Q4 2023 Costco Wholesale Corp Earnings Call
No.
Hi.
Good day, everyone and welcome to the Costco Wholesale Corporation fourth quarter and fiscal year 2023 operating results call. Today's call is being recorded all lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.
I would now like to turn the conference over to Richard Galanti CFO . Please go ahead Sir.
Thank you Lisa 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 or performance to differ materially from those indicated by such statements the risks and.
These include but are not limited to those outlined in today's call as well as other risks identified from time to time in the company's public statements.
And in reports filed with the SEC forward looking statements speak only as of the date. They are made and the company does not undertake to update these statements except as required by law.
In today's press release, we reported operating results for the fourth quarter of fiscal 'twenty. Three the 17 weeks ended September 3rd these results in the figures presented today compared to last fiscal year's 16 week fourth quarter.
Reported net income for the 17 week fourth quarter came in at $2.16 billion or $4.86 per diluted share.
Compared to $1.868 billion or $4.20 per diluted share in the 16 week fourth quarter last year.
In terms of sales net sales for the 17 week fourth quarter was $77.43 billion, an increase of nine 4% from 77 $6 billion in the 16 week fourth quarter last year.
Comparable sales for the fourth quarter and these figures are our like for like number of weeks.
In the U S. Our reported was a 0.2% comp excluding gas deflation and FX in the U S. It would've been a three one Canada reported was a one 8% and excluding gas deflation and FX seven 4%.
Other international reported 5.5, and again, excluding gas deflation and FX 4.4.
All told total company reported 1.1% comp and a three 8% ex gas deflation and FX.
Terms of E. Commerce that was came in at a minus <unk>, 8% reported and the minus <unk>, 6% excluding FX.
Overall for the fiscal fourth quarter food and sundries were relatively strong once again with fresh foods right behind and with some offsets on some of the non foods categories in.
In terms of Q4 comp sales metrics traffic or shopping frequency increased 5.2% worldwide and 5.1% in the United States.
Our average transaction or ticket was down three 9% worldwide and down four 5% in the U S impacted in large part from weakness in bigger ticket non foods discretionary items as well as the gas price deflation.
Foreign currencies relative to the U S dollar negatively impact sales by approximately three tenths of a percent and gasoline price deflation negatively impacted sales by approximately two and a half per cent.
Next on the income statement membership fee income.
In the fourth quarter 1.509 million $1 billion.
Our one point, 95% of sales in the fourth quarter this fiscal year compared to $1.3 million to $7 million 1 billion or one 8% eight 8% in Q4 of last year, So $182 million increase or 13, 7%. If you adjust for the extra week, the 13th seven would be roughly a 7% actually.
That extra week, excluding FX and the extra week, the increase would have been around seven and a half per cent.
In terms of renewal rates at Q4 and our.
Our U S and Canada renewal rates stood at 92, 7%, which is up a 10th of a percent from the 92, 6% figure as of the end of Q3 the world the world the worldwide.
Rate came in at 94% down a 10th of a percent, reflecting the impact of increasing penetration of memberships from international.
Renew at a lower rate in large part because of the new openings internationally.
Our membership growth continues we ended fourth quarter with 71.1 million paid household members up seven 9% versus a year ago, and $127 9 million cardholders up 7.6%.
That's oh, no new openings over the past that fear of Threep of just under 3% increase in new locations.
At fourth quarter end, we had $32 3 million paid executive memberships, an increase of 981000 during the 17 weeks since Q3 and now executive members now represent a little over 45% of our paid membership and approximately paid members and approximately 73% of worldwide sales.
Moving down the income statement next is our gross margin our reported gross margin in the fourth quarter came in higher at came in at 10.61% up 42 basis points from 10.18% a year ago and up 42 basis points is up 16 basis points, excluding gas deflation as I always ask you to jot down a few numbers with.
Two columns, both reported and excluding gas deflation.
The first line item would be core merchandise on a reported basis up 51 basis points year over year in the fourth quarter and ex gas deflation up 28 basis points ancillary and other businesses of minus 32, and a minus 38.
2% reward minus four and minus two.
LIFO, plus 27 and plus 28.
And your total that up on a reported basis gross margin was up 42 basis points year over year and ex gas deflation.
16 basis points, starting with of course again, a 51 year over year with ex deflation of <unk> 28 in terms of core margin on their own sales our core on core margins were higher by 35 basis points with food and sundries, and non foods being up and fresh foods being down a little.
Ancillary and other business gross margin was lower by 32 basis points and lower by 38 basis points ex gas disc.
She was driven was driven almost entirely by gas. If you look at the other components of ancillary and other which would include a pharmacy E Com food court business centers optical all those things on a relative basis year over year, we did a couple of basis points plus or minus from your earlier.
2% reward higher by four and higher by my hired by two basis points. So negative two basis points, excluding gas deflation that represents higher sales penetration coming from our executive members and LIFO of course, if you recall last year in Q4, we had a $223 million pre tax LIFO charge.
While there was a small charge this year of $30 million on a year over year over year basis of course that.
That showed the basis point improvement in margin, while we continue what we've continued to see sequential improvement in year over year inflation I'll talk about that a little later, we still had a small amount relative to the first day of the fiscal year, that's the small charge in Q4.
A couple of final comments on margins first we're off we are asked often recently about our inventory shrinkage results and whether it has dramatically increased in the past year versus historical shrink results.
Answer is no and the past several years, our inventory shrink has increased by a couple of basis points in part we believe due to the rollout of self checkout over the past year. It has increased by less than one basis point more so no thankfully not a big issue for us in second year over year margin improvement hasn't parkman due to fewer markdowns due to bear better inventory position.
This year than last our inventories overall are in good shape.
Moving on to SG&A.
Our reported SG&A in the fourth quarter $8 96 up from $8 five 3% a year earlier up 43 basis points in ex gas deflation up 21 basis points again jot down to the two columns of numbers, both reported and excluding gas deflation operations minus 37 basis point minus being higher by.
<unk>.
And without deflation core would be minus 18, central minus six and minus three.
And those are the really only two line items. The others were all zero stock compensation Preopening and other so total reported margins.
Margins were up 43 basis points year over year, and ex gas deflation up 21 basis points.
In terms of the the core operations being higher by 18 ex gas deflation and on a reported basis higher by 37. This negative included the impact of lower sales growth as well as the impact of eight weeks of additional top of scale wage increases that went into effect July 4th of 'twenty. Two so midway through Q4 last year.
And a full 17 weeks of this past March as higher than normal top of scale increase.
Central be higher by three basis points ex gas deflation again, not a lot of sales operating leverage there and again as I mentioned the other line items that I typically read out were flat, both with and without gas deflation zero year over year change.
Below the operating income line interest expense came in at $56 million this year versus 48 million a year ago.
One extra week of course interest income and other for the quarter was higher by $171 million year over year to 38. This year versus 67 last year. This was driven in large part by an increase in interest income due to both higher interest rates and higher cash balances as well as the extra week in.
In addition, FX was slightly favorable year over year.
In terms of income tax rate our tax rate this year in the fourth quarter came in.
27, 1% compared to 25, 4% in Q4 last year, So 417 percentage points higher year over year. This increase in our rate as of Q4 is primarily attributable to an increased penetration of international earnings, which overall incurs a higher income tax rate than in the U S O.
Overall reported net income was up 16% year over year in the quarter or 9%. If you adjust for the extra week this year or this year in the fourth quarter versus last.
A few other items of note in the fourth quarter, we opened nine net new warehouses, including five new buildings in the U S. Two in China, and one each in Japan and Australia.
For the full fiscal.
Fiscal 'twenty three year, we finished with 23 net new units as well as we did three relocations and.
And for the first quarter. The first 12 weeks of fiscal 'twenty four.
We plan on opening 10, net new units and as well relocating one yet at all.
10 locations are net new or nine are in the U S and winter in Canada.
Regarding capital expenditures, we've actually included the cash flow and the and the quarterly report, but Capex spend in Q4 was approximately 1.56 billion and for all of fiscal 'twenty three it totaled 4.32 billion.
Turning to ecommerce.
E Commerce sales in the fourth quarter ex FX as I mentioned decreased six tenths of a percent year over year, while still negative relatively speaking our ecommerce showed good improvement.
Results showed good improvement this quarter versus our year over year results in Q2 and Q3.
In the previous two fiscal quarters big ticket discretionary majors at home furnishings small electrics jewelry in hardware, we're down 15, and 20%, 15%, 20% year over year, respectively, and down just 5% year over year in the fourth quarter, when those big ticket departments, making up over half of our ecommerce sales.
A couple of other items of note within the sales of big ticket discretionary appliance were up over 30% in the quarter.
Second I've gotten a couple of calls that people have seen online.
That we've been selling go one ounce gold bars, yes, but when we load them on the site there typically gone within a few hours and we limit to per member.
And lastly, I'll point out Costco next week.
We continue to grow that we currently have 60 62 suppliers on Costco next dotcom and we are continuing to onboard additional ones in many product areas from home improvement to apparel to pet home and kitchen electronics, and accessories to sports and bicycles and toys and the like.
Yeah.
Excuse me.
Now a few comments on E com mobile digital efforts, which we're always asked about as I discussed during the last quarter earnings call. When I said that we were in the early innings of our digital mobile transformation efforts.
Progress is being made in terms of recent additions and upgrades. We've recently redesign account paint the account page into digital membership card. We also redesigned the headroom with larger search bar expanded selling space.
We've added to that box for messages and advertisements right in the App.
We've recently a few months ago opened in optical digital store, where you can virtually try on glasses, and then ordered them for pickup prescription glasses, and lastly, lastly, their ongoing improvement in our costs go up offering and warehouse shopping tools for our customers such as a digital membership card.
Managing shopping lists are viewing warehouse savings.
The gas prices to the extent, there's a gas station there and soon you'll be able to search warehouse inventory and scared barcodes from the App with the improvements made thus far over the past your App store rating has gone from a dismal 2.3 stars to currently four seven stars.
Neat visitors or in the site are up 40% year over year and the Costco App installs are up 46% year over year. So all in all progress is being made.
Lastly, a couple of comments regarding inflation most recently.
Q3, 'twenty three we had estimated that year over year inflation was in the 3% to 4% range.
Estimate for Q4 inflation is in the 1% to 2% range and its actually trended downward during the quarter. So hopefully these inflation trends will continue we'll have to see.
Finally in terms of upcoming releases, we will announce our September sales results for the five weeks ending Sunday October 1st on Wednesday October 4th after the market closes with that I will open it up for Q&A and turn it back over to Lisa. Thank you.
Yeah, if you would like to ask a question today you can press star one on your telephone keypad and trying to move yourself from the queue at Star. One again, we will take our first question from Simeon Gutman with Morgan Stanley .
Hey, Richard how are you.
I guess my first question I don't mean, a tongue in cheek, but as you know.
I guess is a membership price increase part of the physical plan and then part of the question is.
Is there a point at which.
This membership increase as part of I guess, a hedge against inflation is there a point at which you know your model feels more weight without it in other words can you go another year without it.
Well, Yeah, Mike My Pat answer of course is it's a question of when not if.
It's a little longer this time around since June of 2017, So we're six years into it and but yeah, you'll see it happen at some point, we can't really tell you. If it did our plans are not well, let you know when we know we feel good to say about all the attributes of member loyalty and member growth.
And.
Yeah in terms of looking at the values that we provided our members we continue to increase those it certainly a greater amount than even.
EBIT more than if and when an increase occurs so stay.
Stay tuned we'll keep you posted but there's not a whole lot I can tell you about that.
Fair enough and then ultra short term as gas prices have moved up have you seen any.
[laughter] effect or impact on spending at the store.
No I mean, you know you look at the numbers over the last few months that we reported monthly and quarterly Theres not been a heck of a lot change big ticket discretionary.
While improved relatively as I mentioned on line.
On line items.
We've seen the number of items in a basket tick up a little in the last few months, but I think that has more to do the fact that we consciously added I think I mentioned in last call. We consciously added 40 or 50, what I'll call smaller ticket indulgent items, whether its snack items and the like.
Just impulse items and so that's what we do as merchants, but overall, we haven't seen any big change.
Ben.
<unk> been able to correlate any big change to what's happened with gas prices.
Okay. Thanks, Richard Good luck.
Well take our next question from Michael Lasser with UBS.
Good morning, good afternoon. Thank you so much.
Taking my question. Richard you ended your prepared remarks, saying that this quarter or this month inflation is on pace to be a 1% to 2% and you suggested it may be even lower than that so she really outside observers be prepared for the prospect of deflation.
Either because that's what's happening with the underlying cost that that costco's been experiencing or Costco will look to invest in price.
Way to continue to drive volume, especially at a time when core on core margins are expanding so nicely.
Well first of all.
The comment that you know it was one to two but then as we look at the 17 weeks. If you are the four months roughly we saw it if if we looked at it internally at each of the end of those four months, we saw the level that one to two is from the beginning to the end of the year, Oh I'm sorry, the beginning of the end of the quarter, but during the quarter, we saw that trending.
Downward if you will a little and when I talked to the merchants.
Yeah on the.
On the on the on.
On the fresh side, it's flat to down a little right now on the on the on the food and sundries side its up a little primarily in some of the CPG stuff and on big ticket Big ticket better our nonfood.
Partly because of freight which is down year over year in a nice way and in some cases some of the commodity cost on steel and the like that's come down so that being said not a big change, but at least it's trending that way who knows what tomorrow brings.
And as it relates to.
Well as you say as it relates to us we're always pushing prices as fast as we can we want to be the first.
To lower them when those things happen.
And then drive so I think we see that with RBI.
I think we've seen that with our without traffic.
So just to clarify what you're saying is food and sundries prices are down on average year over year.
Shelf stable products are up year over year Gen merchant down so in totality. It would seem like the store. The the box is deflating does he does it get does the rate at which you see deflation continue to increase.
From here and would.
Would you expect that.
To be just driven by the factors that you mentioned or are you driving that as a way to drive this traffic well first of all I want to correct. One thing that maybe I missed this state are you misunderstood.
In terms of fresh fresh is pretty much flat food and sundries, which as you know.
Everything from sundries and packaged goods in CPG goods, that's it tends to be up a little bit.
And and you know I'd like to think that we're pushing the envelope as much as we can with our suppliers that as certain freight costs have come down recognizing the headline today in the paper is.
Oils approach $800, a barrel, so who the heck knows what could happen tomorrow.
Okay.
Follow up question here.
As long as the big ticket under pressure discretionary on your pressure, which influences. Your total sales because it's important for your members to come in and buy these big ticket item. It does this is going to influence how you think about managing labor in the store if should.
The market just anticipate that late labor and other SG&A is going to delever as long as the big tickets under pressure.
Well you know I think we've seen that over the last year frankly, we had such operating leverage over a couple of years. When we had outside sales during that kind of a two years ago, we kind of go in the spring of 'twenty to the spring of 2022 and.
It was before Covid when our SG&A was over 10%.
Slightly over 10% and we said could it ever be able to get below that it's now still below 9%. So.
So notwithstanding the fact that I've looked at the last several quarters on a year over year basis.
Yeah again, particularly the last couple of quarters, we've seen some deleverage of that.
We want to drive sales and.
We'll do that in the best ways, we can so.
But we recognize when you used to be we used to get the question all the time, what competent number do.
Do you need to to have zero or.
Negative or positive leverage with SG&A, recognizing there was no.
Very little inflation back then, but we used to say somewhere who knows but it's somewhere in the four and a half to five range.
So we don't know exactly where it is but we're certainly not going to change the level of service that we have.
We're certainly you got to respect our employees in terms of.
What we've done with our wage increases over time and that's what we do.
Thank you very much and good luck.
We'll take our next question from Chuck Grom with Gordon Haskett.
Hey, Richard.
Just sticking on the.
Topic here on unit elasticity, particularly in categories, where youre seeing the prices actually start to fall a compressed I'm curious what your your so on units if you're seeing them improve at all to offset those price declines and if there's any examples.
Neither food or N G M you could talk about.
Well, yeah, I I remember.
When we talked a few quarters ago about some of the slowness in big ticket discretionary when we got hotter on prices it did a little bit but not as much as we would've thought to start with but again that perhaps was the impact of what's going on with the concerns in the economy and everything else.
We know that when we put hot buys in what we call T. B. These temporary price discounts on items, even medium size ticket items, we do see.
We do see.
You didn't increase but there's it's not as predictable I would say as it used to be.
Okay, Great and I know you don't provide guidance, but I got it.
It's a little easier on the food side to see that sometimes more.
<unk> taken the price of our meat item down.
Okay. So you are starting to see some units increase those prices drop in certain parts of the business.
Sure.
Sure.
And by the way even on big ticket.
When we've seen three and $400 price declines because of freight and raw material costs on some big ticket nonfood items, we'll see we'll see some or some of the sales pick it back up on that.
But it's it there's nothing guaranteed.
Okay alright, thank you.
Part of our guidance, but I actually do remember when you did give some directional help back in the day, but.
Are there any big puts and takes that we should be thinking about on that on the gross margin.
And SG&A line over the next four quarters that we should be thinking about.
Clearly the like for like will be it will be an obvious tailwind, but just curious are there other things that we should be thinking about from a modeling perspective.
No not really I mean, LIFO is certainly one that was an impact over the last year is starting to started to slow down.
Assuming that trend continues there won't be.
Much LIFO going forward right now, but well see beyond that no. We yeah. We are.
We're still opening.
Open 23, net new units. This past year were onboard to do something in the mid to high Twenty's. This year.
But that's not enough to move the needle in terms of a leverage standpoint or anything.
No I'd say, it's steady as she goes and if anything I looked at the the margins overall, given everything that's going on including competition that were doing pretty well there.
With some of the wage hikes that we've continued to do in sales being a little weaker than they had been a year ago.
I think we're doing pretty well on that as well.
We're optimistic about our future, but we will see what happens.
Alright, great. Thank you.
We'll take our next question from Peter Benedict with Baird.
Oh, Hey, guys. Thanks for taking the question Richard just first one just on lifestyle, just curious I mean, the $30 million charge, it's small but.
Curious why they were even last one can you give us little more color, maybe what drove them.
Yeah.
Yeah.
Yeah.
I think it was on things like well gas was one.
And then in some of the fresh food items, there was even though there was deflation in things like eggs and dairy products. There was there were some inflationary trends in beef.
Beyond that do you have that handy.
Yeah. It's it's it's it's really small but on $16 billion of inventory. It's a lot I mean, it's it's it's still a small number of $30 million.
But.
<unk>.
Alright.
Yeah.
That's all I don't have the details on that thus far.
That's why I guess in the context of the broader disinflation and all that stuff is interesting to see that.
And then.
Just really trying to kidney international stuff you talked about the real rates impact can you remind us.
On the international membership trends when you open up a new call it outside the U S. Maybe.
Give us some framework or some benchmarks around how many new members tend to sign up how does that compare to what you would see let's say in the next probably open in the U S. Yet and then what kind of renewal rates you tend to see year. One year. Two just so we have a frame of reference there I don't have the exact numbers in front of me, but generally speaking in Asia, whether it's Korea, Taiwan, Japan or China.
We'll open a new unit.
The 10 or 12 weeks of sign ups pre prior to opening when anywhere from 50 to.
100000, new members, we had a couple of extremes like when we first opened in Shanghai, and then hung of well over 200 now some of that's Looky Loos that don't renew and we usually in that first year of renewal and those types of outsized numbers, we might be as low as the mid to high Fifty's and us.
And it takes a few years to get even to the mid seven days, but we see those numbers overall continue to increase every year and I don't I can't I don't.
She could probably go back to what it was in the first 10 years of our 40 year history with even the U S. My guess it wasn't that extreme but we didn't have as many.
It wasn't.
National and local news events. The day, we opened you had a lot of people coming in and some of these markets that are signing up that maybe look too far away or choose not to come back. So we would have seen that continuing to grow.
So by even that simple that slight 10th of a percent decline. It's a rounding error in the sensitive you opened up a couple of more units.
A year ago that they are just renewing for the first time that increases that number.
Yeah No understood last question, Yes, I think I heard you say mid to high <unk> in terms of unit opening.
Plan for Festival 24 can you give me give us a sense of how many of those are in the U S. So that how many would be international thank you.
Yeah.
70, plus percent in the U S and Canada.
Most of the U S of course.
Got it which in my view makes a lot of changes.
Finding more openings more opportunities in the U S to infill given our high volumes and we've got plenty going on over the years overseas.
Yeah. Thanks, so much Richard.
Thank you.
We'll take our next question from <unk> Creek with Oppenheimer.
Good afternoon. This is actually Erica eiler on for Apache. Thanks for taking our questions. So I guess first I was hoping maybe you could get a quick download maybe on how you're feeling about the health of your consumer right now I mean, obviously some concerns out there on student loan impact starting to roll in here as those restart.
Any color you can provide on how youre thinking about discretionary from here and maybe some of those concerns out there.
Thank God.
Trade down or private label on.
Of note on that front in terms of consumer behavior as well.
Well right.
First of all I'll start first and foremost our traffic continues to do very well being have continually four and 5% on a year over year basis is great.
And our renewal rates continue to be very strong. So that's a starting point it makes sense to us on big ticket discretionary that's where you'd see the biggest weakness we see some of that in.
Some areas going back when we look at our numbers compared to N V D. A.
Sure.
It tells us where we are worse as our competitors.
Overall not in every category, but overall, we tend to do better and so even a negative number here is a lower negative number than elsewhere. So and again, what do we do we brought in some smaller ticket items that are impulse snack items too.
Get an extra partial item and everybody's basket.
Yeah.
Yes and newness.
Bringing those new items and.
You know theres not been a whole lot.
Our unit sales and Tvs are pretty good but the average price point has come down as they do anyway. There's always deflationary when you don't have new technology, yet and that's just we haven't seen a whole lot of new stuff yet there.
Gaming is good right now and and Christmas is good I mean, we're one of the not the only one but one of the few that are bringing in seasonal items early everything from the core to trees.
ER to ER.
Toys.
That's starting off well so far but it's new it's you know it's in the last few weeks.
Okay. That's really helpful and then just.
Oh No go ahead.
I'm sorry, what else did you ask Oh, Yeah, and then just shifting gears. So I just wanted to touch on retail media. So obviously, a significant focus on driving retail media. Some of your peers. So just curious if you could maybe talk a little bit about you know what Costco is doing in this area and the big opportunity that your team is easier.
Well part of that is some of the things, we're doing with digital and mobile in the App.
And we're not giving out quantifiable numbers, but certainly some of our competitors are talking about doubling these numbers in the next two or three years in my view, there's some low hanging fruit out there and we're actively working on it.
We've hired a couple of people that are helping us with that as well and more to come.
Okay, great. Thank you so much.
We'll take our next question from Paul <unk> with Citigroup.
However, on this brand and sheet I'm on for Paul.
I just wanted to.
When you look at the retail landscape I was wondering how do your wages compared to your competition are you seeing similar trends in inflation pressure on the wage front and.
Anything that you can help us with what are your plans over the next couple of quarters.
Well.
First of all we've always prided ourselves in providing the best hourly wage back.
Out their wages benefits contributions to four one K I'm using U S numbers here, but our average U S 90% of our employees like many big retailers are hourly.
And our average hourly wages approaching 26 is in the high 20 fives.
That's on top of a very rich health care plan, where the employee only pays around 11% and 12% of it I believe and on top of.
A little less than that and on top of that irrespective of what an employee contributes to his or her one for oren K, we contribute anywhere from.
From three 3% to 9% based on years of service.
So you've got a 20 year cashier, making yeah on a full time basis in the mid sixties.
With another four or 5000 being contributed to his or her for weekday plan with a very rich health care plan. So we stand apart and are viewed compared to anybody or pressure comes from ourselves in the last few years.
As there have been wage pressure starting with.
Frontline workers during the beginning of the Covid, we like many retailers added a 2% premium.
$2 premium rather we we kept it longer to our knowledge than most anybody for a full year and at the end we kept a dollar in there.
And since then we've had at least three or four increases on top of the normal top of scale increase that we do every generally have done every year, we have done every year so well.
In our view the pressure comes from us.
And we feel that we're way ahead of our competition in that regard.
Got it that's helpful. Thanks, and I think you mentioned that the next iteration of the half youre going to be able to scan barcodes is the idea that eventually the customer is going to be able to scan and go and how could that.
All flow operation in your stores, if that isn't the case.
Don't think we're prepared for scan and go yet, we're just gonna skin, but they can't go [laughter].
At the end of the day, the first order of business is getting the merchandise on there and Havent had.
Numbers that where a member even goes online to say Hey, you can also get this.
Currently at your local location, so knowing what's in store when somebody wants to come out I think that's going to be a big positive to start with and part of the scan is to be able to get more product information on the item as well.
Gotcha that makes sense, okay I appreciate it good luck.
Yeah.
We'll take our next question from Greg Melick with Evercore.
Hi, Thanks, I had two questions Richard first I'd I'd love, an update given the volatility in gas prices in the last year and a half as to where we are on penny profit I know it improved a lot.
But I'm curious if it came back down in the last 12 months or if it sort of stabilize at that higher level.
Well, we don't give specific numbers.
Gas has been stronger for us and we believe all retailers in the last few years. In fact, it was Q4 last year, which I think was our strongest quarter, recognizing it's a 16 week quarter.
This fourth quarter. It was still strong down from its strongest a year earlier on a weekly basis, but nonetheless quite strong and so it's part of the profit picture currently of of all the big retailers that sell gas supermarkets. The Walmart Costco is a war of the world. So it's still a profitable business.
It's.
Our view has been used to be when when prices give me, let me turn it so fast literally almost daily.
When profits are going up and I'm sorry, it was when the price of gas is going up.
The Guy down the street is turning at every eight or nine days is paying over the last four days ago, and so we make a little less of a profit when sales went down gallons. The price per gallon went down we made a little more I think that equation. While it is still true is not the driver of the bottom line of gas.
Everybody seems to be wanting to make more on gas, which allows us in our view to make it a little more and still be even more profitable we've seen are competitive.
Competitive spread versus our direct competitors at every location on average improve over the last couple of years to now being the I want to say the 30 set range per gallon.
Hum.
<unk> is the average which is that.
It's an average and it can range from 10 to 45, but at the end of the day, we feel good about our competitive position, it's increased and were still quite profitable down a little bit from a year ago, but nonetheless quite profitable.
That's helpful. Thanks, and then.
My follow up is on on cash I think you finished with $13 7 billion.
The last time, you got to 13 was when you had a special dividend in 2020.
What are your thoughts on how much cash you need or want, especially now that there was a positive interest rate holding cash does that make you more.
Interested in keeping it but then you pay more taxes, just how do you think about.
Well I.
I think it's like at the end of the day, we've done four special dividends in the past, it's part of our DNA at some point, we may do that again.
Again, it's somewhat like the answer to the other question about membership fees and its probably a question of when not if but rather we'll let you know certainly with.
Earning.
5% ish on that money instead of a quarter percent ish on that money does make it a little harder to do but we're not selling you the kind of earnings multiple that we are.
5% of our on our assets.
At some point, we'll do something and.
We'll have to wait and see.
Got it thanks and good luck.
We will take our next question from Kelly Bania with BMO capital markets.
Yeah.
Okay.
Hi, Thanks for taking our question Richard.
Just wanted to ask I think I've asked this many many times, but it seems like another huge quarter for executive membership growth almost a million.
More of this quarter and just curious if you could talk about the profile of that member today that that's either upgrading or starting out as executive what's what's the characteristics of that customer.
And any changes in how that.
Executive member.
Spend in their first year in that upgrade compared to that.
Prior year.
Well I was joking you want to say first of all they are very smart.
To be an executive member I think we over the time, we've done a better job.
Communicating the value of these active member so we clearly get more people to sign up that way in advance.
And we and we see that over time, a regular member over the first few years, we'll buy more every year and executive member starts at a higher level and will buy more every year from that higher level. So that's really the profile that we've seen I don't have any specifics on how old. The member is I know that when we look at aged care.
Our interest and some new members were still you know everybody used to be concerned 10 years ago. How are we going to get millennials. When we have an older average customer and all that and we did.
With things with items with things like organic wheat.
We're doing the same thing now we're still getting whether it's gen Z or Jen a or whatever the next gen is where we're getting our share of those new members. When we looked at the profile of our members.
Thanks, Richard I may have missed this but did you quantify that extra week impact in terms of EBIT or EPS or anything for us.
No. It's I mean, the simple math would just say it's one seven.
Its 16th 17th of every quarter is equal to a 16 week quarter.
That's about as good as we could do.
I mean, it takes that seems like a net income it tasted the 16 or whatever percent number down to a 9% or something.
And that's just simple math.
Perfect.
Yeah.
Yeah.
We will take our next question from Oliver Chen with TD Cowen.
Hi, Richard inventory seem well positioned what are your thoughts about where they are now and also how we will model them going forward relative to sales.
And then as we look at overall ticket trends being negative that compare starts to ease.
So does that imply that wall inflection on partly the nature of the ticket comparisons overall the same question E. Commerce, you know as you anniversary some of that.
Headwinds can we expect the comparison to help as well thanks a lot Greg.
Inventories as I mentioned, we feel the merchants feel very good about our inventory levels right. Now are there are a few departments that were higher than they wanted a few there that need a little more share, but overall theyre very good if you look at our our fiscal year end inventories stood at just under $16 7 billion and payables stood at 17 five.
So I think this.
Running above 100% on that simple ratio is something new we've used to be we used to enjoy running 90% to 95%. It's it fluctuates, but overall, we feel good about our inventories where they are now and in terms of supply chain things coming in on time, we feel good about that as well now.
Now as it relates to as we are.
Excuse me as we anniversary the inflection of when we saw some weakness.
I think a couple of quarters ago, I mentioned that well what will help your big ticket sales have said well at least in a few several more months, we will anniversary. This weakness. So certainly that's that's gonna help I would like to think that it's not just that thing that's going to help.
But at the same with ecommerce.
Again.
One bright spot and it is virtually always commerce not nearly all these kind of it is nearly all of these e-commerce was the.
Appliances that and I think we've done a better job also of showing the value of these items online not just the.
The price of the item with in our case includes delivery and warranty and things like that more so than some of our competitors and so it is showing great value there.
Okay. Thanks Richard.
Just a couple of short ones would love any thoughts on the card. It seems like it's a really great partnership that you've had for a while also another question. We had is will will EV charging you know play a role and how you're thinking about future services for customers.
Unlike China.
It's a smaller percentage of total but.
It's an important market for a long time.
What's happening there has anything changed the value proposition or the geopolitics. Thanks.
Okay.
I had the second and third what was the first question Lindsay.
But I know they just went public so we've gotten a lot of questions at the end of the day there.
We're a good partner with them, they're a good partner for us.
We use them throughout the U S and Canada.
And our sales are growing.
<unk> added over the last during Covid, we added some non food items that still can be carried in the car. If you will and we're doing I think prescriptions with them now.
And so no. It's a good relationship and has been for a while.
Okay.
Yeah, I might add though that with regard to those sales. We include that in our warehouse sales not our ecommerce sales.
It's their employees or their their employee coming into Costco to shop purchase at the register and then take it to the customer so that's not in our mobile and e-commerce sales as it relates to EV charging we're testing it in a number of locations.
Not a whole lot to be said, if there's a charge for it is going to be.
Less at Costco, and a wait and see.
And then as it relates to China no.
Just opened a few weeks ago, our fifth location.
We have two more planned this fiscal year both in the I think one in.
Shenzhen in early calendar 'twenty four.
And one other one before the end of August . So we will have seven locations up from two a year and a half ago.
And you know so far.
There are openings there are treated as well.
Overall.
Thank you best regards.
We'll take our next question from Scot Ciccarelli with trust.
Good evening guys can you.
Stand a bit better how the Taco next process works I mean is it similar to how your ecommerce business used to work where products were essentially drop ship vendors and if that's the case Richard how are you.
You had control of the quality of the product and delivery process, because I thought that became an issue for you guys.
Where you took over here on the distribution for Ya Com.
Yeah.
Okay.
Yes, Costco next is drop ship.
But we we curate the items with the suppliers and they're for the most part are pretty well known brands.
And so far we have not had an issue on that recognizing.
They tend to be items that are easily shipped to her home.
Yeah.
Yeah.
Yeah, we're doing about it.
We have all the tracking information as well so all I can tell you is youre right about that that's a good point years ago. When we did this there was there was a difference but so far its worked quite well for US we've had very few customer issues as it relates to items purchased.
On Costco Dot com.
Costco next dot com.
Okay understood. Thank you and then.
Another inflation question, if we do wind up getting outright deflation outside of improved traffic or unit velocity are there ways to protect margin.
It seems to me like that could wind up being a little later to the margin of course.
And our environment.
Well yeah.
Our business is about where we.
It will take a 10 pack and make it a 12 pack I guess.
But at the end of the day, if there's a disinflation.
It will impact all of us.
But again I think it should be favorable with us because we will show the best day will still show the best value out there.
Understood. Thank you.
Okay.
But what do you do it the other comment was made at the table here that if there is.
Deflation or disinflation.
Got a $450 million to $500 million LIFO reserve that'll be on a reported basis. It will be part of a tailwind of disinflation.
Got it thank you.
And we will take our next question from Scott [noise], Michigan with Rfps.
Hey, Richard Thanks for Thanks for taking my question I don't think we've talked about it but what's the competition like out there now that we're seeing inflation come down and volumes, particularly for some guys are.
Negative just wondering if you what it looks like out there.
But I think look.
We said this for a few years now.
Our competition with Sam's is the most direct.
And we've seen improvements in parts of what they do from our perspective.
They're tough competitors and so are we and Uh huh.
I think they've continued to get to improve overtime.
Have we.
I don't we don't really see a whole lot of other things if bj's, while we respect their model and what they do.
It's a it's a slightly different model so there's not as much there is certainly.
When we are competing directly as a membership warehouse club, where we're making sure we're sharper on pricing, particularly in fresh and things like that.
Supermarket items.
Beyond that.
Yes, our view is on the non food side, where we're gaining share.
As evidenced by the numbers, we see in some of these <unk> results and the thing that I, just called out of appliances and things like that.
Recognizing appliances or whatever a $30 billion business, we're still a small piece of a growing growing rapidly.
Yeah.
Thanks, and then I know it came up earlier about raising membership rates, but I kind of philosophical alike.
<unk> recession, not recession, maybe there will be one.
How does the company look at raising the bar.
Membership fee, if the economy slow and fast doesn't matter does it factor in.
I think I think it matters.
It does matter and I think it really mattered as we approach kind of the five and a half years post June of 2017, we were in the high you know the headline every day was inflation and economy and and so yeah. We're doing great. We've got great loyalty.
If we wait a little longer so be it and that's kind of how we feel right now so.
Okay.
Okay, great. Thanks I'll yield.
Yeah.
Yeah.
We'll take our next question from Chris <unk> with Jpmorgan.
Thanks, Good evening Richard.
So.
Your core on core margins were up a lot in this quarter can you talk about what what drove that I think you mentioned food and sundries that successful vendor funded promotions is there anything onetime in nature about that gain that we shouldn't extrapolate forward.
Yeah well.
From LIFO.
Markdowns were a lot less.
Quarter on quarter, So no markdowns.
A big piece of it.
Particularly on the non food side that helped last year. We had it was a year ago that all of us, including Costco I think our inventories on a year over year basis were up 26% for two quarters in a row and that of course, those won't come down and and so that that was probably the biggest single thing in those numbers.
Yeah.
And where we are.
The comment that was made at the table here, we're back on track on seasonal and an outdated. So we're not having a year. It was a year year and a half ago, where certain seasonal items came in late and just to move them out not that the storm as much. Some we did store but to move on that where we felt that was the best way to do it we took extra markdowns so that helped.
And then and then a follow up question around the consumer you just came to the back to school season. There are some important electronics categories that.
A big part of the basket during that time of year that also become a big part of the basket around holiday are you seeing.
Ipads in Pcs and notebooks are you seeing positive unit trends and how does it make you feel about the upcoming holiday season.
Thank you Matthew.
Gaming is up some of the Apple products are up.
TV units are up but again, the average price points have come down some.
Tablets tablets.
Tablets are up and audio is up a little.
Okay.
But not in notebooks and computers.
No.
Okay.
Got it.
Less downwards, the ads right yet.
Thanks, so much.
We'll take our next question from John Heimbach, along with Guggenheim.
So Richard first thing, maybe just talk about how you look at cannibalization versus expanding the market in the U S.
And if you obviously you can now put it looks like locations closer together.
When you kind of look at the U S. In total is there a number right that you guys have in mind that that's now possible.
Given what youre doing with density.
Yeah.
Yeah, Yeah. Our view is over the next 10 years that we can add easily another 150 and that's on top of however, many business centers.
Sure.
But just in the U S. So.
And that number keeps changing if you'd asked me six eight years ago, where we'd be today I would say if we were 70 30 U S. Back then we'd be 50 50 by now outside of the fifth year and today, we're at $65 70 in the U S. Still so we're finding more opportunities here and it's evidenced by just the sheer volume of units that are either.
Theyre doing today versus three or four years ago, it's much higher than we would've expected three or four years ago. So we think that there's still a lot of runway in that regard.
And then just quick follow up.
I know you guys haven't been particularly interested in both of us.
Right for cost reasons, and I assume that's still the case.
There's a consumer argument for it but.
I think it's hard to make the cost.
Side of it work is that still your view.
That is still our view overall in addition to that.
The thing I mentioned, a little bit with the.
What we're doing with <unk>.
Non food items as well we are testing in stores, some big ticket items like Tvs.
But on a limited basis to see what happens for.
Buy online and pick up in store.
Okay. Thank you.
We'll take our last question from Joe Feldman with Telsey Advisory group.
Okay.
Hey, guys. Thanks for taking my question.
Wanted to ask about the CPG guys are these funding promotions a little more regularly with you guys. I know you did something I think.
With P&G that seem like a clever.
Promotion.
Our gift card back from them it seemed and I'm, just wondering what youre seeing across the.
Other vendors.
Yeah, well the PGP, we actually we did that last year as well.
Got it for a couple of years it needle save we did again, it's growing so and once we do that with one.
What is.
Sure that excitement with others to see what other types of things, we can drive that way. So yeah, I'd say, there's probably a little bit more increase on that type of promotional things.
And then you have an inventory available for those things because we.
We could really drive sales of those items in a short period of time.
Right that makes sense that the volume that you guys do and then are you guys approaching the holiday any different this year I know you mentioned Christmas goods are off to a good start but is that.
You know earlier than their normal I I feel like you are about the same timing, but maybe you could share thoughts on the approach to the holiday season.
And if it's earlier, it's a week or two earlier.
And some things came in early and.
Okay.
Yeah.
No.
Okay.
It's a little early compared to some of the supply chain disruptions, we had which screwed up a lot of things, but if you go back to where we were before.
Covid.
Probably.
At or very slightly earlier.
And in terms of how we're approaching it we're approaching it aggressively.
In terms of.
No.
Having stuff to sell the member.
But we want to be we want to be out too.
This is nothing different here.
Even though things like toys will bring in a few things.
And the last couple of weeks before Christmas that if they don't sell through we're not at risk of having to mark them down dramatically because theyre not unique just to Christmas.
Understood understood no that's great. Thanks, guys and good luck this quarter Richard.
Well. Thank you everyone. We're around to answer your questions and have.
Have a good holiday and we'll talk to you soon.
Yeah.
This does concludes today's presentation. Thank you for your participation and you may now disconnect.
Yeah.
Yeah.
Yeah.
Yeah.