Q1 2024 Costco Wholesale Corp Earnings Call

Yes.

Good day, everyone, and welcome to the Costco Wholesale Corporation Fiscal First Quarter 2024 Earnings Call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. To withdraw your question, it is star 1 again. I would now like to turn the call over to Richard Galanti, Chief Financial Officer. Please go ahead, sir.

Good day, everyone and welcome to the Costco Wholesale Corporation fiscal first quarter 'twenty 'twenty four earnings call. Today's call is being recorded in all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star one on your telephone keypad to withdraw your question. It is star one again.

I would now like to turn the call over to Richard Galanti, Chief Financial Officer. Please go ahead Sir.

Thank you, Lisa, and good afternoon to everyone. I will start by stating that these discussions will include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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 1095.

These statements involve risks and uncertainties that may cause actual events, results, and or performance to differ materially, excuse me, differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to those outlined in today's call, as well as other risks identified from time to nine in the company's public statements and 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 is required by law.

These statements involve risks and uncertainties that may cause actual events results <unk> performance to differ materially.

These may differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to those outlined in today's call as well as other risks identified from time to time in the company's public statements and 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.

Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP.

Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP.

In today's release, we reported operating results for the first quarter of fiscal 24. The 12 weeks ended November 26.

In today's release, we reported operating results for the first quarter of fiscal 'twenty for the 12 weeks ended November 26.

Reported net income for the 12-week first quarter came in at $1.589 billion, or $3.58 per share, up from $1.364 billion, or $3.07 per share in the 12-week first quarter last

Reported net income for the 12 week first quarter came in at 1.589 billion or $3 58 per share.

1.364 billion or $3.07 per share in the 12 week first quarter last year. This year's results included a tax benefit of $44 million or 10 cents a share related to stock based compensation last year's results included a tax benefit.

This year's results included a tax benefit of $44 million, or 10 cents a share, related to stock-based compensation. Last year's results included a tax benefit of $53 million, or 12 cents per share, related to stock-based compensation, and also included a charge of $93 million pre-tax, or 15 cents per share, primarily related to downsizing our charter shipping activity.

The benefit of $53 million or <unk> 12 per share related to stock based compensation and also included a charge of 93 million pretax or <unk> 15 cents per share primarily related to downsizing our charter shipping activities.

Net sales for the first quarter were $56.72 billion, a 6.1% increase over last year's first quarter, $53.44 billion.

Net sales for the first quarter were $56 $72 billion, a six 1% increase over last year's first quarter 53.44 billion.

Net sales were benefited by approximately one half to 1% in the U S and worldwide from the shift in our fiscal calendar as a result of the 50 <unk> week in fiscal 2023.

Net sales were benefited by approximately one half to 1% in the US and worldwide from the shift of the fiscal calendar as a result of the 53rd week in fiscal 2023.

The following comparable sales reflect comparable locations, Euroveater and comparable retail week.

The following comparable sales reflect comparable locations year over year and comparable retail weeks.

In the US, reported 2% comp sales, ex-gas deflation in FX, 2.6%.

In the U S reported 2% comp sales ex gas deflation and FX two 6%.

Canada reported 6.4%, X gas and FX, 8.2%. Other international reported 11.2, X gas and FX, 7.1%. For total company, the reported 3.8 and a 3.9 excluding those two items. E-commerce, which was reported on us as a 6.3, came into the 6.1 excluding FX.

Canada reported six 4%.

Ex gas and FX eight 2% other.

Other international reported 11.2 ex gas and FX seven 1% for total company reported three eight and a three nine excluding those two items E Commerce, which was reported on this as a six three came in at six one excluding FX.

Yeah.

Overall for the first fiscal quarter, fresh foods were relatively strong once again with food and sundries right behind. Non-food showed improvement over the September , October , November timeframe as did E-Com sales. In terms of Q1 sales metrics, traffic or shopping frequency increased 4.7% worldwide and 3.6% in the United States.

Overall for the first fiscal quarter fresh foods were relatively strong once again with food and sundries right behind non foods showed improvement over the September October November timeframe as did E. Comm sales in terms of Q1 comp sales metrics traffic or shopping frequency increased four 7% worldwide and three 6% in.

The United States.

Our average transaction was down nine tenths of a percent worldwide and down 1.6 percent in the U.S.

Our average transaction was down nine tenths of a percent worldwide and down one 6% in the U S.

Foreign currencies relative to the US dollar positively impacted sales by approximately four tenths of a percent, while gasoline price deflation negatively impacted sales by approximately six tenths of a percent.

Foreign currencies relative to the U S dollar positively impacted sales by approximately four tenths of a percent while gasoline price deflation negatively impacted sales by approximately six tenths of a percent.

I've gotten more than a few calls in the past few weeks as to how many pies we sold in the US leading up to Thanksgiving holiday. In the US and the three days leading up to Thanksgiving we sold 2.9 million of our famous pumpkin pies along with 1.3 million apple and pecan pies. So 4 million pies in total during the three days.

Speaker Change: I've got more than a few calls in the past few weeks as to how many pies, we sold it in the U S leading up to the Thanksgiving holiday in the U S and the three days, leading up to Thanksgiving, We sold $2 9 million of our famous pumpkin pies, along with $1 3 million Apple N' Pecan pies. So over 4 million plays in total during the three days.

Speaker Change: Back to the income statement here and next on the income statement membership fee income.

Back to the income statement here. Next on the income statement is membership of the income.

In the quarter, we reported $1.08 billion or $1.91%. That's an 82 million or 8.2% increase and a four basis point increase over the first quarter last year.

Speaker Change: In the quarter, we reported a one point or two.

Speaker Change: Dollars.

Speaker Change: Our 191%, that's an 82 million or 882% increase and a four basis point increase over the first quarter last year.

In terms of renewal rates, at first quarter end, our U.S. and Canada rule rates stood at 92.8%, while the worldwide rate came in at 90.5%. Both of these rates were up one tenth of 1% from those numbers 12 weeks earlier at the end of the fourth quarter.

Speaker Change: In terms of renewal rates at first quarter end, our U S and Canada Rural rate stood at 92, 8%, while the worldwide rate came in at 95%. Both of these rates were up 110th of 1% from those numbers 12 weeks earlier at the end of the fourth quarter.

Membership growth continues. We ended Q1 with 72.0 million paid household members up 7.6% versus last year, and 129.5 million cart overs up 7.1%. With consistent growth throughout the quarters.

Speaker Change: Membership growth continues we ended Q1 was 72.1 million paid household members up seven 6% versus last year, and $129 5 million cardholders up seven 1% with consistent growth throughout the quarters.

At Q1N, we had 33.2 million paid executive members, an increase of 939,000 during the 12 weeks since Q4N. Executive members now represent a little over 46% of our paid members, and a little over 73% of worldwide sale.

Speaker Change: At Q1 end, we had $33 2 million paid executive members an increase of 939000 during the 12 weeks since Q4 and.

Speaker Change: Executive members now represent a little over 46% of our paid members and a little over 73% of worldwide sales.

Moving down the income statement next is our gross margin. Our reported gross margin in the fourth quarter was higher year over year by 43 basis points. Excuse me, coming in at 11.04% up from Q1 of last year at 10.61. That 43 basis point reported number, X gas deflation would be plus 36 basis.

Speaker Change: Moving down the income statement next is our gross margin our reported gross margin in the fourth quarter was higher year over year by 43 basis points coming in at excuse me coming in at 11.04% up from Q1 of last year at $10. Six one that 43 basis points reported number ex gas deflation would be plus 36 basis points.

As I normally do here, we write down two columns and six line items. The first column is reported in the first quarter. The second column is margins excluding gas deflation. It's the year-over-year change in the first quarter. On a core merchandise, plus three basis points reported, minus three basis points, ex deflation.

Speaker Change: As I normally do here we are.

Speaker Change: Right down two columns and six line items. The first column is reported in the first quarter. The second column is margins excluding gas deflation. It's the year over year change in the first quarter on a core core merchandise plus three basis points reported minus three basis points ex deflation.

Ancillary and other businesses plus 24 reported and plus 22 gas deflation. 2% reward lower year over year, minus four basis points reported and minus three ex gas deflation. LIFO plus three and plus three and other plus 17 and plus 17 for a total again reported year over year up 43 basis points and ex gas deflation up 36 basis.

Speaker Change: Ancillary and other businesses, plus 24 reported and plus 22 ex deflation gas deflation, 2% reward lower year over year minus four basis points reported and minus three ex gas deflation LIFO, plus three and plus three and other plus 17 and plus 17 for a total of.

Speaker Change: <unk> reported year over year up 43 basis points in ex gas deflation up 36 basis points.

Starting with the core, again, it was a total company. It was plus three and minus three reported an X gas deflation. In terms of core margin on their own sales or core on core margins, we're up by five basis points, Eurobreast.

Speaker Change: Starting with the core again it was a total company it was plus three and minus three reported and ex gas deflation in terms of core margin on their own sales or core on core margins were up by five basis points year over year.

Ancillary and other business, Gross Margin, again, higher by 24, and higher by 22-ex-deflation. Yes, deflation. This, since Greece was driven largely by gas and e-commerce.

Speaker Change: Ancillary and other business gross margin again higher by 24 and higher by 22 ex deflation gas deflation. This is Kris was driven largely by gas and E com.

Our 2% reward, higher by 4 and higher by 3x deflation, reflecting higher sales penetration coming from our executive members. LIFO plus three basis points. We had a $15 million LIFO credit in the first quarter of this year. This compared to a very small, $1,5 million LIFO charge in Q1 a year ago.

Speaker Change: Our 2% reward higher by four and higher by three ex deflation.

Speaker Change: Reflecting higher sales penetration coming from our executive members.

Speaker Change: LIFO plus three basis points, we had a $15 million LIFO credit in the first quarter of this year this compared to a very small half million LIFO charge in Q1, a year ago.

And then the other allied item that 17 basis points to the positive, as was mentioned earlier, last year in Q1 there was a 17 basis point impact from a $93 million pre-text charge, primarily related, primarily for the downsizing of our charter shipping activity.

Speaker Change: And then the other line item that 17 basis points to the positive as was mentioned earlier last year. In Q1, there was a 70 basis point impact from a $93 million pre tax charge, primarily related primarily for the downsizing of our charter shipping activities.

Moving on to SGNA, we reported SGNA of 9.45%, higher by 25 basis points than last year's 9.2 overs.

Speaker Change: Moving on to SG&A.

Speaker Change: We reported SG&A of 945% higher by 25 basis points than last year's 921%.

Again, and Q1, it will write down the two columns reported and without gas deflation operations, minus 18 and minus 14 basis points, minus being, meaning it's higher year over year. Central, minus two and minus one, stock compensation, minus three and minus two, pre-opening expense, minus two and minus two. Again, for a total reported margin, higher, minus 25 year over year, give it, and you'll be fading data.

Speaker Change: Again in Q1, well right down the two columns reported.

And without gas deflation operations minus 18, and minus 14 basis points minus being meaning it's higher year over year central minus two and minus one.

Speaker Change: <unk> compensation minus three and minus two.

Speaker Change: Preopening expense minus two and minus two.

Speaker Change: Again for a total reported margin higher at minus 25 year over year.

I'm sorry, that's GNA, not large in. 25 and without gas deflation, by a higher by 19 base.

Speaker Change: I'm, sorry, SG&A that margin 25, and without gas deflation.

Speaker Change: Higher by 19 basis points.

The core, again, was hired by 18 and hired by 14 excluding the impact from gas. This included 12 weeks of this past marches, extra top of scale increase in our wages.

Speaker Change: The core again was higher by 18 and higher by <unk> 14, excluding the impact from gas. This included 12 weeks of this past March as extra top of scale increase in our wages.

which represents an estimated two basis point hit. And as of September 18th, we raised the starting wage in the US and Canada. That estimated impact from those new wages to be roughly two basis points as well.

Speaker Change: Which was which.

Speaker Change: <unk> represents an estimated two basis point hit and as of September 18th we raise the starting wage in the U S and Canada that estimated impact from the new those new wages to be roughly two basis points as well.

Again, central, nothing much to say other than it's one basis higher, excluding gas deflation. Again, it was comms the minus 2x gas deflation and pre-opening. We did have a couple of more openings this year in the quarter than we did last year, and that was higher by two bases.

Again central nothing much to say other than it's a one basis point higher excluding gas deflation again was stock comps to the minus two ex gas deflation and Preopening. We did have a couple of more openings. This year in the quarter than we did last year and that was higher by two basis points.

Below the operating income line, interest expense was $38 million this year.

Speaker Change: Below the operating income line interest expense was 38 basis points $38 million this year.

4 million higher than last year's 34 million dollar figure. Interested in coming out for the quarter was hired by $107 million, coming into 160 million this year versus 53 million last year. This was driven largely by the increase in interest income, about 100 million of that 107, due to higher interest rates as well as higher cash balances. The small additional in practice was a favorable FX year over year.

Speaker Change: <unk> 4 million higher than last year's $34 million, a year interest income and other for the quarter was higher by $107 million.

Speaker Change: Coming in at $160 million this year versus $53 million and last year. This was driven largely by the increase in interest income about $100 million at 107 due to higher interest rates as well as higher cash balances.

Speaker Change: The small additional impact was a favorable FX year over year.

In terms of income taxes, our tax rate in the first quarter was 24.5 percent. This compares to 23.0 percent a year ago or 1.5 percentage points higher this year than last year. The increase in our rate as of Q1 is primarily attributable to lower benefit from the stock-based compensation from a year ago.

Speaker Change: In terms of income taxes, our tax rate in the first quarter was 24, 5%.

Speaker Change: This compares to 23, 8% a year ago or one five percentage points.

Speaker Change: Higher this year than last year.

Speaker Change: The increase in our rate as of Q1 and in Q1 is primarily attributable to lower benefit from the stock based compensation from a year ago.

Overall reported net income was up 16.5% year-over-year in the quarter.

Speaker Change: Overall reported net income was up 16, 5% year over year in the quarter.

A few other items of note, in terms of warehouse expansion, in the first quarter we opened ten locations, including one reload, so a net of nine increases. Those nine included eight in the U.S. and one in Canada.

Speaker Change: A few other items of note in terms of warehouse expansion in the first quarter, we opened 10 locations, including one reload. So a net of nine increases that those nine included eight in the U S and one in Canada.

For the full year, fiscal 24, we estimate opening, we're planning to open 33 locations, including two reloads. So for a net increase of 31 new warehouses, that would be up from 23 that we opened in fiscal 23.

Speaker Change: For the full year of fiscal 'twenty, four we estimate opening.

Speaker Change: We're planning to open 33 locations, including two <unk>. So for a net increase of 31, new warehouses that would be up from 23 that we have been in fiscal 'twenty three.

For Q2, fiscal 24, we planned four new locations, including our sixth building in China, early in the calendar year.

Speaker Change: For Q2.

Speaker Change: Fiscal 'twenty four we plan for new locations, including our six building in China.

Speaker Change: Early in the calendar year.

Regarding capital expenditures, the first quarter capital expenditure spend was approximately $1.04 billion. We estimate that fiscal 24 capex will be in the $4.4 to $4.6 billion range. That's up from $4.3 billion we had in fiscal 23, reflecting a continued increase in the expansion that we're doing.

Speaker Change: Regarding capital expenditures in the first quarter capital expenditure spend was approximately $1 4 billion, we estimate that fiscal 'twenty four capex will be in the $4 $4 to $4 $6 billion range. That's up from $4 3 billion. We had in fiscal 'twenty three reflecting a continued increase in the number of the expansion that we're doing.

In terms of e-commerce business, e-commerce sales in Q1, XFX, increased 6.1 percent. The first quarterly year-over-year increase in five fiscal quarters and trended well during the three reporting periods of September , October , and November .

Speaker Change: In terms of E Commerce business E Comm sales in Q1 ex FX increased six 1% the first quarterly year over year increase in five fiscal quarters and trended well during the three reporting periods of September October and November.

E-Combs showed strength in several areas. And food, things like eGIF cards, pet items, snack items, we're up in the midteens. Appliances, we're up in the year over year in the mid-20s. TVs was actually in the high signals, despite the challenges with other aspects of consumer electronics like computers.

Speaker Change: <unk> showed strength in several areas.

Speaker Change: And food.

Speaker Change: Things like E gift cards pet items snack items were up in the mid teens appliances were up year over year in the mid twenties Tvs was actually.

Speaker Change: In the high singles, despite the challenges with other aspects of consumer electronics like computers.

and tires were up in the low teens. So overall, a pretty good showing there. As well, Costco Logistics enjoyed record-breaking deliveries. In the first quarter of fiscal 24, we completed over 800,000 deliveries, which were up 17% versus the comparable quarter last year.

Speaker Change: And tires were up in the low teens, so overall, a pretty good showing there as well Costco logistics enjoyed record breaking deliveries.

Speaker Change: The first quarter of fiscal 'twenty, four we completed over 800000 deliveries, which were up 17% versus the comparable quarter last year.

And some fun, wow items in the quarter in e-commerce. You've probably read about the fact that we're solding one ounce gold bars. We sold over $100 million of gold during the quarter. We sold a Babe Ruth autographed index card for $20,000. And in addition to e-gift cards on everything from restaurants to golf to airlines, and we just in the last couple of weeks launched a Disney e-gift card valued at $250 for 224.99.

Speaker Change: And some fun while items in the quarter in ecommerce.

Speaker Change: Probably right about the fact that we're solving one ounce gold bars, we sold over $100 million of gold during the quarter.

Speaker Change: We sold a Babe Ruth autographed index card for $20000.

Speaker Change: And in addition to E gift cards on everything from restaurants to golf to Airlines and we just in the last couple of weeks launched a Disney E gift card.

Speaker Change: Valued at $250 for $224 99.

And for you last minute shoppers out there, there's a Mickey Mantle autographed 1951 rookie card in nearly perfect condition and it's on sale online for $250,000.

Speaker Change: And for you last minute shoppers out there theres, a Mickey mantle autograft $19 51 rookie card and nearly perfect condition and its uncertain sale online for $250000.

Next, a good progress continues to be made with our e-commerce mobile digital efforts. No big enhancements and changes to the site leading up to the holidays, mostly holiday prep. We did have hundreds of site availability during cyber week and sales for the five cyber days, thanksgiving Black Friday Saturday Sunday and Cyber Monday. We're up year over year in the mid-team.

Speaker Change: Our next good progress continues to be made with our E. Com mobile digital efforts no big enhancements and changes to the site leading up to the holidays, mostly Halloween prep.

Speaker Change: We did have 100% availability during cyber week and sales for the <unk> cyber days Thanksgiving Black Friday, Saturday Sunday, and cyber Monday were up year over year in the mid teens.

Our app downloads during the quarter were two and three quarters million, so total app downloads are now stand at 30 and a half million or a 10% increase during the quarter. And that's after being over 40% increase in all of fiscal 23 versus the prior year our site traffic approaching a half a billion and just under 10% increase in the average order value being up about two and a half percent. So continue to make progress there.

Speaker Change: Our app downloads during the quarter were two and three quarters million. So total app downloads are now stand at $30 5 million or a 10% increase during the quarter and that's after being over 40% increase in all of fiscal 'twenty three versus the prior year, our site traffic approaching <unk> 5 billion and just under 10% increase in the average or.

Speaker Change: Their value being up about two 5% so continuing to make progress there.

Next, a couple of comments regarding inflation. Most recently in the last fourth quarter discussion, we had estimated that year over year inflation was in the one to two percent range. Our estimate for the quarter just ended that inflation was in the zero to one percent range.

Speaker Change: Next couple of comments regarding inflation, most recently in the last fourth quarter.

Speaker Change: Discussion, we had estimated that year over year inflation was in the 1% to 2% range. Our estimate for the quarter. Just ended that inflation was in the zero to 1% range.

Bigger deflation and some big and bulky items like furniture sets due to lower freight costs year over year, as well as on things like domestics.

Speaker Change: The bigger deflation in some big and bulky items like furniture sets due to lower freight costs year over year as well as on things like domestics.

bulky lower priced items, again, where the freight costs is significant. Some depletion items were as much as 20 to 30% and again, mostly freight-related. TVs, the average sale prices have been lower while units have been higher. And talking to the buyers overall, our inventories, our skew counts are in good shape across all channels. And so far, we've had a good seasonal sell through during the quarter.

Speaker Change: Bulky lower priced items.

Speaker Change: But again, where the freight cost is significant some deflationary items were as much as 20% to 30% and again, mostly freight related Tvs. The average sale prices have been lower while units had been higher and in talking to the buyers overall, our inventories are a SKU counts are in good shape across all channels and so far we've had a good seasonal sell through during the quarter.

Speaker Change: <unk>.

Lastly, as you saw in this afternoon's press release, we declared a $15 per share special cash dividend. This is our fifth special dividend in 11 years.

Speaker Change: Lastly, as you saw in this afternoon's press release, we declared a <unk> $15 per share special cash dividend. This is our fifth special dividend and 11 years.

The total payout will be about just $6.7 billion, and we'll be funded using existing cash and not accompanied by any issuance of debt. The special cash dividend will be paid on January 12th and to shareholders of record...

Speaker Change: The total payout will be about just under $6 7 billion and will be funded using existing cash and not accompanied by any issuance of debt.

Speaker Change: Cash dividend was paid on January 12.

Speaker Change: And to shareholders of record on December 28.

Speaker Change: Finally in terms of upcoming releases, we will announce our December sales results for the five weeks ending Sunday December 31.

Speaker Change: On Thursday January 4th after market close with that I will turn it back for Q&A to Liza and be happy to answer any questions.

Thank you. As a reminder, everyone, that is star one on your telephone. I'll take up our questions from Michael Lasser with UBS.

Liza: Thank you as a reminder, everyone that is star one on your telephone.

Liza: Our first question is from Michael Lasser with UBS.

Michael Lasser: Good evening. Thank you so much for taking my question.

Good evening. Thank you so much for taking my question, Richard. You had indicated over the last year and a half or so that Costco had been raising prices faster than.

You Rod indicated over the last year, and a half or so of that Pascal had been raising prices faster than.

It had brought its history. So now with prices coming down, what is going to be the posture on passing along those savings? You already noted that inflation is flat to up 1%. So do you expect inflation, especially on the food side, as you get through the next couple of times?

Michael Lasser: We had.

Michael Lasser: <unk> Street now with prices coming down what is going to need a posture on passing along those savings you already noted that.

Michael Lasser: Inflation is flat to up 1% do you expect inflation, especially on the food side as you get through the next couple of quarters.

Well, you know, talking to the buyers, we've seen the, you know, see the during the quarter we saw the trend towards that zero versus the one.

Michael Lasser: Well.

Michael Lasser: The buyers we've seen even during the quarter, we saw the trend towards that zero versus the one but at the end of the day.

But at the end of the day, the buyers are looking out three to six months. They have on the fresh food side, commodities wise, they haven't seen a lot. There are a few things that are up and a few things are down, but no giant trend either way. Look, as you know us for a long time, we want to be the first to lower prices. We're out there pressing our vendors as we see different commodity components come down. And certainly on the non-food side, as we saw shipping costs come down, things like that. And so probably a little more than less, but we'll have to wait and see, we don't know.

Michael Lasser: The buyers are looking at three to six months they had on the fresh food side commodities wise. They haven't seen a lot. There are a few things that are up and a few things are down but no giant trend either way look as you know us for a long time, we want to be the first to lower prices were out there pressing our vendors as we see different commodity components come down certainly on the non food side as we saw shipping.

Michael Lasser: Costs come down and things like that.

Michael Lasser: And so you're.

Michael Lasser: Probably a little more than less but we will have to wait and see we don't know.

In my follow-up, it's another point that you've made for a long time, is that COSTO's been a draft of the profitability of the broader retail sector. If you compare COSTO's operating margin

Michael Lasser: And my follow up is another point that you would need for a long time yet.

Michael Lasser: When the draft off the profitability of the broader retail sector.

Michael Lasser: Payer costs those operating margin.

Over the last 12 months, where it was prior to the pandemic, it's 3 to 480 points higher and yet across retail, there are signs that profitability is coming down. So now.

Michael Lasser: Over the last 12 months versus where it was prior to the pandemic.

Michael Lasser: 400 points higher.

Michael Lasser: Retail there are signs that profitability coming down so now what we're seeing in the way of <unk>.

What would stand in the way of casco either maintaining this existing kind of property and profit margin or even further growing from here? So it just simply gonna be a function of your ability to drive further sales growth in the...

Michael Lasser: Cassel either maintaining.

In Reno operating profit margin or even further growing from here is it just simply going to be a function of your ability to drive further sales growth.

consistently mid-sync mid-dack single digit range for better.

Michael Lasser: Consistently mid single mid single.

Michael Lasser: Single digit range or better.

Sure. Well, happily I'm able to say that you get to figure that one out. You know, at the end of the day, we're, as you've known for a long time, we're a top line company, we want to drive sales. Certainly as there's been deflation in certain products, we've seen units go up. I'm looking at one example here just in the last month.

Michael Lasser: Well I believe.

Michael Lasser: I'm able to say that Thats, you got to figure that one out.

Michael Lasser: The end of the day, we're as you've known for a long time.

Michael Lasser: Top line company, we want to drive sales certainly as there's been deflation in certain products. We've seen units go up.

Michael Lasser: I'm looking at one example here just in the last months of 100 plus million dollars of cash.

$100 plus million of KSNED items.

Michael Lasser: <unk> net items, where sales were flat to down a couple percent while units were up in the mid teens.

where sales were flat to down a couple percent while units were up in the mid-team.

That takes a little more labor to do, but the end of the day, that's what we wanna do. We wanna drive people in frequency. And I think as long as we see, you know, renewal rates continue to do what they do, as long as we see new signups continue to do what they do, and hopefully continue to get people to do, you know, convert to executive as well.

Michael Lasser: That takes a little more labor to do but at the end of the day. That's what we want to do we want to drive people in frequency and I think as long as we see.

Michael Lasser: Renewal rates continuing to do what they do as long as we see new sign ups continue to do what they do and hopefully continue to get people to convert to executive as well.

and constantly driving the best value out there will be a good step and so far we've been able to do that and I think we'll continue to be able to do that. Thank you.

Michael Lasser: Constantly driving the best value out there we'll be in good stead.

Michael Lasser: So far we've been able to do that and I think we'll continue to be able to do that.

Speaker Change: Thank you very much and have a good holiday.

Speaker Change: Two.

We'll take our next question from Simeon Gutman with Morgan Stanley .

Speaker Change: We'll take our next question from Simeon Gutman with Morgan Stanley.

Hi there, this is Jackie Sussan on for Simman. Thank you so much for taking our question. The corn core margin was up modestly this quarter and it seems like it moderated sequentially, looking forward to the balance of the year. It seems like the comparison gets a bit tougher. I guess how should we think about your corn core margin that could it stay expanding and positive for the rest of the year or any color on that would be helpful. Thank you so much.

Speaker Change: Hi, Dara this is Jackie Hoffman on for Simeon. Thank you so much for taking our question.

Jackie Hoffman: Core margin was up modestly this quarter and it seems like it moderated sequentially looking forward to the balance of the year.

Jackie Hoffman: The comparison gets a bit tougher I guess, how should we think about your corn from March on that.

Jackie Hoffman: Handling and positive for the rest of the year or any color on that would be helpful. Thank you so much.

You know, there's so many different moving parts to it. You know, as you've heard me say, and I say in the last several years, we want to drive top line first. We're also pragmatic. We recognize we're a for-profit company and we'll continue to work hard to do both. I wouldn't be much into any number going up a little or down a little frankly. It plucks weight and there's lots of different components to it.

Jackie Hoffman: There are so many different moving parts to it.

Jackie Hoffman: Yes.

Jackie Hoffman: As you've heard me say I say.

Jackie Hoffman: And the last several years.

Jackie Hoffman: We want to drive top line first we're also pragmatic. We wanted we recognize we are a for profit company and we'll continue to work hard to do both.

Jackie Hoffman: Yeah.

Jackie Hoffman: I wouldn't read much into any number going up a little or down a little frankly.

Jackie Hoffman: It fluctuates a.

Jackie Hoffman: Lots of different components to it.

Gotcha. Thanks so much. And just a quick follow up was the block Friday of December Monday games that you had better than what you were expecting internally. Thanks so much. That was a little better than we were expecting, but we were ready for it.

Speaker Change: Gotcha. Thank you so much and just a quick follow up with the Black Friday cyber Monday.

Speaker Change: You had better than what you were expecting internally. Thanks, so much.

They were a little better than we were expecting but we were ready for it.

Speaker Change: Thanks, so much.

Speaker Change: We will take our next question from Chuck Grom with Gordon Haskett.

Hey, how's it going Richard? Good afternoon. I wanted to just dive into the core margins a little bit more and see if you could flush out.

Speaker Change: Okay.

Chuck Grom: Good afternoon, I wanted to just dive into the core margins, a little bit more and see if you could flush out.

Some of the category color.

I said that I missed it, but food, sundries, fresh, and on the hard line.

Chuck Grom: <unk> said, it I missed it but food sundries fresh and on the hard lines.

Chuck Grom: Of that business.

Well, without giving you specific basis points, food and sentries was very slightly down. And non-food was actually up. Some of that relates to the fact that we were comparing against last year when we had higher freight costs in China, drive business, and fresh was down a little bit. So nothing earth shattering in either of those directions.

Chuck Grom: Well without giving you a specific basis points food and sundries was slightly down very slightly down.

Chuck Grom: Non food was actually up some of that relates to the fact that we were comparing against last year. When we had higher freight costs and trying to drive business and fresh was down a little bit so nothing earth shattering.

Chuck Grom: Either of those directions.

And then on the Ansel Area of 22 Basis Points, I think we all get the gas component. But can you just talk about why the E-commerce margins were so much better?

Chuck Grom: Okay, and then on the ancillary up 22 basis points I think we all I'll get the gas component, but can you just talk about why the E. Commerce margins were so much better in the quarter.

Chuck Grom: Okay.

I think, well, first of all, part of just ancillary in general is a sales penetration issue. Not going into it, that the fact that it showed more, sometimes when you look back over the quarters,

Speaker Change: I think well first of all.

Speaker Change: Part of just ancillary in general is a sales penetration issue without going into it that the fact that.

Speaker Change: It showed more sometimes when you look back over the quarters.

They go in opposite directions, they core on core and then the other business.

Speaker Change: They go they go in opposite directions, the core on core and then the other businesses and so given that you had higher sales penetration in both.

And so given that you had higher sales penetration in both, and he calmed that helped you. And he calmed we had a lot of strength. We're doing a lot of big and bulky and we're driving that business. Okay, great. And just bigger picture, you know, I just have a question on the change.

Speaker Change: And E comm that helped you.

Speaker Change: We had a lot of strength, where we're doing a lot of big and bulky and we're driving that business.

Speaker Change: Okay, Great and then just.

Speaker Change: Bigger picture I just have a question on the change in the CEO seat with Ron starting in a few weeks.

replacing Craig who replaced Jim. You know, you've had the fortunate opportunity to work with all three. And I guess I'm curious what change, if any, you think we could see from an operating standpoint. Move.

Speaker Change: Replacing Craig who replaces Jim you've had the fortunate opportunity to work with all three and I guess I'm curious what change if any you think we could see from a from an operating standpoint moving forward.

Well, I always joke I'm up for review so I'm gonna say nice things. But no, at the end of the day, the reality is we're staying the course. You know, I remember...

Speaker Change: Well I always joke I'm up for review, so I'm Gonna say nice things, but at the end of the day. The reality is we're staying the course.

Speaker Change: I remember.

Questions were asked 12 plus years ago when Craig became president and two years later, Jim retired and Craig became CEO and president.

Questions were asked 12 plus years ago, when Greg became President and two years later, Jim retired and Craig became CEO, and President and Whats, who could replace Jim and I think the same questions asked today, who can replace Greg and it really is a seamless transition you have somebody retiring thats been here 40 ish years.

What's your, who could replace Jim? And I think the same questions asked today, who could replace Greg? And it really is a seamless transition. You have somebody retiring that's been here 40ish years.

and it's been in the business both on operations and merchandising for a successful number of years in both.

Speaker Change: And it's been in the business, both on operations and merchandising for our.

Speaker Change: A successful number of years in both and you got.

And you've got Ron who's coming in, who started when he was 17 at a price club in Arizona. And he already has his 40 year gold patch. And again, 30 years in operations, a year in real estate traveling in the world and then six or seven years in merchandising. So I think it is pretty seamless. And to see them, the two of them worked together over the last two years, almost two years since Ron became president, it's very similar to what

Speaker Change: Ron who is coming in who started when he was 17 at a price club in Arizona.

Speaker Change: He already has 40 year gold patch and again 30 years in operations, a year and real estate traveling the world and then seven or six or seven years and merchandising. So I think it is pretty seamless and to see them. The two of them work together over the last two years almost two years since Ron became president it is very similar.

Speaker Change: To what.

you know I saw during those two years when when Craig became president and two years later Jim retired and Craig took on the CEO Rose O'Hall and that's pretty much steady as she goes. Gotcha, great. Happy holidays thanks.

Speaker Change: I saw during those two years when when Greg became President and then two years later, Jim retired and Craig took on the CEO Rosebel.

Speaker Change: And so that's pretty much steady as she goes.

Speaker Change: Got it great.

Speaker Change: Thanks.

Speaker Change: We'll take our next question from Scott <unk> with RFID capital.

Speaker Change: Okay.

Hey Richard, I guess I just wanted to think about the potential clubs in the US and those comes up sometimes but obviously added eight. It just seems like there's maybe more runway you can hear in the US and I'm wondering if you had any thoughts on that and then I had a quick follow up.

Scott: Okay Richard.

Scott: I guess I just wanted to think about the potential clubs in the U S. I know it comes up sometimes but obviously you added eight.

Scott: And it just seems like things maybe more runway even here in the U S and I'm wondering if you had any thoughts on that and then I had a quick follow up.

Speaker Change: Sure well.

Sure. Well, you know, I mean, if we were to open the 31 this year, that would be somewhere in the low 20s, the 2324 in the US. And now recognize a few of those business centers, which is we continue to add as well as regular wear out, you know, most of them are regular wear out.

Speaker Change: If we were to open 31, this year that would be somewhere in the low twenties $23 24 in the U S.

Speaker Change: I recognize a few of those business centers, which is we continue to add as well as regular way most of them are regular warehouses.

And I would say that, yeah, I guess the story I'd share with you is, you know, six or eight years ago when it was roughly 60, 40 or 70, 30 US Canada versus international, other international.

Speaker Change: I would say that yes, I guess the story I'd share with you is six or eight years ago. When it was roughly 60 40 or 70, 30 U S Canada versus international other international.

Speaker Change: And we were asked what would it be by today I'd say whereby today it will be 50 50.

and we were asked what would it be by the day? I'd say, well, by the day, it'll be 50-50.

Well, today you're asking the same question, it's 6040 or 7030 today, what will it be? And I think you're gonna trend that way over time, but we are finding more opportunities in the US.

Speaker Change: Today, you are asking the same question is 60 40 or 70 30 today, what will be and I think it will trend that way over time, but we are finding more opportunities in the U S. Clearly our average sales volume per location is higher today than we would've expected ourselves thankfully six seven years ago, what would it be by now and we are finding those opportunities so I.

Clearly, our average sales volume per location is higher today than we would have expected ourselves, thankfully, you know, six, seven years ago, what would it be by now? And then we are finding those opportunities. So I view that as good news. We still, you know, we've got a lot of things going on to drive international, but, you know, international, these, you know, six or seven units this year.

Speaker Change: That is good news we saw.

Speaker Change: I've got a lot of things going on to drive international but international will be six.

Speaker Change: Six or seven years this year.

Speaker Change: <unk>.

and then I'll continue to grow. Last year, international was 9 or 10. And that is...

Speaker Change: And then I'll continue to grow last year International was nine nine or 10.

Speaker Change: And it is.

Speaker Change: More of a timing issue.

So then my follow up is around traffic and also like the growth you had in the appliances and TVs, you're just kind of going in a different direction than a lot of people. So what's driving the share gains in those categories, but also are you guys doing anything specifically different to drive the traffic numbers you're seeing? Because I mean they're pretty amazing given the environment.

So then my follow up is around traffic and also like the growth you had in appliances and Tvs you just kind of go in a different direction than a lot of people. So what's driving the share gains in those categories. But also are you guys doing anything specifically different to drive the traffic numbers youre seeing.

Speaker Change: Cause I mean, theyre pretty pretty amazing given the.

Speaker Change: The environment.

Yeah, well, I've always said I think the biggest attribute of value is the lowest price of giving quantity and quality of good or service and then certainly add to that to trust that our members have. I think it's related to specific things like I pointed out like appliances and even tires. It's value. We and accommodate and you know having acquired you know, in a valve three or four years ago now called cost.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: I've always said I think the biggest attribute of value is the lowest price on a given quantity and quality of a good or service and then certainly add to that the trust that our members have I think as it relates specific things like I pointed out like appliances and even tires.

Speaker Change: <unk>.

Speaker Change: And a combination and having acquired.

Speaker Change: <unk> three or four years ago, now called Costco logistics, we're doing a lot of business, there and I think we've gotten a better job a better job of communicating what the value is not just showing what the price of the exact item is it some of the other big retail competitors on some of these big items.

We're doing a lot of business there. And I think we've got a better job of communicating what the value is. Not just showing what the price of the exact item is at some of the other big retail competitors on some of these big items, but then you add in delivery, take away the old product, the use the installation delivery, take away the old product for disposition. It's significant saving.

Speaker Change: Then you add in delivery takeaway the oil.

Speaker Change: The installation delivery.

Speaker Change: Take away the old product for disposition.

Speaker Change: It's significant savings.

Go do a price check of some of those things compared to our competition. That's where you'll see the strength. Perfect. Thanks.

Speaker Change: Go to a price check of some of those things compared to our competition, that's where you'll see the strength.

Speaker Change: Perfect. Thanks.

Speaker Change: Yeah.

Speaker Change: We will take our next question from John <unk> with Guggenheim.

So Richard, I'm wondering if one of the things you made do differently, we talked about this before, is leaning into personalization more. And where you are on that journey, particularly with Ron Kimmy.

John: So Richard I'm wondering if it's one of the things you may do differently here, we've talked about this before is lean.

Going into personalization more.

John: Where you are on that on that journey, particularly with Ron coming in.

Right. Well, we're, first we're business was fixing the foundation where in the middle of re-platforming our e-commerce. It's not a big bang where we're going to put the switch one day. We're bringing things over.

Speaker Change: Right well.

Speaker Change: First of all our business was fixing that foundation, we're in the middle of re platforming our e-commerce is not there.

Speaker Change: That big Bang, where are we going to put the switch one day, we're bringing things over and Thats in progress. It was I think I mentioned last probably last quarter.

And that's in progress. It was, I think I mentioned probably last quarter, it's a two year roadmap on that and we're halfway through that. And so I say very little so far. If we were in the second inning, maybe we're in the third inning now, but we, a lot of the focus has been on, first of all, making sure doing small improvements, we certainly got the

Speaker Change: Two year roadmap on that and we're halfway through that.

Speaker Change: So.

Speaker Change: I'd say very little so far.

Speaker Change: If it were.

Speaker Change: If we were in the second I think maybe we were in the third inning now but a.

Speaker Change: A lot of the focus has been on first of all making sure doing small improvements we certainly got the.

You know, on the five-star rating, you know, got up north of four and a half on that and We're getting better at the site every time, but I think you would see personalization and first of all targeting and then personalization more over the next couple of years Honestly, and we're fine with that. We're first-door business getting

On the five star rating.

Speaker Change: Got up north of $4 five on that and we're getting better at the site every time, but I think you'd see personalization and first of all targeting and personalization more over the next couple of years honestly and we're fine with that first order business is getting the foundation right.

And we've made a lot of progress. I spent a lot of time on this call talking about the new things, the enhancements we've made to the mobile site, the e-commerce site, but we've done a lot.

And we've made a lot of progress.

Speaker Change: I didn't spend a lot of time on this call talking about the.

Speaker Change: The new things in the enhancements, we've made to the mobile site and E Comm site, but we've done a lot.

And maybe as a follow-up, you talked about the international opportunity, and it's still, you know, very well underdeveloped.

Speaker Change: And maybe as a follow up you talked about the international opportunity, it's still very well under underdeveloped.

So what the hindrance to getting to, because we're in a lot of countries now, 15 to 20 annual openings, maybe that's a big ask, but is it just quality of real estate? Because I would imagine operationally, it's not a human resource issue. Is it purely a real estate issue?

The b hindrance to getting too because we're not all the countries now 15% to 20.

Speaker Change: Annual openings, maybe that's that's a big ask but.

Speaker Change: Is it just quality of real estate, because I would imagine operationally, it's not a it's not a human resource issue is there is it purely a real estate issue.

Speaker Change: I would say, it's a combination of issues in some countries I mean, if you look at our Korea, Taiwan, we have whatever.

I would say it's a combination of issues. In some countries, I mean, if you look at Korea Taiwan, we have whatever 15 or 16 locations in each country. Very successful. It's a little harder to find the next location just from a real estate stamp.

Speaker Change: 15, or 16 locations in each country.

Speaker Change: Very successful, it's a little harder to find the next location just from a real estate standpoint.

If you look in Japan where we have plenty of future opportunity, we've got 30 plus now, but again, it's a little bit of real estate. If you look at places like China or Spain, one of the challenges is you want... You like to be able to ideally...

Speaker Change: If you look in Japan, where we have plenty of future opportunity.

Speaker Change: We've got 30, plus now and but again, it's a little bit of real estate. If you look at places like China or Spain. One of the challenges is you want you'd like to be able to ideally bring over.

more than a handful of people from the existing locations are the new one. It's a very hands-on operation. I think one of the things that we felt, we mentioned that we had success when we first opened our first unit of Shanghai, is we had at least 60, 70 people move there from Taiwan, for promotions and for interactions, not just in the office, from the buying offices, but even in the key supervisor and manager positions within the warehouse. And so it takes a little longer. And but we're working hard at it, but it's a very hands-on experience.

Speaker Change: More than a handful of people from the existing locations in the new one so very hands on operations I think one of the things that we felt we mentioned that we had success. When we first opened our first unit Shanghai as we had at least 60 70 people move there from Taiwan for promotions and for interactions not just in the office and the buying atlases, but even in the key.

Speaker Change: Supervisor and manager positions within the warehouse and so it takes a little longer and but we're working hard at it but it's a very hands on experience.

Speaker Change: Thank you.

Speaker Change: We will take our next question is from Kelly Bania with BMO capital markets.

I'll take our next question from Kelly Bonja, would BMO Capital Marks.

Hi, Richard. Thanks for taking our questions. I'm just going to kind of follow up on Scott's question. I think your average...

Kelly Bania: Hi, Richard Thanks for taking our question.

Kelly Bania: Kind of follow up on Scotts question I think your average.

sale per club in the US and Canada's around 300 million at this point. And just curious on the status of how many clubs are doing kind of well over that and are maybe in some need.

Kelly Bania: For cloud in the U S and Canada around 300 million at this point.

Kelly Bania: Just curious on.

Kelly Bania: The status of how many clubs are doing kind of well over that and maybe in some need.

Some of relief in the form of self cannibalization and more clubs nearby and follow up as well on international. Just as we think about the next, maybe 3 to 5 years, are there any countries that might be disproportionately getting some more of the growth here?

Kelly Bania: Gentlemen.

Kelly Bania: In the form of self cannibalization.

Kelly Bania: And more clubs nearby and follow up as well on international.

Kelly Bania: Think about the next maybe three to five years are there any country that might be disproportionately.

Kelly Bania: Getting to market growth.

Kelly Bania: Yeah.

Kelly Bania: Okay.

Okay. What was the first part of the question again?

Kelly Bania: Okay.

Kelly Bania: What was the first part of the question again average average sales.

Oh, average sales. Yeah, average. I don't have the numbers in front of me. But I know in fiscal 23, we had something like

Kelly Bania: I don't have the numbers in front of me, but I know in fiscal 'twenty, three we had something like 25, or so locations that did over $400 million another $160 or so that did $300 million to $400 million. Those are huge numbers and certainly as we get $3 50, plus and one of them by the way they did over 400 did.

25 or so locations that did over 400 million, another 160 or so that did 300 to 400 million. Those are huge numbers. And certainly as we get 350 plus, and one of them, by the way, that did over 400 did a few million over 600 million.

Kelly Bania: Few million dollars over 600 million so.

So, generally when it starts having a three in front of it, certainly a 350, we want to start looking to see what we can do to cannibalize it, frankly, and to have more growth in that market. And so, hopefully that's one of our bigger problems and challenges that we have more of those each year. So, I think that'll continue. Again, if I look back,

Kelly Bania: And so generally when it starts getting when they started having a three in front of it certainly a $3 50.

Kelly Bania: We want to start looking to see what we can do.

Kelly Bania: To cannibalize, it frankly and to have more growth in that market and so hope.

Kelly Bania: Hopefully that's our one of our bigger problems and challenges that we have more of those each year. So I think that will continue.

Kelly Bania: Again, if I look back.

five, eight years ago, even assuming whatever inflation number you want to assume, I think we've done a little better than that in terms of these sales volumes. And so that's goodness for us that we'll continue to do that internationally.

Five eight years ago.

Kelly Bania: Even assuming whatever inflation number you want to assume.

Kelly Bania: I think we've done a little better than that in terms of the sales volumes and so that's good news for us that will continue to do that internationally.

Again, I'm just looking at the map of where we are. Certainly, we only have four locations.

Kelly Bania: Again, I'm just looking at the map of where we are.

Kelly Bania: Certainly we only have four locations in Spain.

We've actually added a few on a base of 30 plus in the UK. We think we have more opportunity next.

Kelly Bania: We've actually have added a few on a base of 30 plus in the U K.

Kelly Bania: We think we have more opportunity in Mexico.

in Japan where we have something in the low 30s.

Kelly Bania: In Japan, where we have something in the low thirties.

Certainly it's done well there and there's many more markets and population there that we can go to

Kelly Bania: Certainly it's done well there and there is many more markets and population there that we can go to.

Australia, you know, is whatever, two-thirds, a little under two-thirds the size of Canada where we have 105 or so locations, and in Australia, we have...

Kelly Bania: Australia.

Kelly Bania: Whatever two thirds a little under two thirds the size of Canada, where we have a 105 or so locations in Australia, we have.

Kelly Bania: 15.

Kelly Bania: <unk>.

I'm not suggesting we're going to have two thirds of 105 there anytime soon. It takes us, you know, 35 plus years to get there in Canada. And but we think that there, those are the opportunities. It's not like we're looking at a lot of other new countries at this juncture. We've done a few new countries, those single locations like in Sweden, in Iceland, in Auckland.

Kelly Bania: Im not suggesting were going to have two thirds of 105, there anytime soon it takes US 35, plus years to get there in Canada, and but we think those are the opportunities.

Kelly Bania: It's not like we're looking at.

Kelly Bania: Other new countries at this juncture, we've done a few new countries those single locations like in Sweden, and Iceland in Auckland, all being somewhat manage.

all being somewhat managed, buying-wise and somewhat operationally.

Kelly Bania: Buying wise somewhat operationally by a host country in the case of.

by a host country in the case of Scandinavia by the UK in the case of Auckland by Australia.

Kelly Bania: Scandinavia by the U K in the case of Auckland by Australia.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Scot Ciccarelli with <unk> West.

Good afternoon, guys. So Richard, last quarter you talked a bit about Costco next. I guess my question is, how big of an impact is that program having on your e-commerce sales at this point? Number one, number two, kind of relate to that. Any change in your vetting of what vendors operate on that program? Just thinking about the quality control aspect. Thank you.

Scot Ciccarelli: Good afternoon guys.

Last quarter, you talked a bit about Pasco next I guess my question is how big of an impact is that program having on your E. Comm sales at this point number one number two kind of related to that any change in your betting of what vendors operate on that program just thinking about the quality control aspects. Thank you.

Well, first of all, it's still a very small relative to our company. And the fact is, is that the cost for next sales currently are not in our sales. It's third, we get a commission. So it's kind of like 3p, if you will, 3p sales. And at some juncture, some of the rules, accounting rules of where you can include in sales based on what risk and what ownership will you have in the items. But in this juncture, those sales, it's more of an end in the, you know,

Speaker Change: Well first of all it's it's still very small relative to our company and the fact is is that the cost to net sales currently are not in our sales.

Speaker Change: We get a commission so it's kind of like <unk>, If you will <unk> sales and at some juncture summit.

Speaker Change: Accounting rules of where you can included in sales based on what risk and what ownership level you have in the items, but at this juncture those sales.

Speaker Change: More of it.

Speaker Change: Market value and just the commission in our number.

market value and just the commission in our number. In terms of how we vet, we do it the same way we vet items. We want items that make sense, that provide value. And we have a team that is here that are vetting each and every one of those. I think we're up to about 70.

Speaker Change: In terms of how we vet, we do it the same way we bet items, we want items that makes sense the right value and we have a team that is here that are inventing every each and every one of those I think we're up to about 70.

about 65 current suppliers on there and we'll certainly have many more as we go forward.

Speaker Change: About 65 current suppliers on there and we'll certainly have many more as we go forward.

So presumably if that program keeps growing, should that be a natural gross margin driver for you over time? I know it's small now, but if you're just collecting the commission, presumably that's kind of 100% margin, right? Essentially, yes. Much like the travel.

Speaker Change: So presumably if that program keeps growing she bought being natural gross margin driver for you over time I know, it's small now, but if you're just collecting the commission, presumably that's a 100% margin rate.

Speaker Change: Essentially yes, much like to travel business.

Speaker Change: Got it okay. Thank you.

Speaker Change: Mostly.

We'll take our next question from Greg Millic with Overture ISI.

Speaker Change: We'll take our next question from Greg Melick with Evercore ISI.

I think Richard wanted to follow up on the membership be hike as I think now we're in extra time.

Greg Melick: Hi, Thanks Richard.

Greg Melick: To follow up on the membership fee hike as I think power on extra time.

and I wonder how much does the growth and mix and executive membership driving that high single digit growth, is that what means that you don't have to increase it and you could keep waiting, or is there something else?

Greg Melick: And I wonder how much does the growth and mix and executive membership driving that high single digit growth is that what means that you don't have to increase it and you could keep waiting or is there something else.

I think it's just us. You know, again, if I look at the, if you ask the question, what are the variables we would look at, we would want to look at strong new rates, strong new signups, strong loyalty, and we have all that. So I think it's question is we haven't needed to do it. We like.

Speaker Change: I think it was just us.

Speaker Change: Again, if I look at the if you ask the question.

Speaker Change: And what are the variables, we would look at it.

We want to look at strong renewal rates strong new sign ups strong loyalty and we have all of that so I think it's a question is we haven't needed to do it we like.

providing extreme value. Certainly, while we've gone a little longer than the average increase, we feel we certainly have driven more value to the membership. So, you know, I'll use my stand by answer. My Pat answered it's a question of when, not if, but this juncture, we feel pretty good about what we're doing.

Speaker Change: Providing extreme value certainly, while we've gone a little longer than the average increase we feel we certainly have driven more value to the membership so.

Speaker Change: Ill use my standby answer my Pat answer it's a question of when not if but at this juncture, we feel pretty good about what we're doing.

And a follow-up on inflation, I just want to make sure I got that right. He said zero to one for the quarter. Did it trend towards zero? Did we exit near the bottom? And you mentioned some categories that were deflationary. Which ones are stubborn in terms of inflation? Where it's hardest to get it out.

Speaker Change: And a follow up on inflation I, just want to make sure I got that right you said zero to one for the corner.

Speaker Change: The trend towards zero did we exit near the bottom end and you mentioned some categories that were deflationary, which ones are stubborn in terms of inflation, where it's hardest to get it out.

which categories are stubborn in inflation? Yeah. Yeah, for you. CPG. Bruns.

Speaker Change: Which inflation, which categories are stubborn inflation yeah, Brian.

Speaker Change: CPG brands.

Speaker Change: Obviously.

all the branded package stuff. There wasn't a big trend. I think at the end it was a little lower than the beginning, but not a big trend.

Speaker Change: All the branded packaged stuff.

There wasn't a big trend I think at the end there was a little lower than the beginning but not a big trend.

Speaker Change: Okay. So it sounds like we exited zero, we're still slightly positive.

It's not like we exit zero. We're still slightly positive.

Right, but recognize the LIFO charge is an inventory cost of sales charge.

Speaker Change: Right, but recognize the LIFO charges and inventory and cost of sales charge.

Speaker Change: The LIFO benefit.

Speaker Change: And your other lines year over year.

Right. The zero to one is from the beginning of the fiscal year. Oh, no, it's from the year. I'm sorry, the beginning of the zero to one is versus a year ago. A year over here. Got it. Yeah, yeah. Great. And then this last, what is the auto renewal rate now?

Speaker Change: Right.

Speaker Change: Zero to one is from the beginning of the fiscal year.

Speaker Change: I'm sorry, the beginning of the zero to one is versus a year ago.

Speaker Change: Our year over year got it yes, yes.

Speaker Change: Great and then just last one what is the auto renewal right now.

Speaker Change: The round.

Speaker Change: In the U S. It's around 60%.

Speaker Change: Perfect. Thanks have a great holiday guys.

Two.

Speaker Change: Yeah.

We'll see you next question from Roupage Parique with Oppenheimer.

We'll take our next question from <unk> Parikh with Oppenheimer.

Good afternoon and thanks for taking my question. So I just want to go to operating expense growth. So operating expense growth is still high. Would you expect the growth rates to moderate once you've got that March wage increase? And then anything unusual within that line of them, that's still driving pretty high growth.

Parikh: Good afternoon, and thanks for taking my question. So I just wanted to go to the operating expense growth. So operating expense growth is still high would you expect that growth rate to moderate once you bought that March wage increase and then anything unusual within that line item, that's still driving a pretty high growth.

There's not a lot unusual. I think it's back to the question of low inflation, which creates a little bit more of a challenge, right? My extreme, and again, that was a very extreme example. I gave you a nuts, but when you had a zero to 2% decline in sales and a 14% increase in units, you got more labor involved, more hours stock of the shelf. I mean, that's the 40,000 foot level. And that's an extreme example. But I think overall,

Parikh: There's not another unusual I think it gets back to the question of low inflation, which creates a little bit more of a challenge right.

Parikh: And again that was a very extreme example, I gave you a nuts, but when you had.

Parikh: Zero slightly zero to 2% decline in sales and a 14% increase in units you got more labor involved more hours stock the shelf I mean thats the.

Parikh: The 40000 foot level.

Parikh: It's an extreme example, but I think overall.

Parikh: It is sales based.

It is sales based. You should also remember, I remember going back to fiscal 19, the first part of fiscal 20 before COVID, you know, our S-T-N-A percent was, if for all of 2019 it was a 10-04, and the first quarter of 2020 it was a 10-34.

Parikh: Also remember if I remember going back to the fiscal 19, and the first part of fiscal 'twenty before Covid.

Parikh: Our SG&A percent was.

Parikh: For all of 2019, there was a $10 four in the first quarter of 2020 was <unk> 34 and for the whole year. It was at 10 O four for both of those two years and we used to think to ourselves.

And for the whole year, it was a 10-04 for both of those two years. And we used to think to ourselves, we'll be able to get it back below 10.

Parikh: <unk> been able to get it back below 10 and.

And in 2022, which was the kind of month seven through 18, if you will, that that 12 month period after that full fiscal year for us of COVID.

Parikh: In 2022, which was the kind of months seven through 2018, if you will that that 12 month period after that full fiscal year for us of Covid, We reported 888 for that year. So even if the 945 that we just reported were still quite a bit lower than we had been historically.

We reported an 888 for that year. So even at the 945 that we just reported, we're still quite a bit lower than we had been historically. A function of a lot of things, including higher sales productivity and all that. So I think we're doing pretty well. I think certainly that's the challenge.

Parikh: <unk> have a lot of things, including higher sales productivity and all that so I think we're doing pretty well I think certainly that's the that's the challenge.

How do we reduce that? And how do we manage that? And certainly the biggest way to manage this driving.

Parikh: How do we how do we how do we reduce that and.

Parikh: How do we how do we manage that.

Parikh: Certainly the biggest way to manage that is driving more sales.

Great, and then maybe just one follow-up question. So just curious how you're feeling about the health of your consumer. So it was interesting to hear that TVs were, you know, did well this past quarter.

Speaker Change: Great and then maybe just one follow up question. So just curious how youre feeling about the health of your consumer so what's interesting to hear about Tvs.

Speaker Change: I did well this past quarter.

Look, I think when we're asked that question, we're fortunate to answer it that we're first of all looking at the consumer through somewhat.

Look I think when we're asked that question, we're fortunate to answer it.

Speaker Change: First of all looking at the consumer through somewhat.

rose colored glasses here. We have enjoyed great value. And again, we're convinced it's value. I think on the margin, there's a few extra things that we've done. We've improved the site on the website. We've gotten a little better communicating stuff, not completely. But I think overall, and we've been good merchants. I think the merchants have done a great job of bringing in new stuff.

Speaker Change: Rose colored glasses here.

Speaker Change: The.

Speaker Change: We have enjoyed great value and again, we're convinced its value as we've done I think on the.

Speaker Change: On the margin there is a few extra things that we've done we've improved the size of the website, we've gotten a little better communicating stuff not completely.

Speaker Change: But.

Speaker Change: I think overall, it's and we've been good merchants I think the merchants have done a great job of bringing in new stuff.

And not being shy when we see an industry credit grade down a lot that we can still, if we're driving people in, we've got a better chance of getting them to buy something. Thank you. Happy holidays.

Speaker Change: And nothing and not being shy when we see an industry credit grade down a lot that we can still if we're driving people and we've got a better chance of getting them to buy something.

Speaker Change: Thank you happy holidays.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: We'll take our next question from Oliver Chen with TD Cowen.

Hi, this is Tom Nasson for Oliver. Just a quick question on the trend of Kirkland relative to last year. If you could just remind us how that's trending maybe across categories. And then if you have any notable call out any recent innovations, just curious if this is essentially driving any efficiencies and supplier negotiations that could position Costco for stronger growth margin ahead.

Speaker Change: Hi, This is Tom NASA on for Oliver.

Tom: Just a quick question on the trend of Kirkland relative to last year. If you could just remind us how thats trending maybe across categories and then if you have any notable callouts any recent innovations.

Just curious if this is essentially driving any efficiencies and supplier negotiations that competition Costco for stronger gross margin ahead.

Well, I would say allowing us to get better deals, which mean lower prices. Look, I think, a critical signature relative to non-gas sales is in the high 20s.

Speaker Change: Well I would say.

Speaker Change: Allowing us to get better deals, which means lower prices, but yes look I think.

Speaker Change: Hercules signature relative to non gas sales is in the high <unk> and I think it was probably a good year ago. When inflation was in the eight to nine range. If you will if you remember and we talked about that year over year, we saw probably the biggest increase penetration of Ks Australia.

And I think it was probably a good year ago when inflation was in the eight and nine range, if you will. If you remember, and we talked about that year over year, we saw probably the biggest increased penetration of KS at FOSCO, it was one and a half percentage points. When historically it had been 25 to 50 basis points a year. I think we're back to that, but we've maintained that higher level and we're back to seeing

Speaker Change: Was 115 percentage points when historically it had been 25 to 50 basis points a year.

Speaker Change: We are back to that but we've maintained that higher level and we're back to C. C.

smaller increases in penetration every year, but nonetheless, still driving that business. But we've got...

<unk> increases in penetration over here, but nonetheless still driving that business we've got.

Speaker Change: Yes, I think that helps with some of the deflationary stuff certainly with <unk>, we're closer to the supplier we're not the only.

Yeah, I think that helps with some of the the place area stuff. Certainly with KS stuff, we're closer to the supplier. We're not the only, we're the only customer buying that item and then we can drive a little bit more business. So I think it just continues to work that way for us.

Speaker Change: We are the only customer buying that item.

Speaker Change: And we can drive a little bit more business.

Speaker Change: So I think it just continues to work that way for us.

Great, and then just a quick follow-up on any notable behavioral trends you've seen in consumer shopping this holiday season.

Speaker Change: Great and then just a quick follow up on any notable.

Speaker Change: Behavioral trends you've seen in consumer shopping this holiday season.

Speaker Change: Okay.

Some of the colleagues in my room said they're buying gold. But no, that's actually online mostly. But no, I think...

Speaker Change: Southern Cal we give my room, so they are buying gold, but no that's actually online, mostly but no I think.

Again, I think the traffic thing is the thing that we're happily surprised about that we're continuing to drive people in on an increasing basis. You know, we know we benefited during those 12 of those two years, kind of March, April of 20 to March, April of 22, the kind of the two years of COVID. We benefited in many ways from more members and more volumes. And we've not only kept it, we're continuing now to add to those levels. So we're we're we're very fortunate in that regard.

Speaker Change: Again, I think the traffic thing is the thing that we're happily surprised about that we're continuing to drive people in on an increasing basis.

Speaker Change: We know we benefited during those to cover those two years kind of March April of 'twenty to March April of 'twenty, two the kind of the two years of Covid, we benefited in many ways from more members and more volumes and we've not only kept it we're continuing now to add to those levels. So we feel very fortunate in that regard.

Speaker Change: Thanks.

One of my colleagues here just mentioned that discretionary merchandise trends are getting a little better. And that's not only on big tickets but in general non-food chain.

Speaker Change: One of my colleagues here, just mentioned that discretionary merchandise trends are getting a little better and thats not only on big ticket, but in general general non food stuff.

Speaker Change: I think that corresponds with my comment earlier that we feel good about.

I think that corresponds with my comment earlier that we feel good about the seasonal how we've done it seasonally.

Speaker Change: The seasonal.

Speaker Change: How we've done seasonally.

Speaker Change: We will take all right. Thanks.

Thank you. We'll take our next question from Mark Astrochan with Steve Ful.

Speaker Change: Thank you we'll take our next question from Mark Astrachan with Stifel.

Yes, thanks, and afternoon, everyone. I guess I wanted to ask on the Kirkland products, specifically maybe on the CPG that you mentioned, how price is trended on those versus the branded products? Have you seen any deviation there, are you giving your closer, are you able to lower prices? I suppose to the extent that that has happened, do you notice any more market share changes within those CPG categories?

Mark Astrachan: Yes, Thanks and afternoon everyone.

Mark Astrachan: I guess I wanted to ask on the Kirkland products, specifically, maybe on the CPG as you mentioned, how pricing or how as prices trended on those versus the branded products have you seen any deviation there given your closer are you able to lower prices I suppose.

Mark Astrachan: To the extent that that had happened.

Any more market share changes within those CPG categories.

I think it's slightly, it's a little more deflationary in the KS than in the CPG. But which drives more value than KS, frankly. But we're seeing some, some, our ability to work with our CPG cus, the suppliers as well. But just a little stronger ability to do that with KS.

Mark Astrachan: I think.

Mark Astrachan: I think it's slightly deflationary.

Mark Astrachan: More deflationary in the chaos that in the CPG, but which drives more value to chaos frankly, but we're seeing some.

Mark Astrachan: Our ability to work with our CPG.

Mark Astrachan: Suppliers as well.

Mark Astrachan: But just a little stronger ability to do that with chaos.

Got it. And again, a comment in the room here. We've had, it's allowed us to do some new item introductions on the KSI as well.

Mark Astrachan: Okay.

Speaker Change: Got it and then.

Speaker Change: It is.

Speaker Change: Again, a comment in the room here we've had.

Speaker Change: It's allowed us to do some new item introductions on the <unk> side as well.

Speaker Change: Great.

And they're just following up on the last question. Anything you can call out amongst the newer memberships, cohorts in terms of renewal rates versus the average.

Speaker Change: And then just following up on the last question anything you can you can call out amongst the newer memberships cohorts in terms of renewal rates versus the average.

Generally speaking, you know, if you compare, everybody was always concerned, I remember 10 plus years ago, people would ask, how are you going to have millennials? And then it's how are you going to have to the next gen or whatever, the gen Z's or whatever. At the end of the day, when we look at the different cohorts,

Speaker Change: Generally speaking if you compare.

Speaker Change: It was always concerned I remember 10, plus years ago people would ask how are we going after millennials and that is how are you guys. After the nextgen or whatever the gen Z or whatever at the end of the day when we look at the different cohorts.

If you just change the names, the curve seems to be about the same. In terms of getting new younger members, they buy less.

Speaker Change: Can you just change the names the curve seems to be about the same in terms of getting new younger members they buy less.

they buy more as they get older into that 40 to 50 five-year-old sweet spot I don't know in terms of in terms of renewal rate

Speaker Change: They buy more as they get older into that 40% to 55 year old sweet spot.

Speaker Change: I don't know in terms of in terms of renewal rates.

I think the rates are overall rates are improving, so I think we're probably doing a better job there. Certainly things like frankly, auto renewal help that as well. Got it. Thank you. Happy holidays. Thank you.

Speaker Change: I think the rates are our overall rates are improving so I think we are probably doing a better job. There certainly things like frankly auto renew will help that as well.

Speaker Change: Yes.

Speaker Change: Got it thank you happy holidays.

Speaker Change: Same to you.

Speaker Change: Yeah.

Speaker Change: We will take our next question from Macquarie Carlo with Jefferies.

Good afternoon. Thank you for taking my question.

Hi, good afternoon.

Macquarie Carlo: Thank you for taking my question.

You mentioned about the wage increases that you've taken recently. I'm curious to get your thoughts.

Macquarie Carlo: Richard you mentioned about the wage increases that you've taken recently I'm curious to get your thoughts.

about the wage increases that you've taken within the context of now the lower inflation that you're seeing as well as what could be potential deflation further ahead. So, curious about the...

Macquarie Carlo: Without the wage increases that you've taken within the context of <unk>.

Macquarie Carlo: Now the lower inflation that you're seeing as well as what could be potential deflation. Further ahead. So I'm curious about the <unk>.

ability for Kafka to maybe even attain a more nimble margin structure amid what could be some volatility on the pricing side.

The ability for <unk> to maybe maintain a more nimble margin structure on the <unk>.

Macquarie Carlo: What could be some volatility on the pricing side.

Frankly, we look at the wages in the vacuum, and we want to do as much as we can for employees. And certainly, there were several increases starting with the frontline worker premium during the initial year of COVID. We kept half of that in there, which we kept one of those $2 an hour in there, which was like 400 million a year.

Macquarie Carlo: Yes.

Macquarie Carlo: Frankly, we look at the wages in a vacuum and we wanted to do as much as we can for our employees.

Macquarie Carlo: And certainly there were several increases starting with the frontline worker premiums during the.

Macquarie Carlo: Initial year of Covid, we kept half of that in there which.

Macquarie Carlo: We kept one of those $2 an hour in there, which was like $400 $400 million a year.

Again, we've also benefited from stronger sales and productivity, so we were able to afford that. But we look at them independently and we'll continue to do that to look at it. To the standard stationary pressures are down.

Macquarie Carlo: Again, we've also benefited from stronger sales and productivity. So we were able to afford that but we look at them independently and we'll continue to do that and to look at it.

Macquarie Carlo: Extend inflationary pressures are down that means there is probably a little less it inflationary pressure on wages, but we give over half of our employees are top of scale there.

That means there's probably a little less investment inflationary pressure on wages. But we give over half of our employees are at top of scale and they're getting increases. Irrespective of some of the extra things we've talked about every March. And then as you go from a new employee over the first nine or 10,000 hours, you're getting constant increases that are significantly more.

Macquarie Carlo: Are you getting increases irrespective of some of the extra things we've talked about every March and then as you go from a new employee over the first nine or 10000 hours youre getting constant increases that are significantly more.

Speaker Change: Understood and then just piggybacking off of that.

Understood and then just piggybacking off of that and I understand it may be difficult to attribute a cause and effect relationship to this, but you think that perhaps the moderating inflation that we've seen in the need based categories like fresh and food and sundries may have unlocked a little bit of extra wallet to spend in the non food category and they have driven some of the momentum that you've seen in categories like to be in others.

Speaker Change: Understand it may be difficult to attribute a cause and effect relationship to this but you think that perhaps the moderating inflation that we've seen in the need based categories like fresh and food and sundries may have unlocked a little bit of extra wallet.

Speaker Change: And in the non food category and.

Speaker Change: Driven some of the momentum that you've seen in categories like <unk> and others.

I think it can't hurt, you know, either with gas prices have come down a little bit, you know, that's top of mind every week when somebody fills up their tank. So those things help. I think I'm sure on a macro basis that's the case, but it's a guess on our part. Understood.

Speaker Change: I think it can't hurt.

Speaker Change: Even with gas prices have come down a little bit.

Speaker Change: That's top of mind every week when somebody fills up their tank. So those things helped I think I'm sure on a macro basis Thats the case, but it's a guess on our part.

Speaker Change: Understood great. Thank you very much investor work.

Okay.

Speaker Change: Thank you.

Speaker Change: We will take our next question is from Keith Rosenbloom with Bernstein.

We'll take our next question from Dean Brodon Blimm with Burn Scene.

Hey Richard, guys, thanks for taking my questions. There's gonna be two big debates the clients are asking us about. First one's on gross margins, and in particular the potential for a gross margin impact from Nick's shift.

Keith Rosenbloom: Hey, Richard guys. Thanks for taking my questions.

Keith Rosenbloom: Two big debates of clients are asking us about first one is on gross margins and in particular the potential for a gross margin impact from mix shift.

Back toward things like appliance is in TVs, which are notoriously lower gross margin at least in the marketplace versus fresh and food and sundries. As you see the sort of big ticket discretionary starting to come back a little bit do expect any overall impact on gross margins from that mix shift away from food and sundries to big ticket discretion.

Keith Rosenbloom: Back toward things like appliances, and Tvs, which are notoriously lower gross margin at least in the marketplace versus fresh and food and sundries.

Keith Rosenbloom: As you see the sort of big ticket discretionary starting to come back a little bit do you expect any overall impact on gross margins from that mix shift away from food and sundries to big ticket discretionary.

You know, first of all, our margin range is so much more compact than traditional retail.

Keith Rosenbloom: First of all our our margin range is so much more compact than traditional retail.

different categories of traditional retail. I mean, if you think about it, we have what a 12, 13% growth margin.

Keith Rosenbloom: Different categories of traditional retail.

Keith Rosenbloom: If you think about it we have what 12% 13% gross margin.

11, I'm thinking it marks up. And theory it ranges from zero to 15 in reality. It's in, there's very few things that are below five and a lot of things hover around the eight to 12 range. And so I don't think it's as big and impact to us in terms of those mixed.

Keith Rosenbloom: 11, I'm thinking marks up.

Keith Rosenbloom: And.

Keith Rosenbloom: In theory, it ranges from zero to 15 in reality.

Keith Rosenbloom: There's very few things that are below five and there are a lot of things hover around the eight to 12 range and.

Keith Rosenbloom: And so I don't think it's as big of a impact to us in terms of those mix changes.

And I gotta say, it's always saying, it's always something, there's always something that hurts you and there's another thing that helps you. And it's a really, it's a mixture.

Speaker Change: Got it.

Speaker Change: I'd say, it's always that old, saying, it's always something there's always something that hurts you and there is another thing that helps you.

Speaker Change: It's a really it's a mixture.

And then the other big debate that's contraption about is the relative profitability of new stores versus existing stores. And there's sort of two themes there. One is new US versus existing US. And then the relative profitability of new stores internationally. I was only if you could speak to that.

Speaker Change: So true and then the other the other big debate that contrast in the past is the relative profitability of new stores versus existing stores and they are sort of two themes. There one of the new U S versus existing U S. And then the relative profitability of new stores internationally. I was wondering if you could speak to that a bit.

Well, first of all, we look at like an RLI, the I on a, the denominator on an older building is a lower I. You know, if 10 years ago, the typical building in the United States, you know, property equipment and building fixtures, I'm shooting from the hip here, but it was 30 to 35 million, and now it's 45 to 50 million, so you've got a different I. But generally speaking,

Speaker Change: Well first of all when you are looking like.

Speaker Change: The eye on the denominator on an older building and has a lower <unk>.

Speaker Change: If 10 years ago, the typical building in the United States land property equipment and building fixtures.

Speaker Change: I'm shooting from the hip here was 30% to $35 million and now it's $45 million to $50 million, you've got a different eye.

Speaker Change: But generally speaking.

Speaker Change: When we win.

Speaker Change: Sure.

When we look at the ROI of each of our eight US regions, our two Canadian regions,

Speaker Change: When we look at the ROI of each of our eight U S regions, our two Canadian regions.

New units come in and start a little lower and get up there over time. You'll have some outliers because of some units that are 30 and 40 years old, even with the eye increase because we expanded the unit and upgraded it and remodeled it. The fact of matter is is...

Speaker Change: New units come in start a little lower and get up there overtime youll have some outliers because of some units that are 30% to 40 years old even with the increase because we expanded the unit and upgraded it and remodeled it. The fact of the matter is as those higher volume is really shine through there.

Those higher volumes really shine through there. On an international standpoint, we've always, I think, talked about the fact that there's a few different things that the ROI's and some of these other countries tend to be a little higher. The return on sales tends to be even higher than that in some of these countries because a combination very little related to gross margin, some related to membership fees, some related to wages, and some related to benefits, health benefits.

On an international standpoint.

Speaker Change: We've always I think talked about the fact that there is a few different things that the rois in some of these other countries tend to be a little higher.

Speaker Change: The return on sales tends to be even more even higher than that and some of these countries because a combination of very little related to gross margin some related to grace to membership fees some related to wages and some related to benefits health benefits.

US healthcare costs dwarf every other country that we're in.

Speaker Change: Health care costs dwarf every other country that we're in.

Got it. Thanks so much. I appreciate it. Good holidays and thanks for the pie.

Speaker Change: Got it thanks.

Speaker Change: Thanks, so much I appreciate it good holidays and thanks for the pie.

Speaker Change: Thank you.

Speaker Change: Yes.

We'll take our next question from Joe Feldman with TLC Advisory Group.

Speaker Change: We will take our next question from Joe Feldman with Telsey Advisory group.

Hey guys, thanks for taking the question. I wanted to first ask on executive member penetration seems like it continues to inspire. I'm just wondering how you guys think about that and like how high should that be? I mean presumably you'd want everybody to be an executive member, but is there like kind of a natural level where you think it can still go from here beyond the 46%

Joe Feldman: Hey, guys. Thanks for taking the question.

Joe Feldman: Wanted to first ask on executive member penetration seems like it continues to inch higher and I was just wondering how you guys think about that and like how high should that be I mean, presumably you'd want everybody to be an executive member, but is there like kind of a natural level, where you think you can still go.

Joe Feldman: From here beyond the 46%.

Joe Feldman: I think there's always going to be another country or two we add.

I think, well, there's always going to be another country or two we add. You need a certain number. In our view, we've always done it after there's 15 or so warehouse in the country. So that'll add to a little bit. No, and we, I think some of the increase.

Joe Feldman: Need a certain number in our view, we've always done it after there is 15 or so warehouses in the country.

Joe Feldman: So that will add to a little bit but no.

Joe Feldman: I think some of the increase.

It's kind of like getting up to that asymptotic line. When you, you know, one of these that drove it in the last few years, one we've done a better job in the last several years of selling it to you, as well as auto renewal. When people come in now or sign up online, they're signing up to they wanna put their debit card in there and they can opt out, they can opt into doing it online.

Joe Feldman: It's kind of like getting up to that asymptotic line when you.

Joe Feldman: One of the things that drove it in the last few years, one we've done a better job in the last several years.

Joe Feldman: Selling it to you as well as auto renewal when people come in now our sign up online. They are signing up do they want to put their credit or debit card in there and they can opt out they can opt into doing it online.

I do a lot of renewal. So I think those things have pushed it along with us, you know, being so wonderful. But I think you'll see come up a little bit, but probably that rate of increase will slow over time.

Dewey auto renewal. So so I think those things have pushed it along with us.

Joe Feldman: So wonderful but.

Joe Feldman: You'll still see come up a little bit, but probably that rate of increase will slow over time.

Speaker Change: Got it Okay, and then maybe just a quick follow up.

Got it. Okay. And then maybe just a quick follow up.

Anything to talk about on shrink? Because I know that, you know, there was an issue with shrink, even for you guys at one point. And I know you guys have cracked down on, you know, making sure members are showing their cards when they walk in the store. And obviously that when you leave with your goods, they're checking your receipts. But...

Speaker Change: Oh.

Speaker Change: To talk about on shrink because I know that.

Was it an issue with shrink even for you guys at one point and I know you guys have cracked down on.

Making sure members are showing their cards when they walk in the store and obviously when you lead with your goods.

Speaker Change: Checking your receipts, but.

Anything we should think about with regard to shrink going forward and recent trends. And nothing.

Speaker Change: Anything we should think about with regard to shrink going forward and recent trends.

Speaker Change: Nothing thankfully nothing at all.

Good. It's really, you know, I think what we already talked about was, you know, a combination of as we went into some self-check out over the last several years and then perhaps more recent things that you read about in the paper, we get less impacted by the latter as well. Maybe we saw a couple of basis point Delta upwards on a very low number of basis points to start with. So we're fortunate in that regard. Thank you. And happy holidays, guys.

Speaker Change: Good it's really.

Speaker Change: I think it will already talked about was.

Speaker Change: The combination of as we went into some self checkout over the last several years and then perhaps more recent things that you read about in the paper, we get less impacted by the ladder as well maybe we saw couple of basis point Delta upward on a very.

Speaker Change: The low number of basis points to start with so we're fortunate in that regard.

Got it thank you and happy holidays guys.

Speaker Change: Same to you. Thank you.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Laura Champine with loop capital.

Thanks for taking my question. I wanted to dig in a little bit more into some of those numbers on the column that the ancillary profit improvement. I think that's where you're, I'm just wondering what drove that. And on the operations line, it sounds like that pressure in SUNA. Didn't come mostly from wages, and I'm wondering where it did come from.

Laura Champine: Thanks for taking my question I wanted to dig in a little bit more into some of those.

Laura Champine: Numbers on the column.

Laura Champine: Ancillary profit improvement.

Speaker Change: That's where you are.

Speaker Change: Im just wondering what drove that.

Speaker Change: And on the operations line it sounds like that that pressure in SG&A didn't come mostly from wages and I'm wondering where it did come from.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Yep, on the ancillary line, it's gas and e-com, and it's combination of increased sales penetration and increased margins within those businesses.

Speaker Change: Yes, yes on the ancillary line its gas in E com and it is a combination of increased sales penetration and increased margins within those businesses. The thing about gas is I think everybody out there that has gas stations, but we have found is as we've been able to see improved profitability not just in the last quarter or two but over the last few years.

You know, the thing about gas is, I think everybody out there that has gas stations, what we have found is, is we've been able to see improved profitability not just in the last quarter or two, but over the last few years.

last three to five years improve profitability and gas because others are making more and we're allowed to make a little more When we do our competitive price shots on gas, which we do weekly at every gas station we operate with our neighboring competitive gas stations our value proposition is actually

Speaker Change: Three to five years.

Speaker Change: <unk> profitability in gas because others are making more and we're allowed to make it a little more when we do our competitive price shops on guests, which we do weekly at every gas station, we operate with our neighboring competitive gas stations. Our value proposition is actually increased increased number of cents per gallon than we've ever seen so that's.

increase number of cents per gallon than we've ever seen. So that's been a, if you will, a win-win for us.

Speaker Change: If you will a win win for us.

On the e-com site, I think driving more sales has helped us in the margins there as well.

Speaker Change: On the E Comm side, I think driving more sales has helped us in the margins there as well.

Speaker Change: Thanks, and then just on normal operation on Malaysia, Yes.

Yeah, on the wages, while we pointed out, I pointed out the call, I think there's like four or so basis points in total from those two distinct increases. We do other increases like the over half of our employees are top of scale, they get an increase every March. That's significant as well. That's significant relative to basis points. When you have lower sales figures. Everything, the rest of it's all the other line items, like energy costs and the like.

Speaker Change: On the wages, while we pointed out I pointed out on the call I think there was like four or so basis points in total from those two distinct increases we do other increases.

Speaker Change: For half of our employees our top of scale they get an increase every march.

Speaker Change: That's significant as well as significant relative to basis points when you have lower sales.

Speaker Change: Those sales figures.

Speaker Change: And as is the rest of it's all the other line items like energy costs and the like.

Got it. So most of the pressure is probably coming from weight. It's not just those two discrete callouts you had. It's more than half. I don't have these.

Speaker Change: Got it so most of the pressure is probably coming from way just not just those two discrete callouts you had.

Speaker Change: Okay.

Speaker Change: More than half I don't have the exact figures with me got it. Thank you.

Speaker Change: Yes.

Thank you, and there are no further questions. At this time, I'd like to turn the call back over to Richard Galanti for any additional or closing remarks.

Speaker Change: Thank you and there are no further questions at this time I would like to turn the call back over to Richard <unk> for any additional or closing remarks.

Well, thank you, Lisa, and thank you everyone on the call. We're around to answer questions and have a happy holiday.

Richard Galanti: Well, thank you Lisa and thank you everyone on the call we're around to answer your questions and have a happy holiday.

And I think this is a record time of finishing this call. So enjoy the holidays. Thank you very much

Richard Galanti: And I think this is a record time of finishing this call. So enjoy the holidays. Thank you very much.

Speaker Change: Thank you and that does conclude the presentation. Thank you for your participation today and you may now disconnect.

Thank you, and that does conclude the presentation. Thank you for your participation today, and you may now disconnect. This is for your individual

Speaker Change: Okay.

Speaker Change: This concludes the presentation. Thank you for your partner.