Q2 2024 Costco Wholesale Corp Earnings Call

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Unknown Executive: Ladies and gentlemen, thank you for standing by. At this time, I'd like to welcome everyone to Costco Wholesale Corporation's fiscal second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by at this time.

Speaker Change: Welcome everyone to Costco, Oh C Corporation fiscal second quarter 2024 earnings call.

Speaker Change: All lines have been placed on mute to prevent any background nice after just cause relax. So it will be a question answer session. If you would like to ask question. During this time.

Unknown Executive: 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 the star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. I would now like to turn the conference over to Richard Galanti, CFO. Please go ahead.

Speaker Change: Your breasts are followed by the number one on your telephone keypad.

Speaker Change: If you would like to withdraw your question again press the star one.

Speaker Change: I'd now like to turn the conference over to Richard Galanti CFO. Please go ahead.

Richard A. Galanti: Thank you, Denise, and good afternoon to everyone. I will start by stating that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. These statements speak only as of the date they are made, and the company does not undertake or update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices in foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. In today's press release, we reported operating results for the second quarter of Fiscal 24, the 12 weeks ended February 18th, as well as February retail sales for the four weeks ended this past Sunday, March 3rd.

Richard A. Galanti: Alright, Thank you Denise and good afternoon to everyone.

I will start by stating that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events results <unk> performance to differ materially from those indicated by such statements.

Richard A. Galanti: 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 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.

Richard A. Galanti: In today's press release, we reported operating results for the second quarter of fiscal 'twenty for the 12 weeks ended February 18th as well as February retail sales for the four weeks ended this past Sunday March 3rd.

Richard A. Galanti: Reported net income for the 12-week second quarter came in at $1.743 billion, or $3.92 per diluted share, up from $1.466 billion, or $3.30 per diluted share, in the 12-week second quarter last year. This year's results included a tax benefit of $94 million, or $0.21 per diluted share, due to the deductibility of the $15 per share special dividend, to the extent received by our employee 401k plan Net sales for the second quarter were $57.33 billion, an increase of 5.7% from the $54.24 billion in the second quarter of last year. However, net sales were negatively impacted by approximately 1.5% in the U.S. and worldwide from the shift of the fiscal calendar as a result of the 53-week 2023 fiscal year. The following comparable sales reflect comparable locations year over year and comparable retail rates. In the U.S., we reported a 4.3% comparable; excluding gas, deflation, and FX, the 4.3% would have been 4.8%. Canada reported comp for the quarter 9.2%, 9.0% ex-gas and FX. Other international, 8.6% and 8.2% ex-gas and FX.

Richard A. Galanti: Reported net income for the 12 week second quarter came in at $1.743 billion or seven or three point $3.92 per diluted share up from four $1.466 billion or $3.30 per diluted share in the 12 week second quarter last year. This year's results included a tax benefit of $94 million.

Richard A. Galanti: Our 21 cents per diluted share.

Richard A. Galanti: The deductibility of the $15 per share special dividend to the extent received by our employee 401k plan participants.

Richard A. Galanti: Net sales for the second quarter with 50 733 billion, an increase of 5.7% from the $54.24 billion in the second quarter last year.

Richard A. Galanti: Net sales were negatively impacted by approximately one 5% in the U S and worldwide from the shift of the fiscal calendar as a result of the 53 week 2023 fiscal year.

Richard A. Galanti: The following comparable sales reflect the following comparable sales reflect comparable locations year over year and comparable retail weeks.

Richard A. Galanti: For you in the U S. We reported a 4.3% comparable excluding gas deflation and FX. The fourth we would've been at four eight Canada reported comp for the quarter at nine 2% 9.0 ex gas and FX.

Richard A. Galanti: Other international 8.6, and 8.2 ex gas and FX total company, a 5.6 reported for the quarter and a five 8% excluding gas deflation and FX.

Richard A. Galanti: Total company, a 5.6% reported for the quarter, and a 5.8% excluding gas, deflation, and FX; e-commerce was an 18.4% reported and an 18.2% excluding FX. In terms of second quarter comp sales metrics, our traffic or shopping frequency increased by 5.3% worldwide and 4.3% in the U.S. Our average transaction or ticket was up 0.3% worldwide and up 0.1% in the U.S., and foreign currencies relative to the U.S. dollar positively impacted sales by approximately 0.2% while gasoline price deflation negatively impacted sales by approximately 0.4%. Moving down the income statement to membership fee income, we reported $1,111,000,000 in membership fee income, up $84,000,000, or up 8.2% year over year in the quarter.

Richard A. Galanti: E Commerce was an 18.4% reported and an 18.2% excluding FX.

Richard A. Galanti: Effects.

Richard A. Galanti: In terms of second quarter comp sales metrics or traffic or shopping frequency increased by five 3% worldwide and four 3% in the U S.

Richard A. Galanti: Foreign Archer average transaction or ticket was up three tenths of a percent worldwide. It up one tenths of a percent in the U S and foreign currencies relative to the U S. Dollar positively impact sales by approximately two tenths of a percent while gasoline price deflation negatively impacted sales by approximately four tenths of a percent minus.

Richard A. Galanti: Moving down the income statement to membership fee income, we reported membership fee income of $1.111 billion up $84 million or up 88 or up eight 2% year over year in the quarter.

Richard A. Galanti: In terms of renewal rates at second quarter end, our US and Canada renewal rate came in at 92.9%, which is up one-tenth of a percent from Q1N 12 weeks earlier. And the worldwide rate came in at 90.5%, similar to the last quarter. Membership growth continues. We ended the second quarter with 73.4 million paid household members, up 7.8% versus last year, and 132.0 million cardholders, up 7.3%, with continuing growth throughout the quarter. At Q2 end, we had 33.9 million paid executive members, an increase of 646,000 during the 12-week second quarter.

Richard A. Galanti: Terms of renewal rates at second quarter end, our U S and Canada renewal rate came in at 90, 92, 9%, which is up 110th of a percent from Q1 end 12 weeks earlier in the world right. The worldwide rate came in at 95% similar to the last quarter.

Richard A. Galanti: Membership growth continues we ended the second quarter was $73 4 million paid household members up seven 8% versus last year and 132.0.

Richard A. Galanti: Cardholders up seven 3%.

Richard A. Galanti: With continuing growth throughout the quarters.

Richard A. Galanti: At Q2 end, we had $33 9 million paid executive members an increase of 646000 during the 12 week.

Richard A. Galanti: Second quarter.

Richard A. Galanti: Executive members represent a little over 46% of paid members and a little over 73% of worldwide sales. Moving down the income statement line next to the gross margin, a reported gross margin in the second quarter was higher year over year by eight basis points, coming in at 10.80% compared to 10.72% last year in the quarter, and at four basis points excluding gas deflation. Writing down the little matrix that we usually do with two columns, both reported and excluding gas deflation. The first line item is core merchandise plus five percent plus five basis points year over year on a reported basis and plus two x deflation for gas deflation. Ancillary and other plus seven and plus six. 2% reward, minus 7 and minus 7, LIFO plus 3 and plus 3.

Richard A. Galanti: Executive members represent a little over 46% of paid members and a little over 73% of worldwide sales.

Richard A. Galanti: Moving down the income statement line next to the gross margin our reported gross margin in the second quarter was higher year over year by eight basis points coming in at 10, 8% compared to $10 seven 2% last year in the quarter and up four basis points, excluding gas deflation.

Richard A. Galanti: Writing down the little matrix that we usually do with two columns, both reported and excluding gas deflation first line item is core merchandise plus 5% plus five basis points year over year on a reported basis and plus two extra deflation gas deflation ancillary another plus seven and plus six.

Richard A. Galanti: 2% reward minus seven and minus seven life.

Richard A. Galanti: LIFO, plus three and plus three.

Richard A. Galanti: And all told, total reported gross margin, again, year over year, up eight basis points and up four, excluding gas deflation. In terms of the core margin on their own sales, again, while the number I just read you was plus five basis points and plus two gas deflation, in terms of the core margin on their own sales, our core margins were up 25 basis points year over year, with food and sundries and non-foods being positive year over year, and fresh being negative. Ancillary and other businesses' gross margins were higher by 7 basis points and higher by 6 S-Gas.

Richard A. Galanti: All told our total reported again gross margin year over year up eight basis points and up four excluding gas deflation.

Richard A. Galanti:

Richard A. Galanti: In terms of the core margin on their own sales again, while the number I just Reggie was a plus 5% plus five basis points and plus two ex gas deflation in terms of core margin on their own sales are core on core margins were up 25 basis points year over year, with food and sundries and non foods being positive year over.

Richard A. Galanti: Year and fresh being negative.

Richard A. Galanti: Ancillary and other businesses gross margin were higher by seven basis points and higher by six S gas the increase year over year was driven largely by E comm and partially offset by gas.

Richard A. Galanti: The increase year-over-year was driven largely by E-Comm and partially offset by gas. 2% reward, again, higher by seven basis points, lower by seven basis points, both with and without gas deflation, with higher sales penetration coming from our executive members. LIFO plus 3 basis points.

Richard A. Galanti: 2% reward again higher seven basis points.

Richard A. Galanti: A lower seven by seven basis points, both with and without gas deflation with higher sales penetration coming from our executive members.

Richard A. Galanti: LIFO plus three basis points, we had a $14 million LIFO credit in the second quarter this year compared to no LIFO charge or credit in the second quarter of last year.

Richard A. Galanti: We had a $14 million LIFO credit in the second quarter of this year compared to no LIFO charge or credit in the second quarter of last year. Moving to SG&A, our reported SG&A in the second quarter was higher year over year by three basis points, or minus three would be higher, coming in at this year at 9.14% compared to last year's 9.11%, and the higher 0.3 would have been lower by one basis point excluding gas deflation. In terms of Q2 year-over-year, the operations component of SG&A, doing the matrix, was 11 basis points higher, or minus 11. Ex-gas deflation, minus 8, so 8 basis points higher. Central, plus 4 and plus 5 basis points.

Richard A. Galanti: Moving to SG&A.

Our reported SG&A in the second quarter was higher year over year by three basis points.

Richard A. Galanti: The industry would be higher.

Richard A. Galanti: Coming in at this year at $9, one, 4% compared to last year's 9.11%.

Richard A. Galanti: And the higher 0.3 would have been lower by one basis point, excluding gas deflation.

Richard A. Galanti: Yeah.

Richard A. Galanti: In terms of a Q2 year over year the operations component of SG&A.

Richard A. Galanti: Doing the matrix was 11 basis points higher or minus 11 ex gas deflation.

<unk> minus eight so eight basis points higher central plus four and plus five basis points.

Stock compensation, plus four and plus four.

Richard A. Galanti: Stock Compensation, plus four and plus four. The total would be three basis points higher year over year and plus one basis point or one basis point lower year over year or better. With regard to the operations component being higher by 11 reported and 8 excluding deflation, as compared to a year ago, during the past year, we included two last March's extra top-of-scale increase in wages, which was about a two basis point hit to the SG&A line. As well, in the first quarter of this year, we raised the starting wage in the U.S. and Canada. We estimate the impact of that new wage also was roughly two basis points. So, about four basis points of that eight or four basis points of that 11 were related to those two wage increases.

Richard A. Galanti: In total would be a three basis points.

Higher year over year, and plus one basis point or one basis point lower year over year or better.

Richard A. Galanti: And with regard to the the operations component being higher by a luxury reported an eight excluding deflation.

Richard A. Galanti: As compared to a year ago during the past year. We included two last march's extra top of scale increase in wages, which was about a two basis point hit to the SG&A line as well in the first quarter of this year, we raise the starting wage in the U S and Canada, we estimate the <unk>.

Richard A. Galanti: Impact of that new wage also was a roughly two basis points. So about four basis points of that eight or four basis points of that 11 or are related to those two wage increases.

Richard A. Galanti: More than normal.

Richard A. Galanti: More than normal. Below the operating income line, the central bank I mentioned was better by four and five basis points, and the rest was pretty much straightforward. Below the operating income line, interest expense was $41 million this year versus $34 million last year, and interest income and other for the quarter was higher by $102 million year-over-year. This was driven by an increase in interest income due to higher interest rates and higher average cash balances, as well as favorable foreign exchange, which was favorable versus last year. We'll see less benefit from interest income going forward following the January payment of the $6.7 billion special dividend.

Richard A. Galanti: Below the operating income line.

Central I mentioned was better by four to five basis points and the rest was pretty much straightforward.

Richard A. Galanti: Below the operating income line interest expense was $41 million this year versus 34 million last year and interest income and other for the quarter was higher by $102 million year over year.

Richard A. Galanti: This was driven by an increase in interest income due to higher interest rates and higher average cash balances as well as FX, which was favorable versus last year.

Richard A. Galanti: We will see less benefit from interest income going forward. Following the January payment of $6 $7 billion special dividend.

Richard A. Galanti: In terms of income taxes, our tax rate in the second quarter came in at 22.1%, compared to 26.1% in Q2 last year. As discussed earlier, this year's rate benefited from the tax deductibility of a special dividend paid to 401k participants. The fiscal 24 effective tax rate, including discrete items, is currently projected to be in the 26 to 27 percent range, and excluding the special dividend tax benefit in Q2, our Q2 tax rate, instead of coming in at 22.1 percent, would have been 26.3 percent.

Richard A. Galanti: In terms of income taxes, our tax rate in the second quarter came in at 22, 1% compared to 26, 1% in Q2 last year as discussed earlier.

Richard A. Galanti: This year's rate benefited from the tax deductibility of the special dividend paid to four O K participants.

Richard A. Galanti: Fiscal 'twenty four effective tax rate, including discrete items is currently projected to be in the 26% to 27% range and excluding the special dividend tax benefit in Q2, our Q2 tax rate instead of being 20 coming in at 22, 1% would've been 26, 3%.

Richard A. Galanti: Overall, reported net income was up 18.9% in the quarter on a reported basis, and again excluding the special dividend-related income tax benefit, it would have been up 12.5% year-over-year. There are a few other items of note. In terms of openings, in the second quarter, we opened four net new warehouses, including three new locations in the U.S. Actually, two of them were Costco business centers and one new Costco wholesale warehouse and one unit of our sixth warehouse in China in mid-January in Shenzhen. That's our sixth warehouse in China. There's been a lot of press about it. We have an estimated 10,000 people at the opening, and they're just under 200,000 members currently, including more than 20,000 members signed up from Hong Kong.

Richard A. Galanti: Overall reported net income was up 18, 9% in the quarter on a reported basis and again, excluding the special dividend related income tax benefit it would have been up 12, 5% year over year.

Speaker Change: A few other items of note.

Speaker Change: In terms of openings in the second quarter, we opened four net new warehouses, including three new locations in the U S. Actually two of them were Costco business centers, and one new Costco wholesale warehouse and one unit and our sixth in China in mid January in Shenzhen.

Speaker Change: Six in China.

Speaker Change: There's been a lot of press about it.

Speaker Change: We have an estimated 10000 people were opening and there just under 200000 members currently including more than 20000 members, who signed up from Hong Kong and we've seen all kinds of things over there from tour agencies doing Oh, a bus trips over to shop.

Richard A. Galanti: And we've seen all kinds of things over there, from tour agencies doing bus trips over to shop for the full year. At 24, we estimate 30 total openings, including two reloads, so for a net increase of 28 new units. And that puts the remainder of fiscal 24 for Q3 and 4. We plan on opening a total of 15 net new locations. 11 in the U.S., 2 in Japan, and 1 each in Korea and China.

Speaker Change: For the full year.

Speaker Change: 24, we estimate 30 total openings, including two reloads so for a net increase of 28 new units.

And that puts for the remainder of fiscal 'twenty four for Q3 and four we plan on opening a total of 15 net new locations.

<unk> 11 in the U S. Two in Japan, and one each in Korea and China.

Speaker Change:

Speaker Change: Regarding capex.

Richard A. Galanti: Regarding CapEx, fiscal second quarter spend was approximately $1.03 billion, and for the year, it remains in the north of $4.4 to $4.6 million in that range. One additional comment on China, this past Monday we launched at our Pudong, China location the ability for our members to order online about 400 items of our items, to be delivered that day. This, and delivery will be within about an 8-kilometer radius of the warehouse itself. It's getting a lot of social media attention over there, and we plan to launch it in the other four Shanghai area locations by month end, as well as in Shenzhen sometime the following month.

Speaker Change: Fiscal second quarter spend was approximately one point of $3 billion and for the year remains in the north of 4.4 to $4 6 million in that range. One additional comment on China. This past Monday, we launched in our Pudong, China location and the ability for our members to order online about 400 items from.

Speaker Change: Our of our items to be delivered that day.

Speaker Change: This this is in the delivery would be within about an eight kilometer radius of the warehouse itself.

Speaker Change: Getting a lot of social media attention over there and we plan to launch it and the other for Shanghai area locations by month, and as well as insurance and sometimes the following sometime the following months.

Richard A. Galanti: In terms of e-commerce, e-commerce sales in Q2, XFX increased 18.2%. E-commerce showed strength in several areas, led by sales of gold and, very recently, silver, as well as appliances were very, very strong, as were gift cards and e-tickets. As well, Costco Logistics enjoyed record-breaking deliveries. Much of that and many of those items are sold via e-commerce. In Q2 of 24, we completed over a million deliveries, up 28% versus Q2 a year ago. In terms of e-commerce sales over the past few months, we believe we've done a much better job explaining to our members the significant value propositions we offer compared to traditional competitors in several big ticket categories. Under the Why Buy at Costco banner, and the price you see is the price you pay banner, we share with our members what's included in the price of appliances, tires, televisions, computers, and mattresses.

In terms of E Commerce, our e-commerce sales in Q2 ex FX increased 18, 2%.

Showed strength in several areas led by sales of gold and very recently silver as well appliances were very very strong.

Speaker Change: Was gift cards and E tickets.

Speaker Change: The class as well Costco logistics enjoyed record breaking deliveries much of that in many of those items are sold via ecommerce in Q2 of 24, we completed over a million deliveries up 28% versus Q2, a year ago.

Speaker Change: In terms of e-commerce sales over the past few months, we believe we've done a much better job of explaining to our members the significant value propositions, we offer compared to traditional competitors in several big ticket categories.

Speaker Change: Under the why buy at Costco banner and the price you see is the price you pay banner, we share with our members. What's included in the price of appliances tires televisions computers and mattresses you can see these online on our website of why buy at Costco.

Richard A. Galanti: You can see these online on our website, Why Buy at Costco. Just to give you one example, if you buy a four-set of high-end tires compared to a traditional retailer, we include, of course, installation, rotation, balancing, five-year road hazard warranty, typically that's a lot less road hazard warranty than other places, or you'd have to pay for it extra, ongoing flat repairs, nitrogen, and disposal of the prior tires.

Speaker Change: Just to give you. One example, if he takes a fourth set of high end tires compared to traditional traditional retailer are we.

Speaker Change: We'd include.

Speaker Change: Of course rotate installation rotation balancing a five year road hazard warranty typically that's a lot less road hazard warranty or other places or you'd have to pay for it extra ongoing flat repairs, our nitrogen and disposal. The prior tires. Just one example of examples where the price of the tires itself might be very close in.

Richard A. Galanti: Just some examples where the price of the tires itself might be very close to us. If you put in all the differences of those additional items, it's anywhere from a 15% to 25% savings on any of these items. Next on my list, we'll talk about CostcoNext.com, and I have a couple of comments on the seller platform. CostcoNext.com allows our members to have exclusive access to direct-to-consumer sites for top-quality

To us when you put in all the differences of those additional items, it's anywhere from a 15% to 25% savings on any of these items.

Our next one that I list talk about Costco next dot com a couple of comments on the seller platform. This allows a costco next dot com allows our members to exclusive asset that access to direct to consumer sites for quite top quality brands at Costco value pricing.

Richard A. Galanti: Currently, there are 70 Costco Next brand stores, with 15 additional sites in development. We will likely end this calendar year with about 90 Costco Next stores and continue to grow from there. Costco Next offers everything from home improvement to apparel, to pet, to home, to kitchen, to electronics, to accessories, as well as sports, bicycles, and toys.

Speaker Change: Currently there are about 70, there are 70 Costco next brand sites with 15 additional sites in development, we will likely end of this calendar year with about 90 sites and continue to grow from there [noise]. Costco next offers everything from home improvement to apparel to pet to home to kitchen to electronics accessories, as well as sports bicycles and toys.

Speaker Change: You should check it out it's a it's a pretty good site.

Richard A. Galanti: You should check it out; it's a pretty good site. Progress continues to be made in our e-com, mobile, and digital efforts. A couple of recent enhancements. In February, we rolled out our new native mobile application homepage on iOS. The native homepage now loads in less than two seconds compared to eight seconds previously.

Speaker Change: Progress continues to be made in our E com mobile and digital efforts a couple of recent enhancements in February we rolled out our new native mobile application homepage on iOS.

Speaker Change: Native homepage now loads in less than two seconds compared to eight seconds previously needless to say that's important when about 60% of our E. Comm business. Both visitors and orders are now done via our mobile App and browser.

Richard A. Galanti: Needless to say, that's important when about 60% of our e-com business, both visitors and orders, are now done via our mobile app and browser. And last week, we rolled out Apple Pay to all members online, both web and mobile, on February 28. Apto loans during the quarter were up $2.8 million and currently total around $33 million.

Speaker Change: And last week, we rolled out Apple pay to all members online both web and mobile.

Speaker Change: On February 28th Apt.

Abdo loans during the quarter were up $2 8 million and currently total around $33 million on.

Richard A. Galanti: On the product side, we have a couple of other new items to comment on. In our food courts, we recently replaced the churro with an awesome, freshly-baked 5 12-ounce chocolate chip cookie for $2.49. It is awesome, and a great-tasting turkey sandwich for $6.99, with a roll of the latter being completed this week. In addition, we recently opened our first fully operational sushi offering in Issaquah, Washington, across the street from our headquarters, with two more planned to open in the very near future.

Speaker Change: On the product side, a couple of other new items to comment on and our food courts. We recently placed the churro with an awesome freshly baked five and a half ounce chocolate chip cookie for 249 it is awesome.

Speaker Change: A great tasting and a great tasting a turkey sandwich for $6 99, with the rollout of the latter being completed this week.

Speaker Change: In addition, we recently opened our first fully upgraded sushi offering in there.

Speaker Change: Our squad Washington across the street from our headquarters with two more planned to open in the very near future. This operation is what we have successfully done for years for many years and throughout our <unk>.

Richard A. Galanti: This operation is what we have successfully done for years, for many years, and throughout our Asia Costco in several countries over there. The SUSHI program has proven to be a category where we can be successful in both quality and price, and we're looking forward to seeing more of that in the future. A couple of comments about inflation. In the last quarter, in the first quarter, we estimated that year-over-year inflation was approximately zero to 1%.

Speaker Change: Asia cost goes in several countries over there.

Speaker Change: The Sushi program has proven to be a category, where we can be successful in both quality and price and we're looking forward to seeing more of that in the future.

Speaker Change: A couple of comments about inflation.

Speaker Change: And just lastly last quarter in the first quarter, we estimate that year over year inflation was approximately zero to 1% well now say that in Q2, it was essentially flat.

Richard A. Galanti: We'll now say that in Q2, it was essentially flat. And notwithstanding essentially flat, we're taking price reductions where we can, anecdotally, everything from simple items like reading glasses from 1899 to 1699 and the 48 count of Kirkland Signature batteries from 1799 to 1599. A 24 count of Pellegrino from $16.99 to $14.99, and even four pounds of frozen three berry fruit blend from $14.99 down to $10.99 with new crop prices.

Speaker Change: And notwithstanding essentially flat, we're taking price reductions, where we can anecdotally everything from simple items like reading glasses from 18, 99% to 16, 90 948 count of currency neutral batteries from 17 99 to 15 99.

Speaker Change: 24 counted pellegrino from 16, 99% to 14, 99, and even a four pounds of frozen three Berry fruit blend from 490, 914, 99 down to 10 99 with a new crop pricing.

Richard A. Galanti: So we continue to do that. We always want to be the first out there trying to lower prices. Many new items and sporting goods in lawn and garden are being set at lower prices year over year and overall, mostly due to reduced freight costs and lower commodity costs versus a year ago. And overall, our inventories and SKUs are in good shape across all channels. Overall, we've had good seasonal sell-through during the quarter. In terms of shipping and supply chain issues, we've been asked about that quite often of late. There are some delays, generally just a couple to three weeks, but mostly now planned for.

Speaker Change: So we continue to do that we always want to be the first out there trying to lower prices.

Speaker Change: Any new items in sporting goods, and lawn and garden are being set with lower prices a year over year and overall are the most mostly due to reduce freight costs and lower commodity costs versus a year ago.

Speaker Change: And overall inventory our inventories and Skus are in good shape across all channels. Overall, we have a good we've had good seasonal sell through during the quarter.

Speaker Change: In terms of shipping and supply chain issues. We've been asked about that often of late there's some delays generally just a couple of three weeks, but mostly now planned for you know first there was an issue a while back about when the Panama Canal challenges then of course, the Red Sea challenges a lot of that has to do with changing the way ships would be routed.

Richard A. Galanti: First, there was an issue a while back with the Panama Canal challenges, and then, of course, the Red Sea challenges. A lot of that has to do with changing the way ships are being routed. No meaningful pricing issues because a lot have been placed on contract. Finally, turning to our February sales results, the four weeks ended this past Sunday, March 3rd, compared to the same retail calendar weeks last year, Has reported a release that sales for the month came in at $18.21 billion, an increase of 6.9%, versus $17.04 billion for the same four retail weeks last year. Again, just to announce what we did in the announcement earlier today. The U.S. reported comp of 3.4% for February, ex-gas and FX 4.1%, Canada 8.4%, and 8.3%. Other international matches, 10-8 and 11-3.

Speaker Change: No meaningful pricing issues, because a lot of in place contracts.

Speaker Change: Finally, turning to our February sales results. The four weeks ended this past Sunday March 3rd compared to the same retail calendar weeks last year.

Speaker Change: As reported in our release net sales for the month came in at $18. Two 1 billion, an increase of six 9% versus 17.04 billion for the same for retail weeks last year.

Speaker Change: Again that just too.

Speaker Change: The announcement, we did in the announcement earlier today.

Speaker Change: U S. Our reported comp of three 4% for February ex gas and FX, four 1%, Canada eight four and eight three.

Speaker Change: Other international 10, eight and 11 three.

Speaker Change: For total company at five O reported in a five six ex gas and FX with E comm coming in at 16, two reported and a 16 Oh ex FX.

Speaker Change: Our comp traffic or frequency for February was up six 2% worldwide and up 5.1% in the U S.

Richard A. Galanti: For a total company of 5-0 reported in a 5-6 X-Gas and FX, with EECOM coming in at a 16-2 reported in a 16-0 X-FX. Our comp traffic or frequency for February was up 6.2% worldwide and up 5.0% in the U.S. However, foreign currencies year over year relative to the dollar negatively impacted total and comparable sales as follows: Canada by about one tenth of a percent, other international by approximately a half a percent, and total company by approximately a tenth of a percent. Gasoline price deflation negatively impacted total reported comp sales by approximately a half a percent.

Speaker Change: Foreign currencies year over year relative to the dollar negatively impacted total and comparable sales as follows Canada by about 110th of a percent negative other international by approximately a half a percent and total company by approximately 10%.

Speaker Change: Gasoline and gasoline price deflation negatively impacted total reported comp sales by approximately a half a percent.

Speaker Change: And the average worldwide selling price per gallon of gas was down approximately three 5% versus last year.

Speaker Change: Worldwide. The average transaction for February was down about 1.1%, which includes the negative impacts from FX and gas deflation.

Speaker Change: In terms of regional and merchandising categories. The general highlights are as follows U S regions with the strongest comps were Midwest southeast and northeast.

Richard A. Galanti: The average worldwide selling price per gallon of gas was down approximately 3.5% versus last year. Worldwide, the average transaction for February was down about 1.1%, which includes the negative impacts from FX and gas deflation. In terms of regional and merchandising categories, the general highlights are as follows. U.S. regions with the strongest comps were Midwest, Southeast, and Northeast. In terms of other international and local currencies, we saw strength in Mexico, Australia, and Korea. Moving to merchandise highlights, food and sundries were positive in the mid-single digits. Fresh foods were up high single digits, and non-foods were positive mid-single digits, and ancillary businesses were up in the low single digits. Food Court Pharmacy and Optical were top performers, with gas down low single digits on a lower price per gallon.

Speaker Change: In terms of other international and local currencies, we saw strength in Mexico, Australia and Korea move.

Speaker Change: Moving to merchandise highlights our food and sundries were positive in the mid single digits Fresh foods were up high single digits and non foods were positive mid single digits and ancillary businesses were up in the low single digits.

Speaker Change: Food Court pharmacy, and optical were top performers with gas down low single digits on a lower price per gallon.

Speaker Change: In terms of upcoming releases, we will announce our March sales results for the five weeks ending Sunday April 7th on the following Wednesday April 10th after market close and lastly, before I turn it back to Danny for Q&A I'd like to take a moment to say thank you to many of you who have turned into each quarter. Some for many years to allow me to share with you.

Speaker Change: Roscoe's results, both our ups and our downs and thankfully, many more ups and downs and provide some fun and informative color on how we're doing along the way since going public in December of 1985, I've hosted all but one call and it's been an absolute privilege and honor to do so so thank you all.

Richard A. Galanti: In terms of upcoming releases, we will announce our March sales results for the five weeks ending Sunday, April 7th, on the following Wednesday, April 10th, after market close. And lastly, before I turn it back to Demi for Q&A, I'd like to take a moment to say thank you to many of you who have turned in each quarter, some for many years, to allow me to share with you Costco's results, both our ups and our downs, and thankfully, many more ups than downs, and provide some fun and informative color on how we're doing along the way. Since going public in December of 1985, I have hosted all but one call, and it's been an absolute privilege and honor to do so, so thank you all.

As you know in early February it was announced that I would be seeding the role of CFO to Gary Miller Chip effective March 15th after our second quarter 10-Q was filed and retire including from our Board next January it's a bit surreal of late but what a wonderful journey. It has been a.

Speaker Change: With such a great company and great people, including many of you on the call today I have certainly been very fortunate.

Speaker Change: The good news, Gary joined Costco last week, and along with David and Josh will continue to provide you all with transparency and Straightforwardness that we're known for it will be a positive and seamless transition.

Speaker Change: With that I will be happy to turn it back to me to open it up for Q&A.

Speaker Change: Yeah.

Speaker Change: The floor is now open for your questions.

Ask the question this time, Chris Basta standing on the line.

Richard A. Galanti: As you know, in early February, it was announced that I would be ceding the role of CFO to Gary Millerchip effective March 15th, after our second quarter 10Q is filed, and retiring, including from our board, next January. It's been a bit surreal of late, but what a wonderful journey it has been with such a great company and great people, including many of you on the call today. I have certainly been very fortunate.

Speaker Change: Thank you Pat.

Speaker Change: [laughter].

Speaker Change: Well pause for just a moment to compile the Q&A roster.

Yeah.

Speaker Change: Yeah.

Speaker Change: Your first question comes from the line of Simeon Gutman with Morgan Stanley.

Okay.

Simeon Ari Gutman: Hi, Hi, everyone Hey, Richard.

Simeon Ari Gutman: Best wishes to you. Thank you for all your guidance that's a metaphor since you don't give guidance on.

Simeon Ari Gutman: My first question is on the.

Unknown Executive: The good news is that Gary joined Costco last week, and along with David and Josh, we'll continue to provide you with all the transparency and straightforwardness that we are known for. It will be a positive and seamless transition. With that, I will be happy to turn it back to Demi to open it up for Q&A. The floor is now open to your questions. To ask a question this time, please press star, then the number 1 on your telephone keypad.

Simeon Ari Gutman: It seems like a parting question on membership and I want to make sure. This framework sounds right I know you said it if not when.

Simeon Ari Gutman: And part of the thought process is there are enough levers in the business.

Simeon Ari Gutman: <unk> savings cost savings to be able to drive an appropriate level of like profit growth from the business and when that no longer presents itself.

Simeon Ari Gutman: We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Hi, hi, everyone. Hey, Richard. Best wishes to you. Thank you for all your guidance. That's a metaphor since you don't give guidance.

Simeon Ari Gutman: That's when the membership price increase could come through and that could come through earlier than that but that was one framework. We were thinking in this as we wait to hear when it happens.

Speaker Change: Sure and by the way, it's when not if.

Speaker Change: Bill.

Speaker Change: But really were.

Richard A. Galanti: My first question is on the, This is like a parting question on membership, and I want to make sure this framework sounds right. I know you said it's if, not when. And part of the thought process is that there were enough levers in the business, such as Product Savings and Cost Savings, to be able to drive an appropriate level of profit growth from the business. And when that no longer presents itself... That's when the membership price increase could come through, and that could come through earlier than that, but that was one framework we were thinking about as we wait to hear when it happens. Sure. And by the way, it's when, not if.

Speaker Change: Joking aside we're not that smart in terms of figure out exactly why I mean, we know that all the factors that we believe would.

Speaker Change: If we wanted to do it when we feel comfortable in terms of renewal rates new member sign ups loyalty all of those things are continuing in the right direction. It really is a function and I don't think it would be done simply because hey, things have slowed down a little bit of let's do it now.

Speaker Change: Like the fact that we're performing well we like the fact that all.

Speaker Change: Most all metrics are going in the right direction in our business right now we've got plenty of runway left and given the economy and in given everything else.

Richard A. Galanti: Still, and but really, we're joking aside, we're not that smart in terms of figuring out exactly why. I mean, we know that all the factors that we believe would, if we wanted to do it when we felt comfortable in terms of renewal rates, new member signups, loyalty, all those things are continuing in the right direction. It really is a function, and I don't think it would be done simply because, hey, things have slowed down a little bit. Let's do it now.

Speaker Change: It's us it's Costco. So I think it is simply still not trying to be cute about it it's not some big analytical formula It's simply a measure of we will at some point I'm sure you do it.

Speaker Change: And Oh, I'm been joking with Gary it'll be on his watch not mine.

Speaker Change: And then maybe one more Richard.

Speaker Change: Another question you used to the businesses Comped very consistently over time and used to say.

Speaker Change: You know.

Richard A. Galanti: We like the fact that we're performing well. We like the fact that almost all metrics are going in the right direction in our business right now. We've got plenty of runway left, and given the economy and given everything else, it's us. It's Costco. So I think it is still not trying to be cute about it. It's not some big analytical formula.

I regret when it won't comp north of four to five because that's where it may be tougher to leverage our expenses.

Speaker Change: And if you think about that framework you know does that still apply and then as you hand, the baton to Gary and even Ron.

Speaker Change: You know the spend more.

Speaker Change: Or are there ways, where you you know the cost structure of the business can actually be altered to lower that leverage threshold point.

Richard A. Galanti: It's simply a measure of we will at some point, I'm sure, do it. And I've been joking with Gary, it'll be on his watch, not mine. And then maybe one more, Richard, is another question used to that business is comped very consistently over time and used to say. You know, I regret when it won't comp north of four to five because that's where it may be tougher to leverage our expenses. And if you think about that framework, you know, does it still apply? And then, as you hand the baton to Gary and even Ron, do you spend more? Or are there ways where, you know, the cost structure of the business can actually be altered to lower that leveraged threshold? Right. Well, whether or not...

Speaker Change: Right well whether it.

Speaker Change: It's I'd say, it's probably more likely to go up a little bit down just because of whatever goes on in life.

Speaker Change: And that happened, but I got to look back at the last few years, we were we and others were helped through the through the crisis of Covid.

Speaker Change: And we haven't given a lot of that back if I look at you know our.

Speaker Change: S G&A.

Speaker Change: I remember when in fiscal 19. It came in at 10 O. Four I'm looking at these numbers here and even in 'twenty. It was at 10 30 in the first quarter before Covid and then.

Richard A. Galanti: It's I would say it's probably more likely to go up a little bit down just because of whatever goes on in life inflation that happens, but I got to look back at the last few years we were we and others were helped through the crisis of COVID, and we haven't given a lot of that back if I look at our SG&A. You know, I remember when, in fiscal 19, it came in at 1004; I And even in 20, it was at 1030 in the first quarter before COVID. And then, you know, in fiscal 21, it was a 965 and then down to an 888. And now up to the fiscal 23, it was a 908.

Speaker Change: In fiscal 'twenty, one it was a 965 and then down to 888 now.

That is.

Speaker Change: Fiscal 'twenty three it was 908, so notwithstanding I remember when it was slightly above 10, we said it was never going to get below 10 again.

Speaker Change: And a lot of factors continue to change that just the sheer high productivity that we have is I frankly higher than we thought some of that was gained through COVID-19 because of everything else going on that we haven't given it back good news, we haven't gone back and the good news continues to be that were to continue we seem to continue to be able to take market share I think the fact that a bit.

Speaker Change: Ticket items Theres less SG&A, we continue to change the pack sizes are things that are less rate whatever it is with other freight would be that would be.

Richard A. Galanti: So notwithstanding that, I remember when it was slightly above 10, we said, well, it's never going to get below 10 again. And a lot of factors continue to change. But just the sheer high productivity that we have is frankly higher than we thought. Some of that was gained through COVID because of everything else going on, but we haven't given it back.

Speaker Change: Hey.

Speaker Change: But it is still a lot about sales at the end and you know if if you ask the rhetorical question. If comps went to zero what would that mean that would be tough on SG&A, but with your other things out.

Speaker Change: Yep, Okay best wishes thanks, Richard.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Next question comes from the line of Chaparral regarding Haskell yeah.

Chaparral: Hey, good afternoon, Richard Congrats on a great career, so someone's started.

Richard A. Galanti: The good news is we haven't given it back, and the good news continues to be that we seem to continue to be able to take market share. I think the fact that on big ticket items, there's less SG&A. We continue to change the pack sizes of things for less freight, whatever it is, although freight would be, that would be SG&A. But it is still a lot about sales at the end. And, you know, if you ask the rhetorical question, if comps went to zero, what would that mean?

Basically day, one at the company My question on culture, and you've always said.

Chaparral: It was customers first employee second shareholders third and that philosophy has clearly played out so I'm looking at I'm curious how the new team is going to keep this culture intact and resist pressure from some of the non founders of the company going forward.

Chaparral: Well first of all nothing has changed it's not unlike the same question I think that was asked of Jim Senegal. After 28 years before he retired and before we knew who the his successor was gonna exactly be and I remember the board asking if you're 100 in terms of extreme value and extreme taking care of the customer and the employee and everybody else whoever takes you.

Richard A. Galanti: That would be tough on SG&A, but we'd figure other things out. Yep. Okay. Best wishes. Thanks, Richard. Next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open. Hey, good afternoon.

Chaparral: What would they be and he's a pause for a minute and said I have no.

Charles P. Grom: Richard, congrats on a great career. Someone started basically day one at the company. My question is about culture.

Chaparral: I have no doubt there'll be at least in the mid Ninety's, if not higher and frankly after Craig was made that in my view.

Richard A. Galanti: You know, you've always said it was customers first, employees second, shareholders third, and that philosophy has clearly played out. So, looking at it, I'm curious how the new team is going to keep this culture intact and resist pressure from some of the non-founders of the company going forward. Well, first of all, nothing has changed. It's not unlike the same question, I think, that was asked of Jim Senegal after 28 years before he retired and before we knew who his successor was going to be exactly. And I remember the board asking, you know, if you're 100 in terms of extreme value and extreme taking care of the customer and the employee and everybody else, whoever takes your place, what will they be? And he paused for a minute and said, I have no...

Chaparral: Whatever that number was.

Chaparral: It increased towards the hundreds just because that's what we do and that culture is so ingrained here and we talk about changing management I always joke when people ask me as CFO.

I'm important importance of the strategic whatever of the company. The fact is is we're run by merchants and operators and we're there to serve and help them and certainly at our voice, but the fact of the matter is is in.

Chaparral: And Craig for 12 years, and now and run you have people that have been here for 35 40 years and have were born and raised in a grown up in this culture and it is so intact just last week when Gary joined US He had to go through the required to our Costco orientation, which includes the <unk>.

Chaparral: Beta law that take care of your customers that take care of your employees. They respect your supplier and that if you do that you can reward the shareholder.

Richard A. Galanti: I have no doubt they'll be at least in the mid-90s, if not higher. And frankly, after Craig was made, in my view, whatever that number was, it increased towards the hundreds just because that's what we do. That culture is so ingrained here.

Chaparral: It is.

Chaparral: That's the one thing I can sleep very well at night.

Speaker Change: That's great. Thanks, Richard enjoy your retirement.

Speaker Change: Thanks.

Okay.

Speaker Change: Next question comes from the lack of Michael Lasser with UBS. Your line is open.

Richard A. Galanti: And we talk about... Changing management. I always joke when people ask me as the CFO how I'm important, am I important to the strategic goals of the company? The fact is, we're run by merchants and operators, and we're there to serve and help them, and certainly add our voice. But the fact of the matter is, you know, in Craig for 12 years, and now in Ron, you have people that have been here for 35, 40 years, and were born and raised and have grown up in this culture. And it is so intact.

Michael Lasser: Good evening. Thank you so much for taking my question and best of luck rates here.

Michael Lasser: You mentioned previously that most of.

Michael Lasser: The metrics are moving in the right direction.

Michael Lasser: You highlight with threat, which metric or are not moving in the right direction and especially from our membership per club standpoint are there any signs that some of the more.

Michael Lasser: Mature locations are either reaching a saturation or are starting to see a peak in that metric.

Richard A. Galanti: Just last week, when Gary joined us, he had to go through the required two hour Costco orientation, which includes obeying the law, taking care of your customer, taking care of your employee, and respecting your supplier. And then if you do that, you can reward the shareholder. It is I that's the one thing I can sleep very well at night.

Michael Lasser: First of all when I said, most I was just trying to be human that nobody's perfect. Everything is working in the right direction right now and actually I wasn't talking just about membership metrics there, but in general knock on wood things are working pretty well when I when we sit in at our monthly budget meetings.

Charles P. Grom: That's great. Thanks, Richard. Enjoy your retirement.

Michael Lasser: Yes.

Michael Lasser: More times than not we get pretty excited about what's going on from a new merchandising standpoint.

Michael Lasser: Thanks. The next question comes from the line of Michael Lasser with UBS. Your line is open. Good evening.

Michael Lasser: <unk>.

Michael Lasser: And with conviction and be aggressive and assertive out there.

Richard A. Galanti: Thank you so much for taking my question and best of luck, Richard. You mentioned previously that most... of the metrics are moving in the right direction. Can you highlight which metrics are not moving in the right direction? And especially from a membership per club standpoint, are there any signs that some of the more mature locations are either reaching saturation or starting to see a peak in that metric? No, first of all, when I said most, I was just trying to be human, that you know, nobody's perfect.

Michael Lasser: I mean, what we saw with just even these chamber that simple example, I gave you of changes to two big ticket items and why buy them at Costco.

Michael Lasser: Great changes in numbers. So we know that we've got a lot of levers to be able to pull to make this thing work and so no I just said honestly I said, most because nobody's perfect.

Michael Lasser: I didn't I didn't have any.

Michael Lasser: Any particular examples.

Speaker Change: Understood My follow up question is on.

Speaker Change: The what seems like an inflection in the discretionary business.

Speaker Change: To what degree Costco experiencing improvement.

Speaker Change: In the Gen Merch category as a result of aggressive changes either like you had a.

Speaker Change: Sided with the.

Michael Lasser: Everything is working in the right direction right now. And actually, I wasn't talking just about membership metrics, but in general, knock on wood, things are working pretty well. When I, when we sit in at our monthly budget meeting, more times than not, we get pretty excited about what's going on from a new merchandising standpoint, a, you know, newness, buying with conviction, and being aggressive and assertive out there. I mean, what we saw with just these changes, that simple example I gave you with changes to big ticket items and why buy them at Costco, we saw great changes in numbers. So we know that we've got a lot of levers to be able to pull to make this thing work. And so, no, I just said, honestly, I said most of them because, you know, nobody's perfect. I didn't have any particular examples.

Speaker Change: The way you are communicating with.

Speaker Change: The customer of a member or aggressive actions to take down pricing and if you are.

Speaker Change: Ah pulling those levers hard is there an opportunity to move even more aggressively to drive the discretionary business because it does seem like HOKA.

Speaker Change: You can rebound in some of these areas more so than the rest of the retail thank you.

Speaker Change: I know you and absolutely when what is it it's call it used to be N. P. D is the second of which is that industry that shows you. How you are different product cat non food product categories versus the industry. When we look at somebody like appliances in the last several weeks or a couple of months. The industry is flat, we're up north of 20%.

Speaker Change: Same thing with tires more than that percent and.

Speaker Change: And so now that you can't say that let's do everything and everything will be up 23%, because that's not going to happen, but at the end of the day.

Speaker Change: The focus.

Speaker Change: Of the buyers as an example is coming up with new ways to do things to have great pricing and constantly improve that pricing and figure out how to do that with our global buying power.

Richard A. Galanti: My follow-up question is on what seems like an inflection in the discretionary business. To what degree is Costco experiencing improvement in the Gen Merch categories as a result of aggressive changes, either like you had cited with the way you're communicating with the customer or the member, or aggressive actions to take down prices? And if you are, are you pulling those levers hard? Is there an opportunity to move even more aggressively to drive discretionary business? Because it does seem like Costco is experiencing a rebound in some of these areas more so than the rest of retail? Thank you. Yeah, and no, and absolutely not. When, what is it?

Speaker Change: With.

Speaker Change: Every time, there's a commodity price increase.

Speaker Change: Given an item business, we have buyers that are in charge of 20, and 30 items, if not less not two and 300 items in a category. They know a lot more in our view about every cost component of that and.

Speaker Change: I think I feel very good that we do a very good job and I'm not suggesting others don't but I think I know, we do a very good job of getting on the phone immediately and working those working those issues and as soon as we can get a savings were out there first passing it on and that's just our religion now we're able to do that partly because of our sales have been relatively strong.

Richard A. Galanti: It's called, it used to be NBD, it's Cercana, which is that industry that shows you how you are in different product categories versus the industry. When we look at something like appliances over the last several weeks or a couple of months, the industry's flat, and we're up north of 20%. Same thing with tires, more than 20%.

Speaker Change: Yeah.

And yeah.

Speaker Change: And we lap some things from last year that have helped.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you very much.

Speaker Change: Yeah.

Speaker Change: Next question comes from the line of Peter Benedict with Bank. Your line is open.

Peter Sloan Benedict: Sure. Thanks for thanks for taking the question.

Richard A. Galanti: And so now you can't say, let's do everything, and everything will be up 20 or 30% because that's not going to happen. But at the end of the day, you know, the focus of the buyers, as an example, is coming up with new ways to do things, to have great pricing, and to constantly improve that pricing, and figure out how to do that with our global buying power. Every time there's a commodity price increase, you know, given an item business, we have buyers that are in charge of 20 and 30 items, if not less, not 200 and 300 items in a category. They know a lot more, in our view, about every cost component of that. And I think I feel very good that we do a very good job. I'm not suggesting others don't, but I know we do a very good job of getting on the phone immediately and dealing with those issues. And as soon as we can get a savings, we're out there first passing it on. And that's just our religion.

Peter Sloan Benedict: My congratulations as well well done it's been a pleasure.

Peter Sloan Benedict: So wondering if you could maybe talk about Kirkland the penetration.

What's going on there any member shopping behavior around kind of private brand <unk>.

Peter Sloan Benedict: <unk> branded and maybe what some of the branded <unk>.

Peter Sloan Benedict: Packaged good companies are doing to maybe get some some volumes up just curious about your view on that.

Peter Sloan Benedict: Okay.

Peter Sloan Benedict: Right.

Peter Sloan Benedict: There's not a lot of trade down although when we.

Peter Sloan Benedict: We sometimes have more control over certain private label CPG items.

That we're able to drive more business than we were so we're seeing an increased penetration of that versus some of the brands, sometimes but then that get the brands to the table to work to provide more value on the branded as well we want to be both.

Peter Sloan Benedict: But we haven't really seen.

Peter Sloan Benedict: That was a question that happen as the economy was the question is are we going into a recession a couple of years ago and inflation was peaking at seven to eight 9% and are we seeing a difference. So we did see it.

Michael Lasser: Now, we're able to do that partly because our sales have been relatively strong. And, you know, and we've learned some things from last year that have helped. Thank you very much. The next question comes from the line of Peter Benedict with Beard. Your line is open.

Peter Sloan Benedict: If you look back over the last 20 years without looking at the exact numbers, but it seems like every year we grow.

Peter Sloan Benedict: Sure. Thanks for taking the question and my congratulations as well. Well done. It's been a pleasure.

Peter Sloan Benedict: The quarter to a half a percent of increase Kirkland signature penetration and then there was one year. When we were asked a couple of years ago. It seemed like there was one to one and a half to two even 2% change in penetration. So people work in my view switching a little bit out, but that's that's changed we don't see that as much anymore.

Richard A. Galanti: I wonder if you can maybe talk about Kirkland, the penetration, what's going on there, any member shopping behavior around kind of private brand versus branded, and maybe what some of the branded packaged good companies are doing to maybe get some volumes up. Just curious about your view on that. There's not a lot of trade-down, although we sometimes have more control over certain private label CPG items that we're able to drive more business, so we're seeing an increased penetration of that versus some of the brands sometimes, but then that gets the brands to the table to work to provide more value on the branded as well. We want to be both.

Speaker Change: Got it and then just on Costco logistics should be it gave some delivery numbers there.

Speaker Change: Maybe step back a little bit the penetration of Costco logistics within the business.

Speaker Change: How meaningful is that at this point, what's what's left in terms of maybe growing that is that just going to go with the big ticket trends or are there.

Speaker Change: I dunno internal initiatives to kind of drive further penetration of Costco logistics.

Speaker Change: What it's done strategically and I hate to overuse that word it's allowed us to be much better in value and delivery times and quality and brought the delivery costs down.

Peter Sloan Benedict: But we haven't really seen, you know, that was a question that happened, you know, as, quote, the economy was, the question is, are we going into a recession a couple years ago, and inflation was peaking at 7, 8, 9%, and are we seeing a difference? So we did see, you know, if you look back over the last 20 years, and without looking at the exact numbers, it seems like every year we grow a quarter to a half a percent of increased Kirkland signature penetration. Then there was one year; when we were asked a couple years ago, it seemed like there was one to one and a half to two, even 2% change in penetration. So people were, in my view, switching a little bit out. But that's changed, we don't see that as much anymore. I got it. And then just on Costco Logistics, you gave us some delivery numbers there. Just maybe step back a little bit.

Speaker Change: Our big ticket items, particularly appliances and big screen televisions.

Speaker Change: Mattresses, and furniture indoor and outdoor patio and metrics and patio furniture and indoor furniture, some sporting goods and.

Speaker Change: Before we bought interval, where now called Costco logistics in the spring of 2020 and the year before that in the U S. We did about $2 $2 million drops. So the drop is anything from dropping off a sofa to delivering and installing a new refrigerator freezer washer dryer and taking the older work underway for disposal.

Both of those are a drop it recognizes their extreme difference there, but we did about $2 2 million drops in the U S. None of which we did ourselves.

Speaker Change: The acquisition of <unk>.

Speaker Change: I think for them it probably over the last with this million dollars. This quarter, a rough number of 4 million drops.

Richard A. Galanti: The penetration of Costco Logistics within the business, how meaningful is that at this point? What's left in terms of maybe growing that? Is that just going to go with the big ticket trends, or are there, I don't know, internal initiatives to kind of drive further penetration of Costco Logistics? What it's done strategically, and I hate to overuse that word, it's allowed us to be much better in value and delivery times and quality and brought delivery costs down on big ticket items, particularly appliances and big screen televisions. Mattresses and Furniture, Indoor and Outdoor Patio and Furniture, some Sporting Goods, and you know, before we bought Innovel, we're now called Costco Logistics in the spring of 2020, and the year before that, in the U.S., we did about 2.2 million drops, and a drop is anything from dropping off a sofa to delivering and installing a new refrigerator, freezer, washer, and dryer and taking the old one away Both of those are a drop, recognizing their extreme difference there.

Which I believe about 70% of them.

Speaker Change: Over 4 million drops in about 70% of them.

Speaker Change: We've reduced the delivery times, we've just introduced in some categories like two hour Windows, where you can have three hour windows, where you can choose two hour windows, where you can choose so we're constantly getting better and we've greatly improved the value and when you look at something of a category like appliances were still a very low percentage of the industry.

Speaker Change: And the fact that it was up.

20, plus percent last month.

Speaker Change: Our last quarter is a function of some of the things we're doing in terms of.

Speaker Change: Shouting out how good of a deal that is doing a better job of that but we think we have an opportunity to continue to grow those categories, recognizing they're all meaningful categories, but they're all small percentages of our total that's one of the nice things about us that we have lots of different categories.

Speaker Change: Got it great well, thanks, again and best of luck Richard.

Speaker Change: Thank you.

Speaker Change: Next question comes from the line of capacity per week with Oh, My God I need something.

Speaker Change: Good evening and thanks for taking my question and Richard I also wanted to offer my congratulations on your retirement, so just going back to the core on core margins. They are up I think 25 basis points. This quarter, just curious what drove that strong performance if theres anything particular driving that.

Richard A. Galanti: But we did about 2.2 million drops in the U.S., none of which we did ourselves. With the acquisition of Interville, I think for the most probably over the last with this million this quarter, a rough number of four million drops, which I believe about 70% of them are over 4 million drops, and about 70% of them are us. We've reduced the delivery times. We've just introduced two-hour windows where you can, or three-hour windows where you can choose, two-hour windows where you can choose.

Well on the non food side. The biggest thing is not to be a piece of it is comparing to last year, where we had extra markdowns I think we probably talked about it last time that non foods was a year ago had been down year over year because of some of the supply chain challenges, we had when such things were coming in late after the season in case some of the big ticket items.

Peter Sloan Benedict: So we're constantly getting better, and we've greatly improved the value. And when you look at something like appliances, we're still a very low percentage of the industry. And, you know, the fact that it was up, you know, 20 plus percent last month in the last quarter is a function of some of the things we're doing in terms of shouting out how good of a deal it is and doing a better job of that, but we think we have an opportunity to continue to grow those categories, recognizing they're all meaningful categories, but they're all small percentages of our total. That's one of I got it.

Speaker Change:

Speaker Change: Overseas containers, so that was probably a chunk of it on the on the fresh food side I said it was down year over year, a little fresh as competitive and we're being ever competitive on it as well.

Speaker Change: But again.

Speaker Change: I don't view any of that as being terribly meaningful in terms of is that a big change that is coming.

Speaker Change: There's always something that it's up a little bit and that's another thing that's down a little bit.

Speaker Change: Great and then maybe just one follow up question on the expense side you guys did have better expense controls. This quarter. So I'm just curious what changed sequentially because the growth rate did decelerate by a few percentage points.

Richard A. Galanti: Great. Well, thanks again and best of luck, Richard. Thank you, www.larryweaver.com. Next question comes from the line of Rupesh Parikh with Oppenheimer.

Speaker Change: Okay.

I can't think off the top of my head.

Speaker Change: I am actually similar across the table was just said the word focus.

Rupesh Dhinoj Parikh: Your line is open. Evening, thanks for taking my question. And Richard, I also want to offer my congratulations on your retirement. So just going back to core margins, they're up I think 25 basis points this quarter. Just curious what drove that strong performance if there's anything particular driving that.

Speaker Change: At our budget meetings, which happens every four week with 150 plus people in town from all over the world.

Speaker Change: Those are kind of things, we look at and.

Speaker Change: The operators are doing.

Speaker Change: Or.

Speaker Change: We're doing a better job of budgeting and one of the things I think that came out at the last budget meeting in terms of budgeting. If you budget sales a little higher than they came in a percentage of percent lower you got to control your labor costs and so a lot of it has to do with focus and be meaningful that we certainly don't try to control expenses by not doing away.

Richard A. Galanti: Well, on the non-food side, the biggest thing is, well, not the biggest thing, but a piece of it is compared to last year when we had extra markdowns. I think we probably talked about it last time that non-food was down year over year because of some of the supply chain challenges we had when things were coming in late after the season for some of the big-ticket items from overseas containers. So that was probably a good chunk of it.

Speaker Change: <unk> increase when we think we need to and we certainly have done that.

Speaker Change: Thank you best of luck.

Speaker Change: Thanks.

Speaker Change: [laughter].

Scott Andrew Mushkin: Our next question comes from the line of Scott masking It <unk> got together.

Scott Andrew Mushkin: Okay.

Scott: Hey, Thanks, Hey, Richard I feel like we should be like raising your jersey kept the rafters like Els Superstars retiring had never timber value to tell you the truth.

Richard A. Galanti: On the fresh food side, I said it was down year over year a little. Fresh is competitive, and we're always competitive on it as well. But again, I...

Rupesh Dhinoj Parikh: I don't view any of that as being terribly meaningful in terms of whether or not there is a big change that is coming. There's always something that's up a little bit and another thing that's down a little bit. Great, and then maybe just one follow-up question on the expense side: you guys did have better expense controls this quarter. So just curious what changed sequentially because the growth rate did decelerate by a few percent. I can't think of anyone off the top of my head other than myself.

Scott Andrew Mushkin: So.

Scott Andrew Mushkin: Congratulations.

Scott Andrew Mushkin: Yeah.

Scott Andrew Mushkin: So yeah.

Scott Andrew Mushkin: Oh.

Scott Andrew Mushkin: We'll have to see that the CFO Hall of Fame.

Scott Andrew Mushkin: So a couple of things some of your comments that you made are you doing this delivery in one hour in China. I think you started going from one club to three is that something you envision.

Richard A. Galanti: Actually, someone across the table has just said the word focus. At our budget meetings, which happen every four weeks with 150-plus people in town from all over the world, those are the kind of things we look at. I think the operators are doing a better job of budgeting. One of the things I think that came out at the last budget meeting in terms of budgeting, if you budget sales a little higher and they come in a percent lower, you've got to control your labor costs. A lot of it has to do with focus and being meaningful about it. We certainly don't try to control expenses by not doing a wage increase when we think we need to.

Scott Andrew Mushkin: They can expand outside of China, and how should we think about that maybe even be the day the U S.

Speaker Change: Well you know in a way we're doing same day here with a few people most notably is to cart and a little bit with shipped down in the southern South Southeast and I think we've got a test in Texas with Uber, but at the end of the day, we had that same day delivery already as function over there. It is a third party that's doing it like instant.

Speaker Change: Or are these other.

Speaker Change: Ventures here so.

Speaker Change: So it's just it's new it's not something that's new to the warehouse club industry in China, you could look elsewhere and find it too, but it's certainly something that makes sense and again.

Scott Andrew Mushkin: We certainly have done that. Thank you. Best of luck. Our next question comes from the line of Scott Mushkin with R5 Capital. Your line is open. Hey, Richard, I feel like we should be raising your jersey to the rafters like superstars retiring here. I never came here without you, to tell you the truth.

Speaker Change: In part because of the social media Theres been a lot of publicity and just I mean from the day. It launched three days ago, It's gone nuts in terms of of how many patients it's getting all that stuff.

Speaker Change: But it's just part of the business.

Speaker Change: Got it and then we've talked about this over the years and I think you said you're going to 28 net new clubs this year.

Richard A. Galanti: So, congratulations. Thank you. So, here you are. So, we'll have to see that in the CFO Hall of Fame.

Scott Andrew Mushkin: So a couple things, some of your comments that you made, you're doing this delivery in one hour in China. I think you started going from one club to three. Is that something you envisage? that can expand outside of China, and how should we think about that, maybe even vis-a-vis the U.S.? Well, you know, in a way, we're doing same day here with a few people, most notably Instacart. And a little bit was shipped down in the southeast, and I think we got a test in Texas with Uber. But at the end of the day, we had that same day delivery already in function. Over there, it is a third party that's doing it, like Instacart or these other ventures here. So it's just, it's new. It's not something that's new to the warehouse club industry in China. You could look elsewhere and find it too.

Speaker Change: What's the capacity of the organization you know where do you see do you envision that going out 35, and 40 like where how should we think of it as we move out three to five years, that's something that's going to trend up.

Speaker Change: I think.

Speaker Change: Who knows but I think generally it's probably trended up a little there was a few years there excluding the year then when Covid hit that we only did like 13, because there were shutdowns in certain countries of construction.

Speaker Change: As well as the U S. But if you look back excluding that year over a three or five year period, plus or minus a couple of years there.

Speaker Change: Was about 23 unit without looking numbers about 23 units a year at the time you said what do you see over the next 10 years, what we saw collectively was somewhere in the hopefully.

Richard A. Galanti: But it's certainly something that makes sense. And again, in part because of social media, there's been a lot of publicity and just, I mean, from the day it launched three days ago, it's gone nuts in terms of how many page hits it's getting and all that. But it's just part of the business.

Speaker Change: Are you getting so let's say 25 for the next five years per year, and then going up to 25 somewhere in the high Twenty's them. If not 30 I think that's generally the sense that we feel could we do more yes.

Scott Andrew Mushkin: And then we've talked about this over the years. And I think you said you were going to do 28 net new clubs this year. You know, what is the capacity of the organization? Do you imagine that going to 35 and 40? How should we think of it as we move out three to five years?

Speaker Change: Are we comfortable doing it this way, yes I do.

Part of that is such a hands on business I get to say that from sitting here in headquarters most of the time not traveling like my colleagues do in operations, but rods.

Richard A. Galanti: Is it something that's going to trend up? I think, who knows, but I think generally, it's probably trending up a little, you know, there are a few years there, excluding the year that when COVID hit, we only did like 13, because there were shutdowns in certain countries of construction, as well as us. But if you look back, excluding that year, over a three or five-year period, you know, plus or minus a couple years there, it was about 23 a unit without looking at the numbers, about 23 units a year.

Speaker Change: <unk> is a great example, I mean, he and several.

Speaker Change: Regional executives and operations, if there's an opening somewhere or not an opening there visiting.

Speaker Change: Usually at least two if not three weeks or months around for three or four days.

Speaker Change: Jumping around visiting locations not only existing locations, but new sites.

Speaker Change: And so I think from our standpoint, and then the other thing is and particularly in newer countries.

Scott Andrew Mushkin: At the time, he said, "What do you see over the next 10 years? What we saw collectively was somewhere in the, hopefully, targeting, let's say 25 for the next five years per year, and then going up to 25 somewhere in the high 20s, and it's not 30. I think that's generally the sense that we feel. Could we do more? Yes. But are we comfortable doing it this way?"

Speaker Change: Well you want to get the first one open. So you can train 50 or 80 people that want to move to the next location in that city.

Speaker Change: That'll help that one go and we were very fortunate a few years back in the first Shanghai in Manhattan in China, where we had a number of employees from Taiwan that wanted to move and be promoted into new locations, New and then the new jobs over there. So that helps us when we have one then two then four then whatever so we.

Richard A. Galanti: Yes. I think part of that is such a hands-on business. I get to say that from sitting here in headquarters most of the time, not traveling like my colleagues doing operations. But you know, Ron's a great example.

Speaker Change: It's slow.

Speaker Change: All I know is we're all very busy and particularly the operators and merchants as well and so that's kind of the.

Speaker Change: The paradigm that I think that we're going to continue to work at something in the 25 range and then heading up just a bump just a quarter ago I think our budget for this year was 32 and now our 31 now it's 28 and that's simply timing there was two or three.

Scott Andrew Mushkin: I mean, he and several regional executives in operations, if there's an opening somewhere or not an opening, they're out visiting, you know, usually at least two, if not three weeks a month, or out for three or four days, jumping around visiting locations, not only existing locations, but new sites. And, and, and so I think from a standpoint, and the other thing is, particularly in newer countries, you want to get the first one open. So you can train 50 or 80 people that want to move to the next location in that city. That'll help that one go faster.

Speaker Change: Or.

Yeah.

Speaker Change: Or whatever.

Construction delays or you found something in this oil delays or whatever it might be it might it might have moved from mid to late summer to early fall, which is the new fiscal year. So I'm feeling pretty good that we're going to open.

Speaker Change: 25, plus for the next couple of years, and then probably 'twenty eight plus and go on from there.

Speaker Change: Perfect. Thanks, Richard.

Speaker Change: Okay.

Speaker Change: Next question comes from the line of Greg Melick with Evercore ISI. Your line is healthy.

Richard A. Galanti: And we were very fortunate a few years ago in the first Shanghai and Menhang in China, where we had a number of employees from Taiwan that wanted to move and be promoted into new locations, new, new, new, new jobs over there. So that helps us when we have one, then two, then four, then whatever. So we take it slow.

Gregory Scott Melich: Alright, Thanks, Richard you mentioned the word surreal the fee only retiring I'd say, it's almost surreal to 499 chicken. So thank you for all the help over the years.

Gregory Scott Melich: [laughter].

Gregory Scott Melich: I wouldn't say I guess, two things I wanted to touch on one is ticket pressure it looks like just in the most recent sales but traffic growing.

Scott Andrew Mushkin: All I know is that we're all very busy. And, you know, particularly the operators and merchants as well. And so that's kind of the, the of, Push that for whatever construction delays or you found something in the soil delays or whatever it might be, they might have moved from mid to late summer to early fall, which is the new fiscal year. So I'm feeling pretty good that we're going to open. 25 plus for the next couple of years and then probably 28 plus and go on from there.

Gregory Scott Melich: More and more that you're seeing some AUR pressure is.

Gregory Scott Melich: Is that is that zero percent inflation turning to deflation.

Gregory Scott Melich: As the merchants are seeing in say March and April.

Gregory Scott Melich: Well I think that if there again the inflation number is a calculation based on costs.

Gregory Scott Melich: Perfect. Thanks, Richard. Next question comes from the line of Greg Melich with Evercore ISI. Your line is open. Hi, Richard. You mentioned the word surreal. The feeling of retiring, I'd say it's almost as surreal as a $4.99 chicken.

Gregory Scott Melich: And mix I think it's probably yes.

Gregory Scott Melich: I wouldn't look too closely it if the average ticket was up a couple of a few tenths in the quarter and then it was down 1%.

Richard A. Galanti: So thank you for all the help. I would say, I guess there are two things I want to touch on. One is ticket pressure.

Down in February by tests.

Gregory Scott Melich: That's still relatively close to some of its a mixed change I'm sure and some of it is some of the examples I gave you about lower pricing, even if the underlying.

Gregory Scott Melich: It looks like just in the most recent sales, with traffic growing, more and more that you're seeing some AUR pressure. Is that 0% inflation turning to deflation? Is that what merchants are seeing into March and April? Well, I think that, again, the inflation number is a calculation based on cost and NMIX. I think it's probably, yeah, I wouldn't look too closely at if the average ticket was up a couple of three, a few tenths in the quarter, and then it was down a percent because cost hasn't changed. Some of it may be in terms of how we package, and we take advantage of that. So, that's on the sales side, and not on, you know, not the exact cost from yesterday.

Gregory Scott Melich: Cost Hasnt changed some of them may be in terms of how we package and and we take advantage of that so that's on the sales side.

Gregory Scott Melich: Not on.

Gregory Scott Melich: Not the exact costs from yesterday.

Gregory Scott Melich: So looking ahead that number flat looks pretty good from what the merchants are seeing today.

Yeah.

Gregory Scott Melich: Yeah.

Gregory Scott Melich: The last.

Gregory Scott Melich: Budget meeting two weeks ago I think there is in the presentation. There's there's a lot of.

Gregory Scott Melich: I used the phrase a few minutes ago upscaling I didn't use that phrase been buying with conviction I mean, I think that the buyers are looking at right now.

Gregory Scott Melich: So looking ahead, that number of flats looks pretty good from what the merchants are seeing today. Yeah, I think, you know, when I went to the last budget meeting two weeks ago, I think there's, and the presentations, there's a lot of, I used the phrase a few minutes ago, upscaling. I didn't use that phrase, but then buying with conviction. I mean, I think the buyers are looking ahead right now, in an offensive way, in a positive way. We'll make it; hopefully, we'll be right.

Gregory Scott Melich: In an offensive way in a positive way.

Gregory Scott Melich: Hopefully, we will be right, but we feel so far were being right.

Gregory Scott Melich: I wanted to follow up my second question on the <unk> side of E Commerce penetration.

Gregory Scott Melich: What what ecommerce penetration will be now in the U S. If you included the Yens to cart delivery on the other deliveries.

Speaker Change: Yes. It is.

Speaker Change: Of course.

Speaker Change: One and a half.

Richard A. Galanti: But we feel so far that we're being right. I wanted to follow up my second question on the Instacart side of e-commerce penetration. What would e-commerce penetration be now in the U.S. if you included Instacart delivery and other deliveries? Yeah, it's of course, you know, one and a half to 2%, something below 2% but more to 1.5%, which is still on a, you know, $200 billion retailer. It's a lot. And we don't include that because the in-store person comes in, buys it, and checks out at the front end. So we don't include that. So you'd add, depending on rounding, 1% to 2% to the top line number.

Speaker Change: To 2%.

Speaker Change: Something below two but more of a one five which is still on it.

Speaker Change: $200 billion retailer.

Speaker Change: And we don't include that because that the short person comes and buys it checks out of the front end. So we don't do that so that so you'd add depending on rounding you'd add 1% to 2% to the top line number.

Speaker Change: Well thanks, Thanks gene.

Gene: Thanks for everything and enjoy retirement.

Speaker Change: I hope to see you.

Speaker Change: You all.

Speaker Change: [laughter].

Speaker Change: Yeah.

Speaker Change: Next question comes from Durango, Scary Banya with BMO capital Your line is helping.

Durango: Good evening, Thanks for third and have to add my.

Congratulations to you it's been a.

Gregory Scott Melich: Well, thanks. Thanks for everything and enjoy retirement. I hope to see you all.

Durango: Pleasure.

Scary Banya: Just wanted to ask where copper scan with a retail media and advertising dollars I think the latter.

Kelly Ann Bania: The next question comes from the line of Kelly Bania with BMO Capital. Your line is open. Good evening.

Scary Banya: Update I had.

Richard A. Galanti: Thanks, Richard. And I have to add my congratulations to you. It's been a pleasure. I just wanted to ask where Costco stands on retail media and advertising dollars. I think the last update I had was in the range of a few hundred million. I'm just curious if you're willing to share with us where that stands today, what kind of growth that is experiencing, and just the company's thought process on investing in that down the line. Well, without giving numbers out, we know there's an opportunity there to do more than we've done in the past. We brought in people that are seasoned in this business to help us, and it's a point of focus. We know that there is money out there.

Scary Banya: Within the range of a few hundred million are just curious if youre willing to share with us where that stands today, what kind of growth that is experiencing and the company.

Scary Banya: By investing in that.

Scary Banya: Down the line.

Speaker Change: Well without giving numbers out.

We know there's an opportunity there more than we've done in the past in the last two.

Speaker Change: Six or eight months, we brought on people that are seasoned in this business.

Speaker Change: To help us and.

Speaker Change: It's a point of focus.

Speaker Change: We know that there is money out there we've always been very successful in other forms of.

Speaker Change: Vendor buckets, whether its end caps or <unk> or.

Kelly Ann Bania: We've always been very successful in other forms of vendor buckets, whether it's end caps or advertising in our own Costco connection. And, of course, over the last several years, some advertising online or banners or placement, but there's a lot more that can be done there. Rest assured, whatever it is, we're going to use it to, you know, just like when we always said, if we can save a dollar on buying something, we're going to give 80 or 90 cents to the customer. I think that mantra will continue on this side as well.

Speaker Change: Or advertising and our own Costco connection and.

Of course over the last several years.

Speaker Change: Advertising online or banners or replacement.

Speaker Change: There's a lot more that can be done there rest assured whatever it is we're going to use it to.

Speaker Change: Just like when we we always said, we if we can save a dollar of buying something that we're going to give 80 or 90 or the customer I think that that that mantra will continue on this side as well so but there are certainly.

Richard A. Galanti: But there's certainly the ability for more dollars out there. Some of our big retail competitors have talked about doubling what they have in five or six years. I think, again, it's a lower market share for us, so there's a little more opportunity for us to continue to grow that. Thank you. And maybe I can just follow up with the decision to roll out Apple Pay? You know, Costco is pretty notorious for being strict on the payment method you can use.

Speaker Change: Already for more dollars out there some of our big retail competitors have talked about.

Speaker Change: <unk> in five or six years, what they have I think again, it's a lower market share for us. So there's a little more opportunity for us to continue to grow that.

Speaker Change: Thank you and maybe just can I just follow up with the decision to roll out Apple pay.

Speaker Change: Cosco is pretty notorious for being stacked on the payment method. You can you just maybe the thought process on that what do you expect that to do.

Kelly Ann Bania: So maybe the thought process on that, what you expect that to do for your e-commerce business, and any economics you can share. Yeah, there's not as many stored cars for our members. And as we're doing more with a digital wallet, that'll help as well. So it's something that should help. Fair enough, thank you. The next question comes from the line of Oliver Chen with TD Cowen. Your line is open. Hi there, this is Katie on behalf of Oliver.

Speaker Change: For your ecommerce business in any economics, you can share.

Speaker Change: Okay.

Speaker Change: Yeah, Theres not as an economy is not as many stored cars for members and as we're doing more with a digital wallet that will help as well. So it's it's something that should help.

Speaker Change: Fair enough. Thank you.

Speaker Change: Next question comes from the line of Oliver Chen with TD Pallet. Your line is open.

Speaker Change: Hi, there this is Katie on for Oliver and of course best wishes in your retirement.

Oliver Chen: And, of course, best wishes to you in your retirement. Just wanted to talk a little bit about the Kirkland price gap versus national brands. I know you touched on the Kirkland brand a little bit earlier on the call. But how has that price gap changed, especially year over year? And has there been any impact on unit elasticity, given that price discrepancy?

Katie: Just wanted to talk a little bit about the kirklin price gap versus national brands I know you touched on that Brandon.

Katie: Brand a little bit earlier on the call.

Katie: But how is that price gap changed.

Katie: Actually year over year, and how has that has there been any impact to unit elasticity given that that price discrepancy.

Richard A. Galanti: Thank you. Well, we definitely have seen an impact from it. I mean, historically, the view was that it has to be at least as good, if not better quality, than the leading national brand and at least a 20% savings as compared to what we sell the national brand for. And those metrics continue to be used in that regard. I think what we've seen when we look at some of the items that have risen greatly in price, like paper products, on a percentage basis over the last several years, because of freight costs, because of pulp prices, because of energy, all those things have dramatically increased. And, you know, what used to be, I don't know the exact numbers, but for an 18-pack of, a 24-pack of toilet tissue, or a 15-pack or 18-pack of paper towels, you've got price points in the high 20s, if not the low to mid 30s.

Brandon: Well, we definitely have seen.

Pat from it.

Brandon: Historically, the view was it has to be.

Brandon: At least as good if not better quality than the leading national brand and at least a 20% savings.

Brandon: Compared to what we sell the national brand for.

Brandon: That those metrics continue in that regard.

Brandon: I think what we've seen when we look at some of the items that have risen greatly in price like paper products on a percentage basis over the last several years because of freight costs because of pulp prices because of energy all those things have dramatically increased.

Brandon: What used to be I don't know the exact numbers, but for an 18 pack of.

Brandon: 24 pack of toilet tissue or or a 15 pack or 18 pack of paper towels.

Brandon: You've got price points in the high <unk>, if not low to mid thirties, and where we can show a dramatic savings on that we've seen dramatic changes in unit market share towards Costco towards Kirkland signature, but that's something that's.

Oliver Chen: And where we can show a dramatic savings on that, we've seen dramatic changes in unit market share towards Costco and towards Kirkland Signature. But that's something that's been an iterative process over many years, probably going up and down a little bit. I would say it's gone up a little bit in terms of a little more of a penetration in the last couple of years. Great, thank you.

Brandon: Been an iterative and iterative process over many years.

Brandon: Probably goes up and down a little bit I'd say, it's gone up a little bit.

Brandon: In terms of a little more of it and penetration in the last last couple of years.

Speaker Change: Great. Thank you and then just a follow up on that store discussion and unit growth can you just provide a little bit of color on how the international store openings are performing just from that productivity angle.

Richard A. Galanti: And then just to follow up on the store discussion and unit growth, can you just provide a little bit of color on how the international store openings are performing just from a productivity angle? How is that versus the more tenured stores as well as the domestic stores? I don't think there's a big difference.

Speaker Change: How is that birthdays.

The app more more Kenyan stores as well as the domestic stores.

Speaker Change: I don't think Theres, a big difference.

Oliver Chen: In new markets, it's always a little slower. So like when we opened our first store in Iceland or Sweden or Auckland or some of those, or France several years ago, you're always going to start on, or frankly, Japan 20 years ago; you tend to start out lower. In some cases, it's also a question of some local vendors may not want to sell to you; local country vendors may not want to sell to you because they want to upset all the big traditional ones that have all the market share before we enter.

Speaker Change: In new markets its always a little slower so like when we opened originally in Iceland or Sweden are.

Speaker Change: And are some of those are France, several years ago, you're always going to start or are frankly.

Speaker Change: Japan 20 years ago, you tend to start out lower in some cases.

Speaker Change: It's also a question is some local vendors may not want us and local country vendors may not want to sell you because they don't want to upset all the big traditional that have all the market share. It before we enter and once we get two or three open they talk to you a little more and so I think all those things help us as we grow.

Richard A. Galanti: And once we get two or three open, they talk to you a little more. And so I think all those things help us as we grow. You know, certainly, it's changed a little bit in the last few years. China being the most recent example, when we opened the first one in Minhang in Shanghai, about four years ago, it made international news based on just the sheer number of members we signed up and everything.

Speaker Change: Yeah, certainly it's changed a little bit in the last few years.

Speaker Change: China being the most recent example, when we opened the first one in Cheyenne men hung in Shanghai was about four years ago.

Speaker Change: It made international news based on just the sheer number of members, we signed up and everything so we.

Oliver Chen: So we have a much faster start, I think each year we have a much faster start than the year before. And so I don't see a big difference there. We certainly, if you look in the U.S., I mean, I think one thing that's interesting is this fiscal year, we're going to open, you know, whatever, 28 units. Page 6 of 6. And, you know, I think of the 28, 20 plus are in the U.S., which is, some people have asked, has it slowed down internationally? No, international takes a little longer to do.

Speaker Change: We have a lot faster start I think each year, we have a lot faster start than the year before.

Speaker Change: And so I don't see a big difference there we certainly.

Speaker Change: If you look in the U S. I mean, I think one thing that's interesting is this fiscal year, we're going to open.

Speaker Change: Whatever 28 units.

Speaker Change: Sure.

Speaker Change: And.

Speaker Change: I think.

Speaker Change: Of the 28, 20, plus or in the U S, which is people some people are asking.

Speaker Change: Has it slowed down internationally no international takes a little longer to do but what's interesting is as we have a lot more runway than we ever thought possible. If you had asked US five years ago by now how many would we be putting in this year in the U S. We would not have said 20 plus.

Richard A. Galanti: But what's interesting is we have a lot more runway than we ever thought possible. If you had asked us five years ago, by now, how many would we be putting in this year in the U.S., we would not have said, you know, 20 plus. It's got to slow down at some point.

Speaker Change: Slow down some at some point, but the volumes that we're now doing in these locations. We've got we've got to lead some of that off and so that's one good point and then we still got plenty of going on overseas and you'll see you'll see that continue to ramp up as well.

Oliver Chen: But the volumes that we're now doing in these locations, we've got to, we've got to bleed some of that off. And so that's one good point. And then we still have plenty going on overseas.

Oliver Chen: And you'll see that continue to ramp up as well. Excellent. Thank you so much and best wishes again.

Speaker Change: Excellent. Thank you so much and best wishes again.

Scot Ciccarelli: Great. The next question comes from the line of Scott Ciccarelli with Druist. Your line is open.

Speaker Change: Thanks.

Speaker Change: Next question.

Speaker Change: <unk> comes from the line of Scot Ciccarelli curious your line is open.

Richard A. Galanti: Thanks for your time, guys. It seems like you guys are doing some things to cut down on membership sharing, food court usage from non-members, etc. Richard, are you seeing anything in the business that gives you concern that there's a growing issue from things like membership sharing? No, I think part of it is, first of all, I think the storyline sometimes is a little greater than the reality.

Scot Ciccarelli: Thanks for the time guys. It seems like you guys have done some things to cut down on membership sharing CT usage from non members et cetera.

Richard are you seeing something in the business that gives you concern that there is a growing issue from things like membership sharing.

Richard A. Galanti: No I think part of it is first of all I think the storyline, sometimes a little greater than the reality during COVID-19, we did a little bit more there was a little bit more membership sharing you had individuals wear.

Scot Ciccarelli: During COVID, we did a little bit more; there was a little bit more membership sharing. You had individuals where, you know, one family member, maybe not the one that had one of the two memberships, was coming into the shop with your mom or dad's credit card, and we allowed it. And then with the advent of self-checkout over the last several years, you know, when you walk in the front door, you just flash your card, and do they look at it or not? Who knows?

Richard A. Galanti: One family member, who may be not the one that had one of the two memberships was coming in to shop with with mom or dad is credit card and we allowed it and then with the advent of <unk>.

Richard A. Galanti: A self checkout over the last several years.

Richard A. Galanti: Yeah, when you walk in the front door to you just flash your card and do they look at it or not who knows.

Richard A. Galanti: You know, people would get in, and if you're going through self-checkout, you don't have to show your membership card to the cashier. And so there's probably an increasing but still small level of abuse of that privilege. But we also had complaints from members saying, "I pay; why shouldn't they?" So the view was that we needed to just shore that up a little bit. And we did, we did it over a period of six months, I think about six months, where we, you know, first there were warnings, and then ultimately, we changed.

Richard A. Galanti: You had.

Richard A. Galanti: People get in and if you're going through self checkout youre not having to show your membership cards to the cashier and so there's probably an increasing but still small level of abuse of that privilege and but we also had complaints remembers saying I pay why shouldn't ne so.

Richard A. Galanti: The view was as we needed to just shore that up a little bit and we did we did it over a period of six months I think about six months, where we are.

Richard A. Galanti: First there was warnings and then ultimately changed or are we getting some new sign ups from quarter from an.

Scot Ciccarelli: Are we getting some new signups from it? Absolutely. But, relative to the, you know, 60 or 70 million members, it's not terribly meaningful, but it's more fair and the right thing to do. Yeah, I mean, that was actually you start to answer it.

Speaker Change: Absolutely, but its relative to the 60 or 70 million members, it's not terribly meaningful, but it's more fair and the right thing to do.

Speaker Change: Yeah that was actually you start to answer it so like you've seen some acceleration of membership should we.

John Edward Heinbockel: So, like, you know, you've seen some acceleration memberships. Should we kind of expect to see that in the future, like what we've seen with Netflix, for example, as they cut down on their sharing? Right. Well, it seems like Netflix had a much bigger issue, or the ability to share was much easier, because, first of all, it's electronic.

Speaker Change: Kind of expect to see that in the teacher like what we've seen with Netflix for example, as they cut down there they're sharing.

Speaker Change: Right well.

Speaker Change: It seems like Netflix had a much bigger issue or the ability to share was much easier.

Speaker Change: Because first of all it's electronic in this sense you still have to show a card when you walked in and we're actually doing testing on that too in terms of how do you acquired the scanned and reviewed when you walk in and we've done that in the U K I believe for a few years.

Richard A. Galanti: In this sense, you still have to show a card when you walk in, and we're actually doing testing on that too, in terms of having your card be scanned and reviewed when you walk in. And we've done that in the UK, I believe, for a few years. And so it's all about just, I would say it's as much hygiene as anything else.

Speaker Change: And so it's all about just.

Speaker Change: I'd say its as much hygiene as anything else.

John Edward Heinbockel: And, and it'll be slightly profitable to the extent that we make sure everybody, I think we signed up more members than were non-members, then lost the small sales that those non-members did. Makes sense. Thanks again, and enjoy the next day.

Speaker Change: And then it'll be slightly profitable to the extent that we make sure everybody.

Speaker Change: I think we signed up more members than non.

Speaker Change: Non members then lost the small sales that that nonmember did.

Speaker Change: Makes sense, thanks, again and enjoy the next stage.

Richard A. Galanti: The next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open. Congratulations, Richard. Enjoy your retirement. You'll be missed. So when you think about, you don't have many pain points in your clubs, but when you think about kind of throughput and things like, I know you tested BOPIS, and cost really didn't make sense there. Things like that, Endor, Scan, and Go, you know, do you think there are some unlocks here? to do more volume and or reduce any pain points.

Speaker Change: Thank you.

Speaker Change: Next question comes from the line of John Kane, Barco, which doesn't have securities. Your line is open.

John Kane: Congratulations Richard.

John Kane: Enjoy your retirement you will be missed.

John Kane:

John Kane: So wondering when you think about you don't you don't have many pain points in your and your clubs, but when you think about kind of throughput.

John Kane: And things like I know you tested both this and costs really didn't make sense there things like that <unk> scan and go what do you think there are some unlocks here.

John Kane: To do more volume and or reduce any pain points.

John Kane: I think the biggest challenge with pain points first of all is.

John Edward Heinbockel: I think the biggest challenge with pain points, first of all, is the flow of merchandise and pallets through the system, which we continue to work on and improve. Never, if you'd asked us 10 years ago, would you ever have 150 of your 600 U.S. locations doing over $300 million, and 40 of them doing over $400 million? The answer would be no, no way, even with inflation.

John Kane: Flow of merchandize in palace through the system, which we continue to work on and improve.

John Kane: Yes.

John Kane: Never if you'd asked US 10 years ago, where you ever have a 150 of your 600 U S locations doing.

John Kane: Over $300 million.

John Kane: And 40 of them doing over $400 million.

John Kane: The answer would be no no way even with inflation.

Richard A. Galanti: The fact is, we're doing a lot more volume than we ever thought we would do. And so the biggest answer to not only making it a little more efficient but driving more sales is Cannibalizing. We find existing members that sometimes will say, I don't want to go there, it's too busy today. And by opening up that third or fourth unit in that city, we're seeing not an increase in the third or fourth of the membership base, but a significant increase in sales. And because I can't think of anything specifically, we're always doing things with, you know, "Oh, David mentioned something here." One of the things we should be doing shortly is having warehouse inventory online. So when you go online, now I say that, a couple of people in the room are smiling and say it may be a few months or a few more than a few months, but it'll be soon.

John Kane: The fact is we're doing a lot more volume than we've ever thought we would do and so the biggest answer of not only making it more efficient but.

John Kane: Driving more sales as you can.

Cannibalizing, we find existing members that sometimes I'll say I don't want to go there is too busy today and by opening up that third or fourth unit in that city.

John Kane: C not.

John Kane: An increase of by a third or fourth of the membership base, but a significant increase in sales.

Speaker Change: Did I can't think of anything specifically.

Speaker Change: We're always doing things with.

Speaker Change: Okay.

Speaker Change: Oh.

Speaker Change: David mentioned something here, one of the things, where we should be doing shortly.

Speaker Change: Warehouse inventory online. So when you go online now I say that in a couple of people in the room or somebody who says it may be a few months or a few more than a few months, but it'll be soon but at the end of the day.

Richard A. Galanti: But at the end of the day, if you look at something to buy online, and we have it in a location or two in the zip code where you typically shop, in the location you would shop physically, we'll let you know you can buy it there. And in many cases, it'll be cheaper if you go pick it up yourself because the online cost might be higher and is typically higher, particularly for non-food items.

Speaker Change: You look at something to buy online and we have it in a location or two and the ZIP code, where you typically shut in the location you would shop physically well, let you know you can buy there and in many cases it'll be cheaper if you'd go pick it up yourself, because the online cost might be higher.

Speaker Change: Likely higher, particularly on the non food items. So.

John Edward Heinbockel: So I think that's something that'll help that as well. And secondly, is there any way to tell, you know, what you think about email outreach? I mean, it seems to be getting better and more of a call to action. I try to think about the seven days of spring that you're in the middle of now.

Speaker Change: I think that's something that will help that as well.

Speaker Change: And secondly is there any way to tell you think about.

Speaker Change: E Mail outreach I mean, it seems to be getting better and more call to action I right to think about the seven days of spring, which are in the middle of now is there any way to tell the productivity of that outreach and is that driving some of the ton pickup.

Richard A. Galanti: Is there a way to tell the productivity of that outreach? And is that driving some of the com pickup? Absolutely. And yes, there is a way to tell.

Speaker Change: Absolutely and yes, there is a way to tell we're looking at it.

Richard A. Galanti: We're looking at it. Again, without going into a lot of detail, a couple of years ago, we brought in a new person in charge of all digital. He's built a team.

Again without going into lot of detail a couple of years ago, we brought in a new <unk>.

Speaker Change: Person in charge from it in terms of all digital he's built a team there working closely with merchants and operators, but mostly with merchants in terms of doing these types of things and we've seen again lots of improvements with our app with our desktop it's getting less currently by the day and more ability to.

John Edward Heinbockel: They're working closely with merchants and operators, but mostly with merchants in terms of doing these types of things. And we've seen, again, lots of improvements with our app and with our desktop. It's getting less clunky by the day, and we have more ability to do some things to drive sales and some promotions like that. Okay, thank you.

Speaker Change: <unk>.

Speaker Change: Do some items to drive sales and some some promotions like that.

Speaker Change: Okay. Thank you.

Christopher Michael Horvers: Our next question comes from the line of Chris Horvers with J.P. Morgan. Your line is open. Good evening, and we'll miss you Richard, and welcome aboard Gary. So, on the MFI, did you mention how much the FX impacted total MFI growth year-over-year? And more broadly, it seems like it's becoming more competitive to acquire customers in the club channel. Couponing amongst your peers has really accelerated over the past year. Is that what you've observed? And do you think it's still escalating? And how are you responding?

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Chris <unk> with Jpmorgan Your line.

Chris: Annual Council.

Chris: Good evening, and we will Miss you Richard and welcome aboard Gary.

Speaker Change: So on the MSR I can did you mention how much.

The FX impacted total MSI growth year over year and more broadly it seems like it's becoming more competitive to acquire customers in the club channel couponing amongst your peers has really accelerated over the past year.

Gary: Is that what you've observed and do you think it's still escalating and how are you responding.

Richard A. Galanti: You know, I got to tell you, we, you know, in the last 12 months, we opened up like 3% new locations, and we had a seven plus percent increase in new members. So we're not finding that we do a few promotional things. But I would say we have not increased the types of things we do at all.

Speaker Change: You know I got to tell you we.

Speaker Change: In the last 12 months, we opened my 3% new locations and we had a 7% increase in new members. So we're not training we do a few promotional things, but I would say we have not increased the types of things we do at all and you are right at other places.

Christopher Michael Horvers: And you're right about other places. There's not a day that goes by you can't get a deep discount much deeper than we've even. We're not doing anything different. Are we pleasantly surprised by the rate of new sign-ups? Yes, it's nice to hear and have. I think the fact that things like social media have helped us with the value proposition. We're not doing a lot of things in that regard

Speaker Change: There's not a day that goes by you can't get a deep discount much deeper than we've even.

Speaker Change: Ever done.

Speaker Change: On an underlying basis.

So no we're not doing anything different.

Speaker Change: I mean, we pleasantly surprised by the rate of new sign ups, yes, it's nice to hear and have and I think the fact that things like social media has helped us with the value proposition and so no. We were not doing a lot of things in that regard.

And just from a technical question what are your peers talks about 10 year renewal rate. The 93% that you quote does that include like the year, one renewal or anyone that comes through the door on one of those digital coupons.

Richard A. Galanti: And just from a technical question, one of your peers talks about the tenure renewal rate, the 93% that you quote. Does that include like the year-one renewal or any one that comes to the door on one of those digital coupons? Yes, it does.

Speaker Change: Yes.

Speaker Change: It does.

Christopher Michael Horvers: And we've been doing it the same way forever. Got it. Thank you very much and best of luck.

Speaker Change: And we've been doing the same way forever.

Speaker Change: Got it thank you very much and best of luck.

Robbie Holmes: Thank you. The next question comes from the line of Robbie Holmes with Bank of America. Your line is open. Oh, hey, Richard, my congratulations as well. You will be missed very much.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay fine.

Speaker Change: Yeah.

Speaker Change: Next question comes from the line of throughout the home.

Speaker Change: Bank of America. Your line is open.

Speaker Change: King.

Speaker Change: Oh, Hey, Richard My Congrats as well you will be missed.

Richard A. Galanti: Listen, just a quick question. I love the credit card rewards program. It's amazing. It's like the best thing that's ever happened to me that the city card you guys do.

Speaker Change: Very much.

Speaker Change: Listen just a quick question.

I Love the credit card rewards program, it's amazing.

The best thing Thats ever happened to me that the.

Speaker Change: The city card you guys do is there any.

Robbie Holmes: Is there any issue or change with the late fees or anything going on that could change the rewards program or anything there? Well, that's the new recent headline about that happening, and we'll have to wait and see. Look, at the end of the day, it may change the economics. There are other levers that we've talked to them in the past, our issuing bank, about what we could do, but nothing has been done at this point.

Speaker Change: Issuer change with the late fees or anything going on that could change the rewards program or or anything there.

Speaker Change: Okay.

Speaker Change: That's the new recent headline of that happening and we'll have to wait and see.

Speaker Change: It looks at the end of the day. It may change the economics. There are other levers that we've talked to them in the past our issuing bank about what we can do but nothing is nothing is done at this point.

Richard A. Galanti: Got it. Thanks again and congrats on your retirement. Thank you. Tour.

Speaker Change: Got it thanks, again and congrats on your retirement.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Sure.

Laura Allyson Champine: The next question comes from the line of Laura Champine with Loop Capital. Your line is open. Thanks for taking my question, and I wish you a long and happy retirement. Richard, it is. I'm going to go out on a nitpick about the renewal rate. If renewal rates are flat overall, but 10 bps better in the U.S. and Canada, that seems to imply it's not as good in international markets. Is that just some of the sampling that went on in China? Or what do you think might be driving that?

Speaker Change: Yes.

Some more.

Speaker Change: Yeah.

Next question comes from today.

Speaker Change: Kathy.

Speaker Change: Okay.

Kathy: Thanks for taking my question and I wish you, a long and happy retirement Richard.

Kathy: I'm going to go out on a nitpick on the renewal rate, if if renewal rates flat overall, but 10, bips better U S and Canada.

Kathy: That seems to imply it's not as good in international markets is that just some of the sampling that went on in China or are what do you think might be driving that.

Richard A. Galanti: Well, that's exactly what it is. When, first of all, you know, if you just take the total number of members divided by the total number of warehouses, I think we're about close to 70,000 households per location. When we open a unit in not only China but other countries in Asia, we'll have anywhere from 80,000 to 150,000 members that sign up, many of whom are looky-loos and a year later don't renew. We will start in some new countries, and once the first batch renews for the first time, you might have a renewal rate in the 50s or, at best, low 60s, and then, just over the next four or five years, it continues to grow to something that's higher than that, you know, that's higher than that.

Speaker Change: Well that's exactly what it is when it first of all if you think if you just take the total number of members divided by total number of warehouses I think were about close to 70000 households.

Speaker Change: For location.

When we opened a unit and not only China, but other countries in Asia will have anywhere from 80000 to 150000 members at sign up.

Speaker Change: Many of whom are looking to lose in a year later don't renew we will start in some new countries with once the first batch renew for the first time you might have a renewal rate in the <unk>.

At best low Sixty's and then it just over the next four or five years. It continues to grow to something that's higher than that you know that is higher than that.

Speaker Change: Not that's more extreme that we saw 30 years ago in the U S and Canada, but nonetheless thats exactly what you see so what are you just opening the one unit in Shenzen wherever we open.

Richard A. Galanti: Not, that's more extreme than we saw 30 years ago in the U.S. and Canada, but nonetheless, that's exactly what you see. So when you just open the one unit in Shenzhen or whenever we open, you know, a year and a half ago in China. That's going to affect the international renewal rate. When we look at all other countries, when we look at the 13, the 11 other operations outside of the U.S. and Canada, their renewal rate generally ticks up a little bit every year, like the U.S. and Canada. In the U.S. and Canada, my delay has also been helped with increased penetration of executive members. We have that in several countries, but not all countries. The smallest countries we don't have it in, a number of units, and also with auto renewal, which has helped us in the last several years, and that's, I don't believe, everywhere.

Speaker Change: A year and a half ago in China.

Speaker Change: That's going to affect the international renewal rate.

Speaker Change: When we wanted to get all other countries when we looked at the 13 the 11 other.

Speaker Change: Operations outside of U S and Canada.

Speaker Change: The renewal rate generally ticks up a little bit every year.

Speaker Change: Like the U S and Canada, and U S and Canada that might delay has been helped also with.

Speaker Change: Increased penetration of executive members, we have that in several countries, but not all countries. The smallest countries. We don't have it in the number of units and and also with auto renewal, which has helped us over the last several years and Thats I don't believe everywhere.

Speaker Change: Got it that's helpful. Once those clubs mature clubs in China other clubs, new clubs and in Asian markets et cetera, do they tend to can you serve a higher number of households, there, meaning would you expect them to be sustainably above that 70, or so households that you have.

Laura Allyson Champine: Got it. That's helpful. Once those clubs mature, the clubs in China, other clubs, new clubs in Asian markets, et cetera, do they tend to serve a higher number of households there? Meaning, would you expect them to be sustainably above that 70 or so households that you have in an average club?

Richard A. Galanti: Well, the answer is yes, and it does. So the answer is yes. Yeah, I was at an open, I was at it two months after it opened in Osaka, Japan, back in October. And on a Sunday, a random Sunday, was not there on business, but a random Sunday went over there. You couldn't move in the place.

Speaker Change: And in an average club.

Speaker Change: Well the answer is it is it does so the answer is yes.

Speaker Change: Yes. It was it was it two months after it opened in Osaka, Japan back in October and on a Sunday random Sunday.

Speaker Change: Was that the Aero business, but I understand you went over there you couldn't move into place and it was.

Speaker Change: It was great it was.

Laura Allyson Champine: And it was, and it was great. It was a wonderful picture to see. So yes, I think that, Despite the fact that not everybody has cars and despite the fact that people have smaller housing arrangements, value plays well. Thank you, www.larryweaver.com. Our last question comes from the line of Corey Tarlowe with Jeffries. Your line is open.

Speaker Change: Wonderful picture to see so, yes, I think that.

Speaker Change: Yeah.

Speaker Change: Despite the fact that not everybody has cars and despite the fact that people have smaller housing arrangements.

Speaker Change: Value plays well.

Speaker Change: Alright, thank you.

Speaker Change: Okay.

Speaker Change: Uh huh.

Jefferies: Our last question comes from the last call retail with Jefferies. Your line is open.

Corey Tarlowe: Hi, good afternoon. Thanks for taking my questions and congrats Richard on your retirement, um, as a release from big ticket discretionary items. It seems like that category has improved a little bit. Just wanted to get a little bit of understanding as to what you've seen that's underlying that improvement in trend. And then, secondarily, on AI: just curious about the recent technology enhancements that the business has made, and how you see that impacting the business when I go forward. Sure. Well, in terms of big ticket discretionary, I think we completely believe that it's some of the things we're doing on our side to better explain the value. I mean, it was almost like you did that, and sales skyrocketed. You know, 20 and 30% increases in some of those big ticket categories just over the last couple of months.

Jefferies: Hi, good afternoon. Thanks for taking my question and congrats on your retirement.

Jefferies: As it relates to big ticket discretionary items.

Jefferies: Seems like that categories improved a little bit I, just wanted to get a little bit of understanding as to what you've seen that's underlying that improvement in trend.

Jefferies: And then secondarily.

Jefferies: On AI, just curious with the recent technology enhancements that the business has made how you see that.

Jefferies: Impacting the business on a go forward basis.

Jefferies: Sure well in terms of big ticket discretionary I think we.

We completely believe that its some of the things we're doing on our side too.

Jefferies: Better explain the value.

I mean, it was almost like you did that in sales skyrocketed.

Jefferies: No, 20%, 30% increases in some of those big ticket categories. Just over the last couple of months, even if a piece of it as a year over year comparison, which I don't even know if it is or it isn't at the end of the day.

Corey Tarlowe: Even if a piece of it is a year over year comparison, which I don't even know if it is or it isn't, at the end of the day, it was very evident to us. And the other comment I mentioned, particularly on appliances, we're still a very, very small percentage of the total industry. And so it's easier to take market share when you're such a small percent of something.

Jefferies: It was very evident to us and.

Jefferies: And.

Jefferies: And then the other comment I mentioned, particularly like on appliances were still a very very small percentage of the total industry and so it's easier to take market share.

Jefferies: Such a small percent of something so I think that will continue as regards to AI.

Richard A. Galanti: So I think that'll continue. As regards AI, we're just in the early innings of that. We've had third-party AI companies, large companies, including ones that are headquartered in Seattle, come out and talk to us. There's a whole list of things that we're doing with IT and our CEO and our heads of operations and merchandising to see where and how it might fit. So that'll be a question for Gary in the future.

We're just in the early innings of that.

Had third party AI.

Jefferies: <unk> la.

Jefferies: Large companies, including ones that are headquartered in Seattle.

Jefferies: Come out and talk to us.

Jefferies: <unk>.

Jefferies: Where there's a hole.

List of things that we're doing with working with it.

Jefferies: And our CEO and our heads of operations and merchandising to see where and how it might fit so that'll be a question for Gary in the future.

Corey Tarlowe: Great. Thank you very much, and best of luck. Well, thank you, everyone. Again, it's been fun. The thing I miss most about the job is talking to everybody, because I like talking, and it's been a great story to tell. But it's been an absolute privilege, and I appreciate it. So, have a good day, and I'm sure we'll be speaking to some of you shortly over the next few days with additional questions. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. www.larryweaver.com

Speaker Change: Great. Thank you very much and that equivalent.

Speaker Change: Well. Thank you everyone again, it's been fun.

Speaker Change: I'll Miss most about the job is talking to everybody because I like talking and it's been a great story to tell but it's been an absolute privilege.

Speaker Change: I appreciate it so have a good day and I'm sure we'll be speaking to some of you shortly.

Speaker Change: Shortly over the next few days with.

Speaker Change: With additional questions.

Speaker Change: Have a good day, ladies and gentlemen. This concludes today's conference call you may now disconnect.

Yeah.

Speaker Change: Yeah.

Yeah.

Speaker Change:

Yeah.

Speaker Change: Yeah.