terms of consumer uptake versus the dry grocery Richard you did previously.

It's really too early John to tell we just started that 3 weeks ago.

And something that our our people in that operation wanted to try.

And business centers.

We think it's it's it's something that you know.

<unk> lends itself well to our business customer needs as well and we'll see.

Okay. Thank you.

Your next question comes from the line of Scott in Washington from RFID Capital. Your line is open.

Hey, Thanks for taking my questions. So Richard I actually wanted to get back at this big and bulky.

That we were talking about before.

Hoping you could maybe size the opportunity. Obviously, you guys are putting a lot of money into it.

What kind of maybe you can give us like what percentage of your sales are in those items now where do you think it's going to go like how much do you think you can drive sales I was just wondering if you could do anything to size. It because it's obviously a big focus for the company and a big capital capital investment.

Yeah.

You know I don't have that detail in front of me.

We're seeing.

30% and 50% increases on items within some of those categories everything from outdoor patio furniture indoor furniture mattresses to exercise equipment to Tvs along the way.

And is your expectation to bring in more vendors in and out and how many skus you're offering but it will.

I have more skus and how you know how do you think about advertising it's your membership base.

1 thing.

Yeah, I mean first of all I think that when we looked at our 3 to 5 year plan, we think there'll be outsize growth for certainly for the next 3 plus years, we will see.

In terms of adding Skus, yes, but we're not going crazy certainly theres more skus online our furniture sets.

Yeah.

Sofa and share sets.

We might have 1 or 2 on display sometimes in a warehouse will have a dozen or so.

Online.

So we are adding both menu vendor names as well as additional.

Additional selection, but still greatly limited relative to the traditional retail of those items.

Perfect and then my second question and this is something we've talked about all the time and if I could get go at it again, it's just on the openings I know you said 25, this year or 22% and $25.23 I guess.

I mean, obviously our research suggests you guys can do a lot more and I know we've talked about the you know.

I guess, the hard thing of getting the right people the right.

Our locations and everything else, but what would it take to get that to 30% to 35 again on a more permanent basis and is that something you guys would kind.

Strive to do because it clearly some market opportunities there.

Hello, Sir.

Operator, I'm, sorry, Hi, Dan line of the Speaker got disconnected.

For a second.

Yeah.

Should I just hold on.

Yes, Sir.

Okay, So everyone got disconnected.

If I just your line of the speaker.

Yeah.

Okay.

No.

Are you back hi, sorry about that.

Scott, Let's go back for your question I apologize.

So my question was I don't know what I do.

Did you guys hear any of my question or no.

Start again, okay. So basically you said for fiscal 'twenty, 2 and 'twenty 3 'twenty 5 clubs and twenty-five clubs. We've talked about this a number of times about trying to get that number up obviously the market opportunity is there.

<unk>.

Can you beef up the real estate department and like what's the what's holding you guys back to getting the 30 to 35 again, because it looks like the opportunities there to us for their research.

Well.

I think some other countries tend to be a little slower and challenged but we have beefed it up.

That's 1 of the reasons I think debt.

I went out as far as I did it by saying 25 in each of the next 2 years, we will come relatively confident that the all.

All the items that we have in the fire right now both U S and Canada as well as other parts of the world.

We feel good about we've got a lot of things going on now.

Now going from 25% to 35 I'm not sure we're prepared to do that yet could we do it yes, but.

Certainly in some of the countries that are smaller.

We like to go slow.

I mean, we picked up the pace in China by site by now having 2 ready either under construction or getting ready to be under construction and to open over the next 18.

18 months and for.

For us that's faster than we would've gone and you'll see more announcements both there and elsewhere over the next few quarters.

Terrific. Thanks, a lot of good growth ahead. Thanks Richard.

Your next question comes from the line of Brokeback Bari from Oppenheimer. Your line is open.

Good afternoon.

Thanks for taking our question.

First I wanted to touch on your services business.

Cause me about that channel and optical line too quiet.

Is there any way you can help us frame at this point how much of their service.

However, compared with 2019.

Well, there's a few different things I mean, if I look at travel I think in the last month, we probably had.

10 of our top 15 days ever in our history. So even at holiday time, and 19 are part of that again, though is the pent up demand. So we'll see where it normalized out right now both car rentals. We also pivoted and added in addition to you know what.

Cruises are still down there being booked again now but still down.

We did a big push starting several months ago.

To negotiate and offer some great deals on other what I'll call U S, Mexico, and Hawaii type type trips.

Vacation trips.

Yes, so bookings not revenue, yet, but bookings are particularly strong now.

And here you had a little bit of the same issue.

When they were essentially closed down because of direct 1 to 1 contact when youre getting fitted for hearing aid.

There was a lot of pent up demand that we've seen and we continue to see the same with optical we think that'll continue and continue to be normalized but we'll have to wait and see.

Food courts is.

We're probably going to take another several months having.

Having tables out there will help expanding the menu will help.

And of course pharmacy didn't really ever see a big.

The dramatic downturn.

Okay, Great and then it does.

Category really loud.

Lapping it hasn't yet.

For comparison last year.

Maybe just an update on how youre thinking about food at home consumption from here.

Well I mean, our our 40000 foot view of that is as debt.

What was gained because of you know.

Food away from home.

Stopping a year ago, and while it picked up some with taken takeout and delivery.

It's now starting to improve a little bit, but some of that is going to be sticky.

I don't know what the exact number is going to be but our view is is that it's still certainly hasn't.

Reverted back.

Restaurants are just beginning to open in a bigger way.

Many cases still people are reluctant to go in in many cases the tables are further separated so some of that's going to continue for the next 6 plus months is my guess beyond that when all said and done well some of it still be sticky our view is probably.

The fact that we as a company have done a pretty good job of staying in stock.

And certainly the quality of our fresh foods I think that we not only benefited from that I would like to think that we gained market share from other traditional food retailers in that regard, particularly on the fresh side.

Okay, great. Thank you for life.

Your next question comes from the line of Kelly Bania from being at BMO capital markets. Your line is open.

Hi, Richard Thanks for taking our questions.

First just wanted to ask about executive.

Membership at the penetration I guess up over 800000 this quarter or is this high as I can see it in our model here just was curious if that's still happening in a meaningful way in the U S or if there's any other countries just any color you can provide on that point.

I think the 1 factor that was a little bit of anomaly as we are just in the last year.

We expanded the executive membership to Japan, where we have 29 locations 28 locations.

29 locations and.

And including 2 new Japan locations this quarter and as a company I think overall, we continue to get better at signing people up out of executive members.

Telling them what the virtue of it is in and doing a better job of having a higher percentage of every 100, new members sign up as well as converting.

I think within that 817, something just under 200 was Japan, so even taking that out I think it was 180 something thousand so even taking that out the 630 or 40 pluses was still a very strong number for the quarter outside of that.

Okay. That's helpful and then just any update on the.

The pickup tests that's happening.

It's still a test we're still just doing it in new Mexico, and and 3 locations in.

Yes.

The utilization of it when we first did it we mark it is a little bit.

The utilization is not set the world on fire in terms of where its trending.

Okay. Thank you.

Your next question comes from the line of Laura Champine from Loop capital. Your line is open.

Thanks for that so so Richard you mentioned the negative impact on renewals from the.

The Chinese store lapping.

Are they were a new wing at about the same pace that you would normally expect first year renewals relative to prior store openings and in new geographies well 1 of the unique things if I go back over the last 15 years, when we've opened new countries.

Have outsized new sign ups and frankly, probably some that are just looking at Lowe's and so you have a lower than average renewal rate to start with when I look back at the.

7 or 8 countries outside of the U S and Canada, I mean, there is 10 or 10 or so but.

What we've seen is debt.

Stead of in.

In the U S or Canada, we might add anywhere from 5 to 20000 members in the first year.

Recognizing in some of these already existing market. So you've got people shopping more often because they are closer to the new opening we've enjoyed in Korea, Taiwan, Japan, and even more so in China for.

50 to 100000, new members sign ups when we open up and then a year later or a year and a half later when they're renewing when that first batch is renewing for the first time.

To get to that 88, plus worldwide renewal rate and the $90.1 in the EU and the U S and Canada.

Starts off it could be anywhere from the high <unk> to the mid sixties in that first year.

And I don't know I don't have in front of me what what China is China is also outside in that regard I think we have close to 400000 members in that 1 location.

Mind, you, it's a very large city in Costco entered is a well known entity notwithstanding the fact that it was our first 1 so for all those reasons it.

It alone affected that debt worldwide renewal rate.

Alright, and then it sounds like we're not surprised by the way, even if whatever renewals non renewals we've been that had been incurred we've gotten more than that in terms of new sign ups I think at the end of about 3 months. After we opened in China, which was August of 19.

We had.

Around 300000 members and I think now we have about 400000.

So even if we've lost a bunch we've gained a bunch plus some more.

Understood and then secondly on the.

Roughly 30 basis points decline in core margins on an ex gas basis, you mentioned that that is related in part to the sales shift back to a lower margin ancillary business was this the quarter, where you're lapping the most extreme move away from ancillary or is it are we likely to see a similar <unk>.

<unk> as we move through the year.

I think I.

Q3 was probably the most.

There'll still be a it will still be impactful in Q4, probably not as much.

Got it thank you.

Your next question comes from the line of Gregg Melnick from Evercore ISI. Your line is open.

Hi, Thanks, Jeff 2 questions first on e-commerce and multi channel.

Do you have an update on the penetration now for ecommerce and that's a 10% or close and what are you seeing in terms of the percentage of members that use multi channel and what their renewal rates look like if there any debt right.

First of all in total I think it's about 7.5 or 8 and part of that is a huge strength in gas.

Got it.

And what was the other part of your question Greg.

That was just for people that debt.

Like what percentage of your members actually used multichannel offering like you used any of their 2 day or in the car.

As a majority that have used it and then what are their renewals look like.

Once they have used your multiple channels.

Uh huh.

We're around 45% of our members have used ecommerce.

And the renewal rate is slightly better.

Jeff.

The new members that signed up debt of just using ecommerce I'm talking about just how many people how many existing members I'm using commerce.

Got it that's great. Thanks, and then the second question was on gasoline just want to make sure I got this right do you have a number for what the gallonage growth was and if and if penny profit was up or down I think I know it hurts the mix, but just where we are in that cycle right now with gas inflation.

Yes.

Dollar profits word.

We're down because we had it was interesting notwithstanding the fact that well.

Well, if you think you're back again in the third quarter last year. It was mid February effectively the mid Mark to mid May.

The first.

For 3 to 4 weeks of that there was the frenzy. It was either pre COVID-19 or the frenzy of people who've already and everything so gas was pretty strong in those first few weeks then it plummeted and but notwithstanding the fact that they plummeted pricing was less competitive.

So we had a very strong P&L as I think I am sure I mentioned last year in the quarter.

Was particularly strong we had.

Find gas profit this quarter, but <unk>.

Last year was fine with a capital F.

A year ago.

The pressure on any penny profit that you can get when gallons for recovering when gallons are recovering now are we at that stage, yes, very much so okay.

Okay, and what do you have a number that you can give us in a corner I have 1 that can't get cannot give you.

No I can't.

Yes, its been it.

For those of you who have known us for many years.

<unk> used to be business debt on a given day or week on a fully allocated P&L could actually lose a little or all the way to make a lot and it would be very volatile and as a matter of a week or 2 it could switch from from the top to the bottom there.

Normal over the last few years has been it is a profitable business.

Theres still some outlying big profitable days.

A lot more days that are just regularly profitable, but the fact that it's coming out and the fact that it is probably overall a little less competitive out there, but thats not just in the last few weeks that's been over the last year.

Last years, Okay, great. Thanks, and good luck.

Yeah.

Your next question comes from the line of for Robert Moskow from Credit Suisse. Your line is open.

Hi, Thanks for the question.

I wanted to know do you have any data you can share about the demographics are income levels of the new members that you've picked up in the past year is it trending any differently.

And your typical new member growth you know it was a younger I think I think Tracy kind of asked this question already but I Wonder if you had any specifics.

And then lastly, I wanted to know do you think you've got any benefit this quarter from consumers, having more money in their pocket from stimulus payments or is that not really.

Characteristic of your membership.

I don't have any economics.

Average income demographics in front of me I know is when we look at.

New member sign ups currently versus a year ago versus 2 or 3 years ago, we still are getting our share of younger people.

Maybe a little younger than that right now simply because of E com and what have you has helped a little bit on that area.

But nothing to certainly different as it relates to <unk>.

Where we helped when we've looked at things in the past as it relates to some unusual stimulus. Our view is is we haven't seen as big a benefit as some of the other discounters or general merchandise discounters have seen.

But it can't hurt.

So my guess is it certainly has probably helped us some but not as much as others.

It would probably help a little not a lot okay. Yeah.

Thanks, a lot.

Hi.

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

Hey, Richard first question, just the sourcing challenges around the pandemic I'm just curious any updated thoughts you have on your vertical sourcing.

<unk>.

Any anything being sped up or slowed down just what's your what's the latest update on that.

Yeah.

Yeah, well look I mean in a big way I think the fact that we've got to meet plants in a chicken plant in a bakery commissary in a couple of.

Optical grinding labs.

Those things have helped us a little bit.

They are at full production.

In a big way.

When feed costs go up.

Chicken plant for example, we go out somewhat with feed costs, but I'm sure.

We don't hedge ourselves completely in either directions, but we've done a pretty good job of managing those costs.

And okay.

Yeah go ahead, but nothing major there and then what was the other question.

Yeah that was just.

I was just wondering if you've accelerated any initiatives that you maybe adding the pipeline given what you've seen in color or if theres been any maybe new areas of the business that you maybe weren't considering vertical before but maybe now you are.

Yeah, I think the big 1 that has again.

And that has surprised us in the sense that we think there's lots of opportunity there as the whole Costco logistics side.

For a variety of reasons not only handling it ourselves and controlling the destiny of delivery times, but actually.

Theres a number of items that we historically have.

Drop ship, if you will the supplier carries the inventory the supplier sends it needless to say theres a cost associated with that as we get bigger and higher volume in <unk>.

Some of those things direct we're able to to basically.

Prove the delivery time, and lower the price and we've seen that.

And then we're getting better and installation.

Uh huh.

That's something that we will continue to improve on as well. So I think that's probably the 1 area I don't there's nothing currently plan in terms of the next big check.

<unk> plant if you will.

There is.

There's going to still be significant money spent on fulfillment and distribution and logistics as I just mentioned earlier about our capex.

Beyond that there was 1 other thing I was gonna mentioned.

Yeah.

Which I can't remember now.

Why don't we take 2 more questions.

No worries Richard just 1 follow up on self checkout.

That effort you have how how penetrated is that across the chain right now and what's been the member feedback are you guys pleased with the service for giving there obviously volume is a really high for the clubs. So I'm just curious on that thank you.

Some share count works.

It's it's a 90 plus percent of our warehouses I've seen locations, where we started with 6.

2 stacks of 3 and now we're at 9% and 12 in a couple of locations. So it's working for certainly the customer likes it.

And it improves the frontline and service.

And it's as cost efficient.

Okay, great. Thanks, so much.

Okay.

Your next question comes from the line of Scot Ciccarelli from RBC capital markets. Your line is open Wednesday, Hi. This is James Chen on for Scott. Thanks for fitting me in.

I know you've done a couple of things to stay more in touch with members, especially on the ecommerce side. For example building a database of updated member emails. So can you just give us an update where that might be for my progression standpoint, and any results you've seen from that.

Well I think we're improving and a lot of improvement and we are doing in terms of.

A better mobile site and.

And better service to our members.

Thanks.

And the ability to communicate to our members hold on 1 second here.

And the last.

Quarter Im sorry in the last year, we've gone we've increased the number of E Mail E mailable addresses by 24%.

And we're.

We're seeing higher conversion rates as I mentioned already.

And we're doing more things into warehouse with.

Drive traffic online as well so I think all of those things are working and will continue to improve our mobile all makes.

On the next earnings call to talk about I mentioned on Q2 earnings call. They were kind of like 3 phases of of upgrades to our mobile site.

Bob.

Starting in September and then over the next 6 or so months after that I will make a point of pointing some of those things out recognizing some of those things others have been doing and we're just getting around to do that while.

Why don't we take 1 more question and that'll be it.

I know.

Your next question Sir comes from comes from the line of Edward Kelly from Wells Fargo. Your line is open.

Okay.

Okay.

Excuse me Mr. Edward Kelly. Your line is open you may ask your question.

Hey, guys, sorry, I was on mute.

So thanks for squeezing me in here Jeff.

First 1 for you Richard on the timing and ex openings in China anymore detail on when that next door is going to open and then you talked about good news coming on pace of maybe opening beyond that.

Thoughts on the potential to accelerate there now that you've had that first store opened for a while.

Well.

Yes, I mean, our view originally was we had opened 1 and even before that opening we buy whether it would be 5 year sense, maybe we'd have 3 and my guess is today.

We will shoot for a number a little bigger than that maybe for a 5 but there's there's a lot of theres a few irons in the fire over there, but those are the 2 that are.

Signed sealed and under construction.

And the next opening when is that scheduled for.

I believe the fall wholesale.

Yes.

Right.

Late late next summer.

Calendar.

Hello Charles.

Wanting to which would be Q1 of 'twenty 3.

Gotcha, Okay, and then just 1 for you on your on your business customer just remind us of your business customer mix and then.

What are you seeing in that customer as that as things start to recover.

Do you think theres any permanent damage to that to.

For that business at all or do you expect that just sort of come back with reopen.

Well look there's fewer businesses.

Yeah, I think 1 of the things that recognizes changed over.

37 years or so in business. If you go back in the first few years, it was probably $75, 25% or 80.20 business to consumer.

And the consumers were buying a lot of institutional business items today, arguably while we're still a wholesale or and certainly our business members are important to us. It's probably 70.525, the other way 75 consumer.

And recognize 1 of the reasons, we've done our business centers to focus more of that as well in fact, I think all 3 openings in Canada this coming quarter.

This past quarter, our business centers.

And our deliveries are starting to come back looking at the end of the day I don't have the statistics in front of me, but if there were for every day.

Hundreds small restaurants be it a food truck or take out or ethnic.

I don't know how many of them.

Most.

Probably not a lot, but it was at 10 or 20 I don't know.

And the others are coming back so there's probably a little bit of detriment, there and as I mentioned earlier, though our view is as debt.

We think some of business not just for the food area will be sticky to us as well.

Alright, thank you.

Yes.

Oh, there are no questions at this time, Sir you may continue.

I would like to just say 1 last thing at the end of the call before opening up for Q&A I mentioned that our may sales or at least for the for weeks ending may 30th would be on Thursday June 4th It's actually Thursday June <unk>. So thanks for that correction.

Thank you everyone and have a good day.

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