Q3 2024 Costco Wholesale Corp Earnings Call

Thank you for standing by my name is Krista and I will be your conference operator today at this time I would like to welcome everyone to the Costco whole wholesale Corporation third quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.

Krista: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation third quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

The session if you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press Star. One. Thank you I will now turn the conference over to Gary Miller Executive Vice President and Chief Financial Officer, Gary You May begin your conference.

Krista: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press the star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I will now turn the conference over to Gary Millerchip, Executive Vice President and Chief Financial Officer. Gary, you may begin your presentation. Good afternoon, everyone, and thank you for joining us on the call today.

Gary Miller: Good afternoon, everyone and thank you for joining the call today.

Krista: I'd like to start by saying how excited I am to be part of the Costco team. It's a pleasure to be hosting my first Costco quarterly conference call. The whole Costco team has been incredibly welcoming. And, as you might imagine, my first three months working alongside Richard have been a lot of fun.

Speaker Change: I'd like to start by saying how excited I am to be part of the Costco team and it's a pleasure to be hosting my first Costco quarterly conference call.

Gary Millerchip: It's also been great visiting warehouses and facilities to immerse myself in the Costco culture and experience first-hand how this is positioning the company for continued growth. In recent months, I've spent time with and met with many analysts and investors, several of whom I know through my prior role. And it's clear you value and appreciate the company's current approach to investor communication. While I can't promise to be able to match the humor that Richard Galanti has become famous for, I can promise the same level of open dialogue and transparency you've come to expect. Oh, and to clear up some recent media speculation, I also want to confirm that the $1.50 hot dog price is indeed safe.

Speaker Change: The whole Costco team has been incredibly welcoming and as you might imagine my first three months working alongside Richard.

Speaker Change: A lot of fun.

Speaker Change: It's also been great visiting warehouses and facilities to immerse myself in the Costco culture and experienced firsthand. How this is positioning the company for continued growth.

Speaker Change: Over recent months I've spent time and met with many analysts and investors.

Speaker Change: Several of whom I know through my prior role.

Speaker Change: It is clear you value and appreciate the company's current approach to Investor Communications.

Speaker Change: While I can't promise to be able to match the humor that Richard galanti have become famous for.

Speaker Change: Promise the same level of open dialogue and transparency you've come to expect.

Speaker Change: And to clear up some recent media speculation I also want to confirm the $1 50 hotdog prices safe.

Speaker Change: Before I talk about our results I wanted to mentioned that Ron <unk>, who is also joined today's call.

Gary Millerchip: Before I talk about our results, I wanted to mention that Ron Vakaris is also joining today's call. Many of you have expressed interest in hearing from Ron, and so we thought it would be a good idea to have Ron join the discussion, and he can also answer a few questions. Ron, would you like to add anything before we talk about the quarter? Thank you, Gary. And again, welcome to Costco. I'm very happy to report that the transition from Richard to Gary has gone very well.

Speaker Change: Many of you have expressed interest in hearing from Ron and so we thought it would be a good idea to have Ron joined the discussion and he can also take a few questions.

Ron: Ron would you like to add anything before we talk about the quarter.

Ron M. Vachris: And we're very excited to have Gary on board as part of Costco, and I look forward to working together on the growth opportunities ahead for our company. Before we jump into the quarter, I wanted to make a couple of comments on the leadership transition. As Richard has mentioned on previous calls, I've worked closely with Craig Gellinly for many years, including side-by-side for the last two years as president. And so the CEO transition has been a very seamless process.

Gary Miller: Thank you Gary and again welcome to Cosco I'm very happy to report that the transition from Richard to Gary has gone very well and we're very excited to have Gary on board as part of Costco and I look forward to working together on the growth opportunities ahead for our company.

Gary Miller: Before we jump into the quarter I wanted to make a couple of comments on the leadership transition as Richard has mentioned on previous calls I've worked closely with Craig generally for many years, including side by side for the last two years as president and so the trick CEO transition has been very seamless process.

Ron M. Vachris: Since January, my time has been focused on working closely with teams around the world to ensure we continue to deliver the best quality merchandise at the best value for our members. I'm incredibly proud of our employees, and I believe our consistency of results is a reflection of their commitment to our members and to each other. Consistent with how Craig and Richard manage investor communications, I intend to have Gary host the quarterly conference calls, and I will join as business permits to answer a few questions. So Gary, let's go to the results.

Gary Miller: January and my time has been focused on working closely with the teams around the world to ensure we continue to deliver the best quality merchandise at a best value for our members I'm incredibly.

Gary Miller: Really proud of our employees and I believe our consistency of results is a reflection of their commitment to our members and to each other.

Speaker Change: Consistent with how Craig and Richard manage Investor Communications I intend to have Gerry host quarterly conference calls and I will join us business for Mips to answer a few questions. So Gary lets go to the results and I'm happy to jump back to yen for the Q&A portion of the field some questions today.

Gary Millerchip: And I'm happy to jump back in for the Q&A portion to field some questions today. Thanks, Ron. I'll start by stating that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and performance to differ materially from those indicated by such statements.

Ron: Thanks, Ron I'll start by stating that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Gary Millerchip: The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP.

Ron I'll: These statements involve risks and uncertainties that may cause actual events results <unk> performance to differ materially from those indicated by such statements.

Ron I'll: 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.

Ron I'll: 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.

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

In today's press release, we reported operating results for the third quarter of fiscal 'twenty for the 12 weeks ended May 12.

Gary Millerchip: In today's press release, we reported operating results for the third quarter of Fiscal 24, the 12 weeks ending May 12. Before I walk through all the numbers, new for this quarter, we are making available a slide presentation on our investor site under events and presentations. These slides summarize much of the information I will share today, including Richard's famous matrices.

Ron I'll: Before I walk through all the numbers new for this quarter, we are making available a slide presentation on our investor site under events and presentations.

Ron I'll: These slides summarize much of the information I will share today, including Richard's famous matrices.

Gary Millerchip: We intend to make this information available every quarter. Reported net income for the third quarter came in at $1.68 billion, or $3.78 per diluted share, up from $1.3 billion and $2.93 per diluted share in the third quarter last year. Last year's results included a non-recurring charge to merchandise costs of $298 million pre-tax, or $0.50 per diluted share, primarily for the discontinuation of our charter shipping activities. Net sales for the third quarter were $57.39 billion, an increase of 9.1% from $52.6 billion in the third quarter last year.

Ron I'll: We intend to make this information available every quarter.

Ron I'll: Reported net income for the third quarter came in at 168 billion or.

Ron I'll: Or $3 78 per diluted share up from $1 3 billion and $2 93 per diluted share in the third quarter last year.

Ron I'll: Last year's results included a nonrecurring charge to merchandise cost of $298 million pre tax or <unk> 50 per diluted share primarily for the discontinuation of our charter shipping activities.

Ron I'll: Net sales for the third quarter were $57 three 9 billion.

Ron I'll: An increase of nine 1% from $52 6 billion in the third quarter last year.

Gary Millerchip: The following comparable sales reflect comparable locations year-over-year and comparable retail weeks. U.S. comp sales were 6.2% or 6% adjusted for gas inflation and FX. Canada was 7.7% or 7.4% adjusted. Other international was 7.7% or 8.5% adjusted. And this led to total company comp sales of 6.6% or 6.5% adjusted for gas inflation and FX. Finally, e-commerce comp sales were 20.7% both on a reported basis and adjusted for foreign

Ron I'll: The following comparable sales reflect comparable locations year over year and comparable retail weeks.

Ron I'll: U S comp sales were six 2% or 6% adjusted for gas inflation and FX.

Ron I'll: Canada was seven 7% or seven 4% adjusted.

Ron I'll: Other international was seven 7% or eight 5% adjusted.

Ron I'll: And this led to total company comp sales of six 6% or six 5% adjusted for gas inflation and FX.

Finally e-commerce comp sales were 27% both on a reported basis and adjusted for foreign exchange.

Ron I'll: In terms of Q3 comp sales metrics traffic or shopping frequency increased six 1% worldwide and five 5% in the U S.

Gary Millerchip: In terms of Q3 comp sales metrics, traffic or shopping frequency increased 6.1% worldwide and 5.5% in the U.S. Our average transaction or ticket was up 0.5% worldwide and up 0.7% in the U.S. Foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 20 basis points, while gasoline price inflation positively impacted sales by approximately 30 basis points. Moving down the income statement to membership fee income, We reported membership fee income of $1,123,000,000, an increase of $79,000,000, or 7.6% year-over-year. Membership fee income growth was 8% excluding FX.

Ron I'll: Our average transaction or ticket was up <unk>, 5% worldwide and up 7% in the U S.

Ron I'll: Foreign currencies relative to the U S dollar negatively impacted sales by approximately 20 basis points, while gasoline price inflation positively impacted sales by approximately 30 basis points.

Ron I'll: Moving down the income statement to membership fee income.

Ron I'll: We reported membership fee income of $1 billion $123 million, an increase of $79 million or seven 6% year over year.

Ron I'll: Membership fee income growth was 8% excluding FX.

Ron I'll: In terms of renewal rates at Q3 end, our U S and Canada renewal rate was 93% up one tenths of a percent from Q2 and.

Gary Millerchip: In terms of renewal rates, at Q3 end, our U.S. and Canada renewal rate was 93%, up one-tenth of a percent from Q2 end. The worldwide rate came in at 90.5%, the same as Q2N. We ended Q3 with 74.5 million paid household members, up 7.8% versus last year, and 133.9 million cardholders, up 7.4% year over year. At Q3 end, we had 34.5 million paid executive memberships, an increase of 661,000 since Q2 end.

Ron I'll: The worldwide rate came in at 95% the same as Q2 and.

Ron I'll: We ended Q3 with $74 5 million paid household members up seven 8% versus last year, and $133 9 million cardholders up seven 4% year over year.

Ron I'll: By Q3, and we have $34 5 million paid executive memberships, an increase of 661000 since Q2 end.

Gary Millerchip: Executive members now represent over 46% of paid members and 73.1% of worldwide sales. Our reported gross margin rate in the third quarter was higher year-over-year by 52 basis points, coming in at 10.84% compared to 10.32% last year and up 54 basis points excluding gas inflation. Coal was flat and higher by two basis points without gas inflation.

Ron I'll: Executive members now represent over 46% of paid members and 73, 1% of worldwide sales.

Ron I'll: Our reported gross margin rate in the third quarter was high at year over year by 52 basis points coming in at 10, eight 4% compared to $10 three 2% last year and up 54 basis points, excluding gas inflation.

Ron I'll: Coal was flat and higher by two basis points without gas inflation.

Ron I'll: In terms of core margin on their own sales core on core margins were higher by 10 basis points.

Gary Millerchip: In terms of core margin on their own sales, our core on core margins was higher by 10 days. Ancillary and other businesses' gross margin was lower by six basis points and lower by five basis points excluding gas inflation. This decrease year over year was driven by gas, partially offset by e-commerce. 2% reward was lower by one basis point, both with and without gas inflation, with higher sales penetration coming from our executive members. LIFO was a benefit of two kinds.

Ron I'll: Ancillary and other businesses gross margin was lower six basis points and lower five basis points, excluding gas inflation.

Ron I'll: This decrease year over year was driven by gas, partially offset by e-commerce.

Ron I'll: 2% reward was lower by one basis point, both with and without gas inflation with higher sales penetration coming from our executive members.

Ron I'll: Lifestyle was a benefit of two basis points, we had an $11 million LIFO credits in Q3, this year compared to no LIFO charge or credit in Q3 last year.

Gary Millerchip: We had an $11 million LIFO credit in Q3 this year compared to no LIFO charge or credit in Q3 last year. This is the third LIFO credit this year, following a $15 million LIFO credit in Q1 and a $14 million credit in Q2, and finally, other with higher 57 basis points or 56 basis points excluding gas inflation. This was all related to lapping last year's negative impact from the $298 million pre-tax charge for charter shipping activities.

Ron I'll: This is the third LIFO credit this year following a $15 million of LIFO credit in Q1, and a $14 million credit in Q2.

Ron I'll: And finally other was high at 57 basis points or 56 basis points, excluding gas inflation.

Ron I'll: This was all related to lapping last year's negative impact from the $298 million pre tax charge for charter shipping activities.

Ron I'll: Moving on to SG&A, our reported SG&A rate in the third quarter was lower or better year over year by 15 basis points coming in this year at $8, 96% compared to last year's 911%.

Gary Millerchip: Moving on to SG&A, our reported SG&A rate in the third quarter was lower or better year over year by 15 basis points, coming in this year at 8.96% compared to last year's 9.11%. SG&A was lower year over year by 12 basis points adjusted for gas inflation. The operating components of SG&A were lower by 14 basis points and lower by 12 basis points, excluding the impact of gas inflation, despite an increase in warehouse wages this year.

Ron I'll: SG&A was lower year over year by 12 basis points adjusted for gas inflation.

Ron I'll: The operations components of SG&A was lower by 14 basis points and lower by 12 basis points, excluding the impact from gas inflation. Despite an increase in warehouse wages this year.

Ron I'll: Higher labor productivity and great cost discipline by our operators drove the improved core SG&A results for the quarter.

Gary Millerchip: Higher labor productivity and great cost discipline by our operators drove the improved core SG&A results for the quarter. Central was better by one basis point and flat without gas inflation. Stock compensation and pre-opening were both flat year over year.

Speaker Change: Central will specify one basis point and flat without gas inflation.

Speaker Change: Stock compensation and Preopening were both flat year over year.

Speaker Change: Below the operating income line interest expense was $41 million this year versus $36 million last year and.

Gary Millerchip: Below the operating income line, interest expense was $41 million this year versus $36 million last year, and interest income and other for the quarter was flat year over year as lower interest income was offset by a foreign exchange gain in the quarter. In terms of income taxes, our tax rate in Q3 was 26.4% compared to 26.5% in Q3 last year. Overall, reported net income was up 29.1% year-over-year, and excluding last year's charge related to the discontinuation of charter shipping activities, it was up 10.3% year-over-year.

Speaker Change: In interest income and other for the quarter was flat year over year as lower interest income was offset by a foreign exchange gain in the quarter.

Speaker Change: In terms of income taxes, our tax rate in Q3 was 26, 4% compared to 26, 5% in Q3 last year.

Speaker Change: Overall reported net income was up 29, 1% year over year, and excluding last year's charge related to the discontinuation of charter shipping activities. It was up 10, 3% year over year.

Speaker Change: A few other items of note.

Gary Millerchip: A few other items of note. In terms of warehouse expansion, in the third quarter, we opened two new warehouses, both in the U.S. Additionally, since the end of Q3, we have two more open... Last week we opened a warehouse in Loomis, California, and two days ago we opened our seventh building in China in the Nanjing market. For the remainder of fiscal 24, we plan to open another 12 new locations; 9 in the US, 2 in Japan, and 1 in Korea.

In terms of warehouse expansion in the third quarter, we opened two new warehouses, both in the U S. <unk>.

Speaker Change: Additionally, since the end of Q3, we had two more openings last week, we opened in luminous, California, and two days ago, We opened our seventh building in China and the managing market.

Speaker Change: For the remainder of fiscal 2004, we plan to open another 12, new locations nine in the U S. Two in Japan, and one in Korea.

Gary Millerchip: This would bring the total for the full year to 30 openings, including one relocation, for a net of 29 new warehouses. Regarding capital expenditures, Q3 spend was approximately $1.06 billion. And we estimate full year 24 capital expenditure will be between $4.3 and $4.5 billion. Now, diving a bit deeper into some of the key themes we saw during the quarter. Non-foods had the highest comps of our core categories. This strength was aided by lapping some softness in sales a year ago, but it was really driven by our merchandising teams doing a great job identifying high quality items with values that really resonated with our members and buying those items with conviction.

Speaker Change: This would bring the total for the full year to 30 openings, including one relocation for a net of 29 new warehouses.

Speaker Change: Regarding capital expenditures Q3 spend was approximately $1.06 billion.

Speaker Change: And we estimate full year 2004 capital expenditure will be between four three and $4 5 billion.

Speaker Change: Diving a bit deeper into some of the key themes, we saw during the quarter.

Speaker Change: Non foods had the highest comps of our core categories.

Speaker Change: This strength was aided by lapping some softness in sales a year ago, but was really driven by our merchandising teams doing a great job of identifying high quality items with values that really resonated with our members and buying those items with conviction.

Speaker Change: As inflation has leveled off our members are returning to purchasing more discretionary items.

Gary Millerchip: As inflation has leveled off, our members are returning to purchasing more discretionary items, and growth in the category was led by toys, tires, lawn and garden, and health and beauty aids. Bakery sales also showed great momentum in the quarter as our fresh foods team reinvented that department with a number of new and exciting items, including the Kirtland Signature Lemon Blueberry Loaf and Morning Buns. Within our ancillary businesses, the Food Court had the strongest quarterly sales, with continued success of the chocolate chip cookie that was added to the Food Court this year.

Speaker Change: And growth in the category was led by toys tires lawn and garden and health and beauty AIDS.

Speaker Change: Bakery sales also showed great momentum in the quarter as our fresh foods team has reinvented that department with a number of new and exciting items, including the Kirkland signature Lemon blueberry life and morning bonds.

Speaker Change: Within our ancillary businesses the food court had the strongest quarterly sales with continued success at the chocolate chip Cookie that was added to the food court this year.

Speaker Change: On the inflation front, it's more of the same from last quarter across all core merchandise inflation was essentially flat in Q3 with fresh foods close to zero and slight inflation in food and sundries being offset by some deflation in non foods.

Gary Millerchip: On the inflation front, it's more of the same from last quarter. Across all core merchandise, inflation was essentially flat in Q3, with fresh foods close to zero and slight inflation in food and sundries being offset by some deflation in non-foods.

Speaker Change: The deflation in non foods was led by hardware sporting goods and furniture, all still benefiting from lower freight costs year over year.

Gary Millerchip: The deflation in non-foods was led by hardware, sporting goods, and furniture, all still benefiting from lower freight costs year over year. Keep in mind that when we speak to inflation, or, in the case of non-foods deflation, we're referring to our selling price. We're intentionally creating incremental value for our members by delivering lower prices wherever possible. We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us.

Speaker Change: Keep in mind that when we speak to inflation or in the case of non foods deflation, we're referring to our selling prices.

Speaker Change: We're intentionally creating incremental value for our members by delivering lower prices wherever possible.

Speaker Change: We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us.

Gary Millerchip: In that vein, our buying teams are constantly aware of changing costs across all of their SKUs and are ensuring that we're capturing all cost decreases quickly so that we can pass on incremental value through price reduction. If we are unsuccessful in delivering ultimate value with branded goods, we evaluate the potential for new, high-quality Kirkland Signature items with a goal of providing at least 20% value versus what we would sell the national brand item.

Speaker Change: In that vein, our buying teams are constantly aware of changing cost across all of our skus.

Speaker Change: Our ensuring that we're capturing all costs decrease as quickly so that we can pass on incremental value through price reductions.

Speaker Change: If we are unsuccessful in delivering ultimate value with branded goods, we evaluate the potential for new high quality Kirkland signature items with the goal of providing at least 20% value versus what we would sell the national brand item at.

Speaker Change: This quarter, we released a new Kirkland signature men's walking shoe and new Kirkland signature facial wipes, both of which are doing very well.

Gary Millerchip: This quarter, we released a new Kirkland Signature men's walking shoe and new Kirkland Signature facial wipes, both of which are doing very well. We also reduced prices on a number of existing items, including lowering Kirkland Signature Pine Nuts from $29.99 to $24.99 and reducing the price of our Kirkland Signature Frozen Shrimp Skews by $1.

Speaker Change: We also reduced prices on a number of existing items, including lowering Kirkland signature pine nuts from $29 99 to $24 99, and reducing the price of our Kirkland signature frozen shrimp skus by $1.

Gary Millerchip: These are just a couple of examples that came out of our recent monthly budget meetings where each country and region shared new and exciting items they had introduced to their warehouses and items where they'd lowered prices. Turning now to digital, we continue to make enhancements to the app and website and are excited about the traction that these initiatives are getting with members. Total e-commerce sales growth in the quarter was led by gold and silver bullion, gift cards, and appliances. In appliances, Costco Logistics is playing a key role in providing both greater value and a better end-to-end experience for members. Deliveries through Costco Logistics were up 28% in the quarter.

Speaker Change: These are just a couple of examples that came out of our recent monthly budget meetings, where each country and region <unk>, new and exciting items. They are introduced to their warehouses and items, where they've lowered prices.

Speaker Change: Turning now to digital we continue to make enhancements to the App and website and are excited about the traction that these initiatives are getting with members.

Speaker Change: Total e-commerce sales growth in the quarter was led by gold and silver bullion gift cards and appliances.

Speaker Change: And appliances Costco logistics is playing a key role in providing both greater value and the better end to end experience for members.

Speaker Change: Leverage through Costco logistics were up 28% in the quarter.

Speaker Change: Costco next accuracy marketplace also continues to grow nicely and we added eight new vendors in Q3, bringing the total to 75.

Gary Millerchip: Costco Next, our curated marketplace, also continues to grow nicely, and we added eight new vendors in Q3, bringing the total to 75. Our app downloads were up 32% versus a year ago, with about 2.5 million new downloads in the quarter, bringing total downloads to more than 35 million. Site traffic was up 16%, and average order value was up 8%. You may have also recently seen an announcement that we are expanding our relationship with Uber.

Speaker Change: Our app downloads were up 32% versus a year ago with about $2 5 million new downloads in the quarter.

Speaker Change: <unk> total downloads to more than $35 million.

Site traffic was up 16% and average order value was up 8% you.

Speaker Change: You May have also recently seen and announcements that we are expanding our relationship with Uber.

Gary Millerchip: Previously, Uber Eats delivered Costco orders in Texas, and this new agreement allows consumers the ability to order from Costco through Uber Eats across all of Canada, as well as 17 states in the U.S. We are also working to expand this partnership to several of our international countries in the coming months.

Speaker Change: Previously Uber eats delivered Costco orders in Texas, and this new agreement allows consumers the ability to order from Cosco through Uber eats across all of Canada as well as 17 states in the U S.

Speaker Change: We are also working to expand this partnership to several of our international countries in the coming months.

Krista: In addition to the increased access to Uber Eats customers, the agreement will allow us to sell Uber gift cards globally and offer discounted Uber One annual memberships to Costco members. Finally, in terms of our upcoming releases, we will announce our May sales results for the four weeks ending Sunday, June 2nd, on Wednesday, June 5th after market close. Also, remember that our fiscal fourth quarter ending September 1, 2024 will have 16 weeks versus the 17 weeks in the fiscal fourth quarter last year.

Speaker Change: In addition to the increased access to <unk> customers. The agreement will allow us to sell Uber gift cards globally and offer discounted Uber one annual membership to Costco members.

Speaker Change: Finally in terms of our upcoming releases, we will announce our may sales results for the four weeks ending Sunday June the second on Wednesday June 5th after market close.

Speaker Change: Also remember that our fiscal fourth quarter ending September <unk> 2024, we'll have 16 weeks versus the 17 weeks in the fiscal fourth quarter last year.

Speaker Change: And with that we will now open up for Q&A.

Krista: And with that, we will now open it up for Q&A. Thank you. Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Speaker Change: Thanks.

Simeon Ari Gutman: If you would like to withdraw your question, again, press star one. And please limit yourself to one question and a single follow-up. Your first question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead. Good afternoon. Hey, Gary. How are you doing? Hi, Simeon.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question again press Star one.

Speaker Change: Limit yourself to one question and a single follow up.

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

Speaker Change: Good afternoon, Hey, Gary how are you doing.

Speaker Change: Hi, Jamie.

Speaker Change: We're going to take a stab at.

Gary Millerchip: We're going to take a stab at this membership question. The way that we've thought about it is it's an inflation offset to the model. And it was described as if you had enough levers in the middle of the P&L to deliver whatever stated EBIT growth you're trying to do, and you didn't need to touch the membership. Is that still the way that you look at it? And is the visibility on enough levers still intact?

Speaker Change: This membership question the way that we've thought about it is it's an inflation offset to the model.

Speaker Change: And it was described as if you have enough levers in the middle of the P&L to deliver whenever stated EBIT growth youre trying to do.

Speaker Change: You didn't need to touch the membership fee.

Speaker Change: Is that still the way that you look at it and as that visibility on enough levers still intact.

Speaker Change: Okay.

Gary Millerchip: Yeah, thanks, Simeon. And you're talking about a membership fee increase now, is that where your question is coming from? Yeah, you know, I would really kind of revert back to some of the comments that Richard shared previously.

Simeon Ari Gutman: Yeah, Thanks, Simeon and Youre talking about our membership fee increase and how is that why youre quite correct, yes, yes, yes.

Speaker Change: I would really kind of revert back to some of the comments that Richard Chad previously I don't think that we're thinking about it any differently than he has talked about in the last few calls we've historically.

Gary Millerchip: I don't think that we're thinking about it any differently than he's talked about in the last few calls. You know, we've historically looked at increasing the membership fee every five years or so, and obviously, we're beyond that time period now in terms of what would be the typical cycle. There's nothing about anything that we see within how the business is performing that's changing our view on that. We feel really good about membership renewal rates.

Speaker Change: Looked at increasing the membership fee every five years also.

Speaker Change: Obviously, we are beyond that time period now in terms of what would be the typical cycle.

Speaker Change: There's nothing about anything that we see within how the business is performing that's changing our view on that we feel really good about membership renewal rates, we feel really good about the test of all delivering significantly more value to members than we were.

Since we last increased the membership fee.

Gary Millerchip: We feel really good about the test of whether we are delivering significantly more value to members than we were or have since we last increased the membership fee. But I think we are our own toughest competitor in that we look at what's happened in the marketplace over the last few years, and when we were seeing high inflation and the risk and concern around recession, you know, before I joined the company, it was talked about extensively, and it continues to be talked about as it's something that is still a case of when we increase the fee rather than if we increase the fee.

Speaker Change: But I think we are our own probably toughest competitor and that we look at what happened in the marketplace over the last few years, when we were seeing high inflation and the risk and concern around recession.

Speaker Change: We.

Speaker Change: Before I joined the company. It was talked about extensively and it continues to be talked about as it's something that is still a case of when we increase the fee rather than if we increase the fee.

We're still evaluating those those considerations to determine what the right timing is and when we reach that point, where we feel it is the right time of course, we'll be very open on direct and communicating that.

Gary Millerchip: But we're still evaluating those considerations to determine what the right timing is, and when we reach that point where we feel it is the right time, of course, we'll be very open and direct in communicating that. Fair enough. Can I ask you something?

Okay fair enough can I ask about Europe.

Gary Millerchip: Your opinion on U.S. expansion. It's been holding in a lot better. It's been more accommodating than we would have thought several years ago. Do you have any thoughts, just your own perspective? You're probably looking at members per warehouse. Are you surprised at the runway you still have in the U.S.? Do you think it could be even more than what we're aware of today, or less?

Speaker Change: Your opinion on the U S expansion, it's been holding in a lot better its been more giving than we would've thought several years ago. You have any thoughts just your own perspective, you're probably looking at members per warehouse are you surprised that the runway you still have in the U S. Do you think it could be even more than what we're aware of today less just curious if theres anything.

Gary Millerchip: Just curious if there's anything surprising about that. I think it's only surprising in as much as, I know we've talked previously about, we thought that we would potentially run out of runway for new warehouses in the U.S., and as you know, this year we're opening close to 29 net new warehouses, and many of those will be continuing in the U.S., and we still see significant runway to continue to open more warehouses in the U.S. in the future.

Speaker Change: On that on that item.

Speaker Change: I think it's only surprising and as much as I know we've talked previously about we thought that we would potentially run out of runway for new warehouses in the U S and as you know this year we're opening.

Gary Millerchip: But I think that 25 to 30 new warehouse count is a reasonable proxy for what we think the runway is for the foreseeable future for new warehouses, and I'd be surprised if at least half of those weren't in the U.S., because we still see significant growth when we open those new warehouses, and what it's doing for us in fill-in markets is it's creating capacity for our members that are shopping in very busy warehouses today So I think we still see plenty of runway in the U.S. to continue to open more warehouses, but we also see a lot of growth opportunity, of course, in international markets as well. Okay. Thanks, Gary. I appreciate it. Thanks, Simeon. Your next question comes from the line of Michael Lasser with UBS. Please go ahead. Good morning, and good afternoon.

Speaker Change: Close to 29, net new warehouses and many of those will be continuing in the U S and we still see significant runway to continue to opening more warehouses in the U S in the future.

Speaker Change: I think that sort of 25 to 30, new warehouse count as a reasonable proxy for what we think the runway is for the foreseeable future for new warehouses and I'd be surprised if at least half of that is one and the continued to be in the U S. Because we still see significant growth when we open those new warehouses and what it's doing for us and fill in markets.

Speaker Change: It's creating capacity for our members that are shopping very busy warehouses today to be able to shop more frequently and drive more engagement with us and also it increases membership renewal rates over time as well. So I think we still see plenty of runway in the U S to continue to open more warehouses, but we also see a lot of growth opportunity.

Speaker Change: Also in the international markets as well.

Speaker Change: Okay. Thanks, Gary I appreciate it.

Amy: Thanks Amy.

Speaker Change: Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Michael Lasser: Good morning, good afternoon, and thank you so much for taking my question, there's been a lot of announcements from consumable retailers in recent times about making price investments.

Ron M. Vachris: Thank you so much for taking my question. There have been a lot of announcements from consumable retailers in recent times about making price investments. Do you think you need to make a sizable price investment in the next couple of quarters in order to remain competitive? This is Ron Bakris. No, you know, I think that this is part of our everyday DNA.

Speaker Change: Thank you need to make a sizable price index named.

Speaker Change: In the next couple of quarters in order to remain competitive.

Speaker Change: Yes.

Rob: This is rob that there is no.

Ron M. Vachris: I mean, we are competitive on a daily basis. Our buyers are on top of prices daily, weekly, and we all review them each month. And so we feel very good about where we are today and our runway to continue to be as competitive as we are moving forward. My follow-up question is, given some of the changes in leadership over the last year or so, is there any thought given to being more aggressive with some of the evolution on the model?

Speaker Change: Think that this is part of our everyday DNA I mean, we are competitive on a daily basis.

Speaker Change: Buyers are on top of pricing Daily weekly and we all review on each month.

Speaker Change: And so we feel very good about where we are today and our runway to continue to be as competitive as we are moving forward.

Speaker Change: My follow up question is given some of the changes in leadership over the last.

Speaker Change: So.

Is there any point, even Q being more aggressive with some of the evolution.

Speaker Change: On the model things like buy online pick up in store deploying more.

Ron M. Vachris: Things like buy online, pick up in store, deploying more technology in the store, or capitalizing on the ever-so-great amounts of data that Costco has in the form of trying to monetize it through retail media. Thank you very much.

Speaker Change: <unk> technology in the store or capitalizing on the ever so great amounts of data Costco had.

Speaker Change: In the form of trying to monetize it through retail media. Thank you very much.

Ron M. Vachris: That's not true, and I think the answer to that is yes on all those fronts. We are working on all those aspects right now. We're rolling out an expanded buy online, pick up in store that is always going to be limited in scope based on the volume in our warehouses that we have. We can't expand to all categories.

Speaker Change: No I think the answer to that is yes on all those fronts.

Speaker Change: We are working on all of those aspects right now we're rolling out.

Speaker Change: On expanded buy online pick up in warehouse that is always going to be limited in scope based on the volume on our warehouses that we have we can't expand to all categories, but we're expanding as we currently speak in televisions and other electronic items that are there.

Speaker Change: So yeah, we see that as a real opportunity for US technology is going to be one of our key priorities moving forward, how do we improve that member engagement and the relationship we have with them in our brick and mortar warehouses as well as online and through other aspects such as travel and so forth. So.

Ron M. Vachris: But we're expanding, as we currently speak, into televisions and other electronic items that are there. And so yeah, we see that as a real opportunity for us. Technology is going to be one of our key priorities moving forward. How do we improve member engagement and the relationship we have with them in our brick and mortar warehouses as well as online and through other aspects such as travel and so forth.

Speaker Change: We see it as a great opportunity to enhance the member relationship with Costco and also drive a lot more business for us as well as we move forward. So.

Ron M. Vachris: So technology we see is a great opportunity to enhance the member relationship with Costco and also drive a lot more business for us as we move forward. So we're going to continually innovate. I mean, you know, with the management changes, I wouldn't expect major changes as we have a proven strategy now. But, as we've done for the past 41 years, we continue to innovate to meet the needs of our members. Oh, and the last one on data.

Speaker Change: So we're going to continually innovate.

Speaker Change: With the management changes I wouldn't expect major changes as we have a proven strategy now, but as we've done for the past 41 years, we continue to innovate to the needs of our members.

Ron M. Vachris: Absolutely. You know, we see a great opportunity for data. We have expanded our group there. We have a significant program now with retail media, and we see some great upside potential. We've expanded that team. And we see some good potential and some good runway for us in that as well, things like personalization and so forth. Thank you very much.

Speaker Change: And the last data absolutely.

Speaker Change: We see a great opportunity for our data we have expanded our group there.

Speaker Change: We have a.

Significant program now with retail media and <unk>.

Speaker Change: We see some great upside potential we've expanded that team and we see some some good potential and some good runway for us in that as well.

Speaker Change: Things like personalization and so forth.

Speaker Change: Thank you very much.

Speaker Change: Thanks, Michael.

Charles P. Grom: Thanks, Michael. Your next question comes from the line of Chuck Grom with Gordon Haskett. Please go ahead. Hey, good afternoon.

Speaker Change: Your next question comes from the line of Chuck Grom with Gordon Haskett. Please go ahead.

Charles P. Grom: Hey, good afternoon, and congrats again Gary.

Ron M. Vachris: And congrats again, Gary. Historically, Richard and his team have been steadfast on the 14 to 15% margin ceiling, which has clearly, you know, paid dividends for the company over the years. I'm curious how you and Ron view this threshold? Are you going to adhere to it?

Charles P. Grom: Historically, Richard and team have been steadfast on the 14% to 15% margin ceiling, which has clearly paid dividends dividends for the company over the years I'm curious how are you and Ron you disrupt threshold are you going to adhere to it do you think you're going to earn more just your thoughts on the margin front.

Ron M. Vachris: Do you think you're going to earn more? Just your thoughts on the margin front? No, with that, that 14-15% has been part of our life for many years. And, and, you know, so I think that's our objective, our buyers' goals are really how aggressive they can get on pricing and deliver the best value. So I don't see, there's no plans to move that cap at all.

Charles P. Grom: Now with that.

Speaker Change: At $14, 15% has been part of ROI for many years and so I think that's our objective our buyers goals is really our aggressive they can get on pricing and deliver the best value. So I don't see there's no plans to move that capital.

Speaker Change: And maybe just one thing to build on that too I think as you think about some of the opportunities that Ron mentioned on the earlier call.

Gary Millerchip: And Chuck, maybe just one thing to build on that too, I think as you think about some of the opportunities that Ron mentioned on the earlier call, it completely echoes Ron's comment about how we have a really clear growth strategy that's obviously delivering momentum in the company today, and these opportunities through technology and media, I think are great opportunities for us to find new ways to unlock value. But again, I think we see those very much in the mindset of how do we give 90%-ish of that back to the member so that we're continuing to drive member engagement, member loyalty, and member value. Okay, great.

Completely echo Ron's comments about we have a really clear growth strategy. That's obviously.

Speaker Change: Delivering momentum in the company today and these opportunities through technology and media I think are great opportunities for us to find new ways to unlock value, but again I think we see though is very much in the mindset of how do we gave 90% ish about back to the member side that were continuing to drive member engagement member loyalty member value.

Speaker Change: Sure.

Speaker Change: Okay, Great and then just to kind of build off.

Charles P. Grom: And then just to kind of build off Michael's question, just wanted to get your high-level thoughts on digital e-com. You know, what do you think Costco's strengths are? What do you think the weaknesses are today?

Speaker Change: Michael's question I, just wanted to get your high level thoughts on digital E com.

Speaker Change: Do you think Costco strengths are what do you think the weaknesses are today and where do you think the biggest focus is going to be for the company in the coming years.

Ron M. Vachris: And where do you think the biggest focus is going to be for the company in the coming years? You know, our biggest strength on digital e-commerce is, of course, the merchandise and the value that we have. I mean, that's what works for us in our brick and mortar stores. You know, the technology, the systems that we have, the teams have got a great roadmap of where they're going. A lot of the work that's being done right now is very foundational.

Speaker Change: Our biggest strength in digital E Commerce of course, the merchandise and the value that we have.

Speaker Change: That's what works for us in our brick and mortar.

Speaker Change: The technology the systems that we have.

Speaker Change: The teams have got a great roadmap of where theyre going a lot of the work that's being done right now is very foundational so better fulfillment quicker delivery times.

Speaker Change: Reliability of the site those type of things. So that those are the things and then following that will Tom iterative changes are forward facing improvements that youll see on the sites and move forward. So I think we've got a very good roadmap to.

Ron M. Vachris: So, you know, better fulfillment, quicker delivery times, you know, reliability of the site, those types of things. So those are the things, and then following that will come iterative changes of forward-facing improvements that you'll see on the sites and move forward. So I think we've got a very good roadmap to do that. But I think that does it. I think personalization is a big deal for members that we could do a much better job on and also a better correlation between the warehouse and the online business. You know, we're working on warehouse inventory online so members could use that in the app.

Speaker Change: To do that but I think that I think personalization is a big deal for members that we could do a much better job on and also a better correlation of the warehouse and the online business.

Speaker Change: We're working towards warehouse inventory online so members could use that on the apps, but app functionality is one of our greatest opportunity.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Scot Ciccarelli: But app functionality is one of our greatest opportunities. Great, thank you. Thank you. Your next question comes from the line of Scott Ciccarelli with Truist Securities. Please go ahead. Thanks, guys.

Speaker Change: Thanks, Joe.

Speaker Change: Your next question comes from the line of Scot Ciccarelli with <unk> Securities. Please go ahead.

Ron M. Vachris: So given the strength of your discretionary sales following the lull that we've seen as the economy got a little funky, does that suggest your members are starting to feel better and more willing to spend on wants rather than needs? You know, it does indeed look that way. I've got to tell you that the discretionary spend we're seeing, I mean, we're definitely winning in consumables as we see the food business and, you know, dining away from home has softened up a bit, and people are eating, and we're seeing that in our fresh foods.

Speaker Change: Thanks, guys Scot ciccarelli, so given the strength of your discretionary sales following the well that we've seen with <unk>.

<unk> got a little funky does that suggest.

Scot Ciccarelli: Your members are starting to feel better and more willing to spend on one rather than needs.

It does indeed look that way I've got to tell you that the discretionary spend we're seeing I mean, we're definitely winning and consumables as we see the fluid business in <unk>.

Scot Ciccarelli: Turning away from home is softened up a bit in deep learning and we're seeing that in our fresh foods, but I have to tell you the categories such as the home Division and toys are categories that have lagged quite a bit post COVID-19 that with great excitement I mean, our buyers have come out and delivered some great items are phenomenal values have really rejuvenating.

Ron M. Vachris: But I have to tell you that categories such as the home division and toys are categories that have lagged quite a bit post-COVID, but with great excitement. I mean, our buyers have come out and delivered some great items, with phenomenal values, have really rejuvenated those categories. And those are both leading categories for us in sporting goods, toys, you know, furnishings, domestics, all those categories are really coming on very strong now and are all of a discretionary nature. Fascinating. And Then today we had a presentation. Obviously, Ron, you joined the call.

Scot Ciccarelli: Those categories and those are both leading categories for us and sporting goods toys.

Scot Ciccarelli: Furnishings domestics all of those categories are really coming on very strong now and all of our discretionary in nature.

Fascinating and then today, we had a presentation obviously Ryan you joined the call are there other changes we could potentially expect given some of the C suite changes.

Ron M. Vachris: Are there other changes we could potentially expect given some of the C-suite changes? I mean, again, like I said, there are no major changes planned. The team is the team that's been running this company for some time. Gary has been a great addition to us and is contributing nicely. But, you know, our model is working. It's working around the world.

Speaker Change: I mean again like I said.

There is no major changes planned the team is the team that's been running this company for some time Gary has been a great addition to us.

Speaker Change: Is contributing nicely but.

Speaker Change: Our model is working it's working around the world.

Ron M. Vachris: Great value on quality merchandise seems to resonate in every region that we do business in. So we'll continue to innovate. We'll continue to see new things and be responsive to what our members' needs are. But I can't sit here today and tell you to expect anything, any great, momentous changes in the near future.

Speaker Change: Great value on quality merchandize seems to resonate in every region that we do business. So we'll continue to innovate we will continue to see new things in and be relative to what our members' needs are but I can't sit here today and tell you to expect anything any great momentous changes in the near future. We just want to compare you to actually execute well.

Gary Millerchip: We just want to continue to execute well. Scott, maybe just to add from my perspective of being new to the role and new to the company, early observations for me: obviously, incredibly impressed with the culture and the strategy is clearly working very well. My first priority is to really, being new to the company, to really acclimatize and to support and enable a smooth transition into the culture to make sure the momentum that we have continues going forward.

Speaker Change: And Scott, maybe just to add from my perspective, it being new to the role of the company.

Speaker Change: Early observations from me obviously the incredibly.

Speaker Change: Impressed with the culture and the strategy is clearly working very well. So my first priority is to really it being new to the company is to really acclimatise into to support and enable a smooth transition with the culture to make sure. The momentum that we have continues going forward and I think the other point is as we talked about a little bit earlier on the call is we're on a journey with technology and data and so I hope.

Gary Millerchip: I think the other point, as we talked about a little bit earlier on the call, is that we're on a journey with technology and data, and so hopefully, the things that I can bring to work with the team and help us continue on that journey and accelerate that journey, and really, those are the priorities in my mind being new to the CFO role. Very helpful.

Speaker Change: The things that I can bring to work with the team and help us continuing on that journey and accelerate that journey and really that's the priorities in my mind being new into the CFO role.

Speaker Change: Very helpful. Thanks, guys.

Speaker Change: Your next question comes from the line of Kelly Bania with BMO capital markets. Please go ahead.

Kelly Ann Bania: Thanks, guys. Thank you. Your next question comes from the line of Kelly Bania with BMO Capital Markets. Please go ahead.

Kelly Ann Bania: Thanks for taking my questions and Ron and Gary pleasure to have you bolt on the call.

Kelly Ann Bania: Thanks for taking our questions. And Ron and Gary, it's a pleasure to have you both on the call. And I love the slides.

Gary Millerchip: Thank you. I wanted to maybe go back a little bit to retail media strategy and personalization. I think Ron, you noted a hire or maybe some key hires in that department. And Gary, I think you bring a unique perspective to this area, or both of these areas. So I guess, just can you help size up the opportunity for us on these two fronts in retail media and personalization? Is it at all different than a typical retailer because of Costco's unique model and skew count or, or anything along those lines?

Speaker Change: The slides thank you.

Speaker Change: Wanted to just maybe go back a little bit.

Speaker Change: <unk> retail media strategy and personalization I think Ron you noted a higher or maybe some key hires in that department.

Speaker Change: And Gary I think you bring a unique perspective to this area or both of these areas. So I guess.

Speaker Change: Just can you help size up the opportunity for us on two fronts in retail media and personalization is it at all different than.

Speaker Change: And then a typical retailer because of Costco's unique model and SKU count or or anything along those lines and I guess would that what would your plans. In these areas include any increase in technology spend in coming years.

Kelly Ann Bania: Sure. Thanks Kelly.

Gary Millerchip: And I guess, would your plans in these areas include any increase in technology spend in the coming years? Sure, thanks, Kelly. Yeah, I'll go first, and then Ron may want to add some color as well.

Speaker Change: I'll go first and then Ron may want to add some color as well.

Gary Millerchip: I think many of your comments are relevant to how we think about the opportunity. The first thing, I guess, I would say as being new and having just joined the company is, as you think about where a lot of companies talk about alternative profit streams, there are a lot of areas today where Costco is doing great things in that area today. So, using the strength of the membership relationship to drive a very large co-brand payment, co-brand payment program that delivers value to members and delivers value to the company, the travel services business that we have, which is pretty unique in retail, but I think, in any other company, would be viewed as a way of generating new revenue and alternative revenue streams from sort of expanding from that overall retail relationship.

Speaker Change: I think.

Speaker Change: Many of your comments are relevant to how we think about the opportunity.

Gary Millerchip: And then thirdly, I would say we have media revenue in areas of the business today. So, it's not as though it isn't something that the business is delivering on today, but I think, as Ron mentioned in an earlier comment, that as technology and data are something that we're sort of building a path towards, I would still say there's significant opportunity for us to grow in that space because of the unique nature of the relationship we have with our members and the ways in which we can deliver value for them and tap into that data and I think it's a little bit early to sort of size it in totality because you're right; there are also some unique elements about our model that would make our opportunity a little bit different.

Speaker Change: First thing I guess, I would say as being new and having joined the company as you think about where a lot of companies talk about alternative profit streams. There are a lot of areas today Wag Costco is doing great things in that area today, so using the strength of the membership relationship in driving a very large co brand payment program that delivers value to me.

Speaker Change: Business delivers values to the company.

Speaker Change: Travel services business that we have which is pretty unique in retail, but I think in any of the company will be viewed as a way of generating new revenue and alternative revenue streams from sort of expanding from that overall retail relationship and then thirdly I would say we have media revenue today in areas of the business. So it's not as though it isn't something that actually the business is delivering.

Speaker Change: On today, but I think as Ron mentioned in an earlier comment that as technology and data or something that was sort of building a path towards I would still say, there's significant opportunity for us to grow in that space because of the unique nature of the relationship we have with our members and the ways in which we can deliver value for them and tap into that data.

Speaker Change: And tap into the growth that we're creating both in the warehouse and through digital channels I think it's a little bit early to sort of size. It in totality because you're right. There are also some unique elements about our model that that would make our opportunity a little bit different but from what we know today and from the team. That's been brought in to help the company think through it. We certainly believe it's got significant runway.

Gary Millerchip: But from what we know today and from the team that's been brought in to help the company think through it, we certainly believe it's got significant runway to drive a lot of growth for the company. And as I mentioned earlier, though, I would definitely think of it as something that we'll look at to, as we do with everything, reinvest in the team member to really accelerate the growth of the company overall. I would have to mirror what Gary says; we do have a unique model, we have a relationship with all of our members, and our responsibility is to use that data wisely and respectfully.

To drive a lot of growth for the company and as I mentioned earlier, though I would definitely think of it as something that we will look at too as we do with everything reinvest in November to really accelerate the growth of the company overall.

Speaker Change: I would have to mirror, what Gary says, we aren't we do have a unique model we have.

Speaker Change: Our relationship with all of our members our responsibility is use that data wisely and respectfully as.

Gary Millerchip: As far as IT spend, yeah, there will be some IT spend. But we don't see, as we look in the future, we don't see that to be anything that will really change our trajectory of our capital investments, but there will be some IT requirements, but we feel that will be in the normal course of business. Thank you. Thanks, Kelly. Your next question comes from the line of John Heinbockel with Guggenheim Securities. Please go ahead.

As far as it spend yes, there will be some it spend we don't see as we look in the future. We don't see that to be anything that will really change our trajectory of our capex investments, but there will be some requirements, but we feel that will be in the normal course of business.

Speaker Change: Thank you.

Speaker Change: Thanks, Kevin.

Your next question comes from the line of John Heimbach, <unk> with Guggenheim Guggenheim Securities. Please go ahead.

Gary Millerchip: So guys, I'm going to go back to personalization again. Where do you think, conceptually, the biggest opportunities are, right? Because when you think about wallet share, every one of your members is going to be a little different, but you can probably do cohorts. Where are they not buying from you, and why?

Speaker Change: Hey, guys wanted to go back to personalization again.

Speaker Change: Where do you think just conceptually the biggest opportunities are right. When you think about wallet share.

Speaker Change: Every one of your members is going to be a little different but you can probably do cohorts.

Speaker Change: Where are they not buying from you and why.

Speaker Change: Personalized promotions outreach on new items coming into the warehouse.

Speaker Change: Do you think.

Speaker Change: The biggest opportunities are to build further wallet share.

John Edward Heinbockel: You know, personalized promotions, outreach on new items coming into the warehouse. Where do you think the biggest opportunities are to build further wallet share? John, I'll go ahead and start out.

John I'll go ahead and start out I think the biggest opportunity is just like you said the awareness of the warehouse and then keeping our members in tune on what's what's active what's going on in the warehouse near them and how we can continue to enhance and drive those sales I think that that's probably our greatest opportunity with digital as we see move.

Ron M. Vachris: I think the biggest opportunity is, just like you said, the awareness of the warehouse and keeping our members in tune with what's active, what's going on in the warehouse near them, and how we can continue to enhance and drive those sales. I think that's probably our greatest opportunity with digital as we see moving forward. Personalization is good.

Speaker Change: Going forward.

Ron M. Vachris: We talk here a lot about a fair, reasonable amount of personalization. We never want to compromise the treasure hunt of Costco, and that's equally as important as people that go to Costco.com never knew that they needed a 16-foot shed. They see phenomenal value, as they do in the warehouse, and so we don't want to personalize to a detriment. That changes our DNA and who we are, but we do know that there are definitely some improvements we could have that would enhance the member experience, and that's everything that our team is focused on, is how does this move benefit the member, and how does it improve their experience with us digitally?

Speaker Change: Personalization is good we talk hear a lot about a a.

Speaker Change: Fair or reasonable amount of personalization, we never want to compromise the treasure Hunt of Costco and that's equally as important as people to go to Costco Dot com never knew that they needed.

Speaker Change: 16 bloodshed.

And they see a phenomenal value does they do in the warehouse and so we don't want to personalize to a detriment.

Speaker Change: That changes, our DNA and who we are but we do know that there is definitely some improvements we could have that would enhance the member experience and thats everything that our team is focused on is that how does this move to the member and how does it improve their experience with us digitally.

Speaker Change: Okay maybe.

Ron M. Vachris: Okay, maybe, and then, as a follow-up, Gary, you talked a little bit about the core on core. But maybe you step back a little bit if you, and I know the idea is not necessarily a maximized margin. But, you know, maybe some thoughts on core on core this quarter.

Speaker Change: Follow up Gary.

Speaker Change: You talked a little bit about the core on core but.

Speaker Change: So maybe step back a little bit as you and I know.

Speaker Change: The idea is not necessarily to maximize margin, but maybe.

Maybe some thoughts core on core this quarter and I know I think there has been pressure on fresh right as you kind of normalize post COVID-19.

Gary Millerchip: And I know, I think there had been pressure on fresh, right, as you kind of normalize post-COVID, back to a regular level, or are we now through that process of fresh, getting back down to a, Yeah, thanks, John. Just maybe to give you a little bit more color on the core on core, how it kind of played out during the quarter. So if you think about the three main categories in core between foods and sundries, fresh, and non-foods, fresh would have continued to be slightly lower year over year.

Speaker Change: Back to a regular level or are we now through that process of fresh getting.

Speaker Change: Getting back down to a certain level.

Speaker Change: Yes, Thanks, John just maybe to give you a little bit more color on the core on core.

Gary Millerchip: And that's a very deliberate strategy for us to make sure we're delivering more value for the member. And we think that's a really important place for us to drive member engagement and support, especially as we're still seeing some commodities that are a little bit inflationary right now. So that would have been very much part of the plan from our perspective. But it was more than offset, as you mentioned, by the improvement in non-foods during the quarter, which was what led to the 10 basis point improvement on core. Food and sundry was actually pretty flat overall.

Speaker Change: How it kind of played out during the quarter.

So if you think about the three main categories and call between foods, and sundries fresh and non foods fresh.

Speaker Change: Fresh would've continued to being slightly lower year over year, and that's a very deliberate strategy for us to make sure we're delivering more value for the member and we think that's a really important place for us to drive member engagement and support, especially as we are still seeing some commodities are little bit inflationary right. Now so that would have been very much a part of the plan.

Gary Millerchip: So we feel good about the way that we're managing the balance while staying true to that principle of delivering the best value for the member. And we were pleased with how it played out during the quarter based on the work all the merchandise and teams did. Thank you. Thanks, Joe. Your next question comes from the line of Peter Benedict with Baird. Please go ahead. Peter, if you're on mute.

Speaker Change: <unk> from our perspective, but it was more than offset as you mentioned by the improvement in non foods during the quarter, which was what led to the 10 basis point improvement Encore Encore students Sunday actually was pretty flat overall, so we feel good about the way that we're managing the balance while staying true to that principle that delivering the best value for the member and we where we were.

Speaker Change: Pleased with how it played out during the quarter based on the work all the merchandising teams did.

Speaker Change: Thank you.

Speaker Change: Thanks, Joe.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Peter Benedict with Baird. Please go ahead.

Speaker Change: Peter if you're on mute.

Peter Sloan Benedict: Sorry about that.

Peter Sloan Benedict: Yeah, sorry about that guys. Thanks for taking the question Ron maybe maybe one for you just kind of back to the member behavior, maybe back to Scotts question, a little bit can you just talk about maybe just your observations.

Peter Sloan Benedict: Sorry about that. Yeah, sorry about that, guys. Thanks for taking the question. Ron, maybe one for you, just kind of back to the member behavior, maybe back to Scott's question a little bit. Can you just talk about maybe just your observations around maybe income cohorts, any other ways you bucket or slice your membership base? And just how the behaviors have evolved here over the last several months? Is there any change that you think is interesting to call out? You talked about the better general non-foods trend. Curious if this environment reminds you of anything else historically; that's my first question.

Peter Sloan Benedict: Around maybe income cohorts any other ways, you bucket or slice your membership base just how the behaviors have evolved here over the last several months.

Speaker Change: Are there any change that you think is interesting to call out you talked about the better general non foods trends.

Speaker Change: I'm curious if this environment reminds you of anything else historically, that's my first question.

Ron M. Vachris: Okay, you know, it's a very healthy environment from what we see from our members right now. And as you take a category such as our meat department, which is growing very nicely, a lot of volume being driven by ground beef and our new everyday lower price on boneless, skinless chicken breasts, really driving a lot of volume units there, while Wagyu beef and prime are growing at a great clip for us as well.

Speaker Change: Okay.

Speaker Change: It's a very healthy environment from what we see from our members right now and then as you've taken categories such as our meat Department, which is growing very nicely a lot of volume being driven in ground beef and our new everyday lower price on boneless skinless chicken breasts really driving a lot of volume units there, while wag a little beef in prime.

Speaker Change: Our growing at a great clip for us as well so we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well the non foods I tell you that non foods is strictly driven by newness and excitement and and.

Ron M. Vachris: So we're seeing that benefit from both sides of the consumer, that great value in both areas is doing very well. The non-foods, I tell you that non-food is strictly driven by newness and excitement. And, and, you know, we see big and bulky going very well. It's been a year since our $1,200 swing set that we have on the floor. We can't get enough; they're just blowing out.

Speaker Change: We see big and bulky going very well, it's been a year or two.

Speaker Change: $200 swing set that we have on the floor or we can't get enough, they're just blowing out, but it's again that continuous innovation of merchandise that is exciting our members and really driving some sales force there.

Speaker Change: The executive membership.

Ron M. Vachris: But it's again, that continuous innovation of merchandise that is exciting our members and really driving some sales for us there. Executive Membership. And that drives our executive base because people are engaging at a much higher level. Good. Sounds good across the board. Well, we're expecting a dryer to get delivered from Costco Logistics in the next couple of days. So, looking forward to that.

Speaker Change: And then that drives our executive basin, because people are engaging at a much higher level.

Speaker Change: Okay sounds good across the board, what we were expecting a dryer to get delivered from a Costco logistics on the next couple of days, so looking forward to that.

Peter Sloan Benedict: And then the second question would be, Ron or Gary, for one of you, just your view on vertical sourcing. I mean, this has been something that Costco has been involved in for several years, going across different categories as you guys continue to grow your business. You need, you know, more, I guess, definable sources of supply. I was just curious about your view of vertical sourcing, where you are today, and what areas you might focus on over the next several years. Thank you.

Speaker Change: And then the second question would be yes, Ron or Gary either one of you just just your view on vertical sourcing I mean, this has been something that <unk> been involved in for a for several years going across different categories that you guys continue to grow your business you need.

Speaker Change: More.

Speaker Change: Definable sources of supply.

Speaker Change: Just curious your view of vertical sourcing, where you are today and what what areas you might focus on over the next several years. Thank you.

Ron M. Vachris: Sure. You know, we've gotten into vertical integration and sourcing as the need arises. And if you think back to the infamous story about the hot dog and Coke at $1.50, and how are you going to figure out how to keep that price there?

Speaker Change: Sure you know we have.

Speaker Change: We've gotten into vertical integration in sourcing, whereas the need arises and if you think back in <unk>.

Speaker Change: And from a story about the hotdog and totaled $1 50, and how are you going to figure out how to keep that price there what we're going to open our own meat plants and as we looked at the prices of optical lenses growing up and then we opened up our optical grinding plant. So we did that to continue to look at those things on the chicken plant came because we saw an inflection point where supply was not going to.

Ron M. Vachris: Well, we're going to open our own meat plants. And as we looked at the prices of optical lenses going up, we opened up our optical grinding plants. So we did that to continue to look at those things. The chicken plant came because we saw an inflection point where supply was not going to meet demand.

Speaker Change: Demand. So we had to get involved in because we didn't have a partner that was willing to expand into that area as well.

Ron M. Vachris: So we had to get involved, and because we didn't have a partner that was willing to expand into that area as well. There is a focus that I have the group focused on, too, that we shouldn't try and be everything. We've got a business to run here, and we're not going to get vertically integrated just because it's something we can do. It really is going to be driven by where the needs are and when you need to step in.

Speaker Change: There is there is a focus that I have a group focused on too is that let's not try and be everything though we've got we've got a business to run here and we're not going to get vertically integrated just because its something we can do.

Speaker Change: It really is going to be driven by where the needs are and when do you need to step in and it's equally we have great partners out there that supply our goods for us and there are long term suppliers and so it's.

Ron M. Vachris: It's equally important that we have great partners out there that supply our goods for us, and they're long-term suppliers. And so strategically using that relationship is going to be the key in the future. So there's nothing that I could announce at this time that we're going to expand into, but we continue to keep that in our back pocket should we need to. Perfect. Thanks so much.

Speaker Change: Strategically using that relationship is going to be the key in the future. So there's nothing that I can announce at this time that we're going to expand into but we continue to keep that in our back pocket should we need to.

Speaker Change: Perfect. Thanks, so much.

Speaker Change: Youre welcome.

Your next question comes from the line of Paul <unk> with Citigroup. Please go ahead.

Ron M. Vachris: You're welcome. Your next question comes from the line of Paul Legez with Citigroup. Please go ahead. Hey, everyone, this is Brandon Cheatham on football.

Speaker Change: Hey, everyone. This Brandon Cheatham on for Paul Thanks for taking my question.

Brandon Babcock Cheatham: Thanks for taking our question. Recently, you were selling an Instacart gift card at a discount online and in the warehouse. I thought that was pretty interesting, because it's essentially a gift card that could be used at a competitor as well. So I'm just curious, you know, was there any strategy behind that?

Speaker Change: Recently, you were selling in record gift card at a discount online and in warehouse and so on.

Speaker Change: That was pretty interesting because it's essentially a gift card that can be <unk>.

Speaker Change: Is that a competitor as well so I'm just curious.

Speaker Change: Is there any strategy behind that.

Speaker Change: Are you trying to drive member engagement online.

Ron M. Vachris: Are you trying to drive member engagement online? and if there are any learnings from that initiative? You know, the strategy behind it was another avenue to bring value to our members. That's really what that was about. Is that, you know, there is an upcharge on having groceries delivered to your home. You know, we work closely with Instacart, and now we work with Uber, to try and keep those costs at a minimum. But, you know, they've got people to pay on their side as well. So the partnership was really about, you know, how do we continue to enhance that service for our members and drive more sales? And so, you know, that was truly it.

Speaker Change: Are there any learnings from <unk>.

Speaker Change: The initiative.

Speaker Change:

Speaker Change: That's the strategy behind it was another avenue to bring value to our members is really what that was about is that there is an upcharge on having grocery delivery to home. We worked closely with instant card now we will deliver to try and keep those costs at a minimum but.

Speaker Change: <unk> got people to pay on their side as well. So the partnership was really to how do we continue to enhance that that service for our members and drive.

Speaker Change: Drive more sales and so that was truly yes somebody can go out and use it somewhere else, but again.

Ron M. Vachris: Yeah, somebody can go out and use that somewhere else. But again, our job is to save the members where we can and be it airline tickets or, you know, Uber driving tickets or Instacart shopping. We look at all those opportunities to add value to the member.

Speaker Change: Our job is to save the members, where we can and be at airline tickets or Uber drive tickets or instant cart shopping we look at all those opportunities to add value to the member.

Speaker Change: Got it right.

Brandon Babcock Cheatham: Thanks. And my follow-up question: how do warehouses react when you open an Intel warehouse? You know, does it open differently than other new markets? Does the current market feel an impact?

Speaker Change: My follow up how.

Speaker Change: How many warehouses to react when you open.

Speaker Change #100: Until warehouse does it open differently then.

Speaker Change #100: Other new markets the current market feeling the impact and how many warehouses that you open the roof here with your.

Ron M. Vachris: And how many warehouses did you open over the past year? Would you quantify it as Inco versus New Market? Thanks.

Speaker Change #101: Quantify until versus.

Speaker Change #101: New market.

Speaker Change #101: Yeah.

Ron M. Vachris: I guess how they react, you know; we normally have good data before we open up an infill building, and we can judge based on our member information what cannibalization we'll realize in what building. So we're able to get in front of that and adjust labor and payroll and buying and all those type of things for the upcoming cannibalization that we plan. And our team does a very good job; they're normally within a percent or so of what reality is to the execution of where our plans are as well.

Speaker Change #102: I guess, how they react.

Speaker Change #103: We normally have good data before well open up and in full building and we can we can judge based on our member information what cannibalization will realize on what building. So we're able to get in front of that and adjust labor and payroll on buying and all those type of things for the upcoming cannibalization that we plan and our team does a very good job there.

Speaker Change #103: Normally within within a percent or so of what reality is to.

Speaker Change #103: The execution of our plans are as well so we've gotten pretty good at planning those things out and.

Ron M. Vachris: So we've gotten pretty good at planning those things out, and, you know, it's strategic, and the number of cannibalized locations, I'd have to tell you, I'd have to say that we probably opened eight this year that cannibalized other buildings. Some may have cannibalized just one warehouse; others may be in the middle. We had one in Toronto that cannibalized four buildings around it, but they've built back their sales within six months.

Speaker Change #103: It's a strategic and the numbers of Cannibalized locations I'd have to tell you I'd have to say that we probably opened.

Speaker Change #104: Eight this year that cannibalize other building some may have cannibalized, one warehouse others, maybe in the middle and we had one in Toronto that cannibalized for buildings around it but they build back their sales within six months. So those are the opportunities where you know to Gary's earlier point frequency improved significantly because remember.

Gregory Scott Melich: So those are the opportunities where, to Gary's earlier point, frequency improves significantly because members can get back into a high volume club, and so it's strategic cannibalization, if you would, as we look around the world. Very helpful. Thank you. Your next question comes from the line of Greg Melich with Evercore ISI. Please go ahead.

Speaker Change #104: It can get back into a high volume club and so it's strategic cannibalization. If you will as we look around the world.

Speaker Change #105: Very helpful. Thank you.

Speaker Change #106: Your next question comes from the line of Greg Melick with Evercore ISI. Please go ahead.

Speaker Change #107: Hi, Thanks.

Ron M. Vachris: Hi Ron, I wanted to follow up on the gross margin cap still very much in place at 14-15%. Is there any reason that SG&A, now that it's back under 9% of sales, couldn't fall to 8% if you keep having the growth that you have? Now, that's a very fair point. That's a very good point.

Speaker Change #108: I wanted to follow up on the gross margin cap still very much in place at 14, 15%.

Speaker Change #109: Is there any reason that SG&A now that is back under 9% of sales Couldnt fall to eight if you keep having the growth that you have.

Ron M. Vachris: No, we continue to see, I mean, the company. We had a very healthy SG&A number this quarter. You know, inventory was flowing very well. We had fresh goods coming through the system. Our warehouses did a phenomenal job. Skew counts are in line. And so it's one of those things where all the stars aligned.

Speaker Change #110: Now Thats, a very fair Thats, a very good point no. We continue to see I mean, the company, we had a very healthy SG&A number this quarter.

Speaker Change #110: Inventory was flowing very well, we have fresh goods coming through the system, our warehouses did a phenomenal job SKU counts or online.

Speaker Change #110: And so it's one of those things where all the stars aligned.

Ron M. Vachris: And this is the way we operate well, when you can deliver that kind of top-line growth at our size now. Our operators do a tremendous job leveraging that to the SG&A. So I, you know, what could that get to?

Speaker Change #110: This is the way we operate well when you can deliver that kind of a top line growth.

Speaker Change #110: At our size now our operators do a tremendous job leveraging that to the SG&A. So what does that could that get to I'd hate to say, 8%, but I do think that we can have continued runway of.

Speaker Change #110: Driving down that number.

Speaker Change #111: That's great to hear.

Ron M. Vachris: I'd hate to say 8%, but I do think that we can have a continued runway of driving down that number. That's great to hear. And maybe some insight on gas gallons in the corridor. I know it was volatile, and that's certainly a point of pressure for a lot of members and consumers. But did that help the traffic acceleration in the corridor, or gas gallon growth? Yeah, we were 5% up in gallons, you know, and again, that's, that's, I think all those things when you can save people on gas, that's also going to lend to your traffic as well. A great number.

Speaker Change #112: Maybe some insight on gas gallons in the quarter I know it was volatile and certainly a point of pressure for a lot of members and consumers does that help the traffic acceleration in the quarter gas gallon growth.

Speaker Change #113: Yeah, we were we were 5% up in gallons.

Speaker Change #113: And again, that's I think all of those things when you can save people.

Speaker Change #113: On gas, that's also going to lend to your traffic as well, but gallons were up 5% for the quarter.

Speaker Change #114: A great number and if I could follow up on gas.

Gregory Scott Melich: And if I could follow up on gas, is that still, is the profitability on gas, Gary, kind of similar versus a year ago or last quarter? Or is that trending up or down? Yeah, gas profitability would have been down a little bit.

Speaker Change #115: Is that still there is the profitability in gas scary kind of similar versus a year ago or last quarter or is that trending up or down.

Speaker Change #116: Yes, the gas profitability, what would have been down a little bit I think you may have heard me mentioned in the prepared comments that when we looked at the overall gross margin rate for the quarter.

Gary Millerchip: I think you may have heard me mention in the prepared comments that when we looked at the overall gross margin rate for the quarter, the sort of headwind that we had was in the ancillary businesses, the other businesses, and it was essentially gas that created that headwind. So we did see a reduction in gas profitability during the quarter, but overall, the core-on-core margin improvement and e-commerce improvement essentially offset that to bring us pretty close to flat overall when you adjust for gas inflation in the results. So it was down.

Speaker Change #116: That sort of headwind that we had was in the ancillary business as the other businesses and it was it was essentially gas that created a headwind. So we did see.

Speaker Change #116: Reduction in gas profitability during the quarter, but overall the core on core margin improvement in E Commerce improvement essentially offset that to bring us pretty pretty close to flat overall when you adjust for the gas inflation in the results. So so it was down I would say generally we've seen on gas profitability, it's been relatively consistent to slightly improving you could look at.

Gary Millerchip: I would say in general, we've seen on gas profitability, it's been relatively consistent to slightly improving if you look over the last few years. But obviously, there are points in time when you think about volatility and fuel prices where you can have those ups or downs in any given quarter. And this last quarter was one where we did see a headwind on year-over-year gas profitability. That's fantastic.

Speaker Change #116: The last few years, but.

Speaker Change #116: But obviously there are points in time, when you think about volatility in fuel prices why you can have those ups or downs in any given quarter and that was this last quarter was one where we did see a headwind in year over year gas profitability.

Gregory Scott Melich: Well, welcome. And I'll let somebody else ask about how much gold bullion drove the comp. Take care, guys. Thank you. Your next question comes from the line of Rupesh Parikh with Oppenheimer.

Speaker Change #117: That's fantastic well welcome and I will let somebody else ask about how much gold volume drove the comp.

Speaker Change #118: Take care guys.

Speaker Change #119: Thank you.

Speaker Change #120: Your next question comes from the line of Bruce <unk> with Oppenheimer. Please go ahead.

Rupesh Dhinoj Parikh: Please go ahead. Good afternoon, thanks for taking my question. So just going back to unit growth, you know, in recent years, it's been stuck in that, let's call it, the mid 20s; it looks like this year will be closer to 30. Just want to get a sense of, you know, the opportunities to potentially accelerate that unit growth, especially in the US, just given some of your competitors are planning to accelerate growth. You know, it is goodness when you look at it. I talked before about managed cannibalization.

Speaker Change #121: Good afternoon, and thanks for taking my question. So just going back to unit growth you know in recent years, it's been stuck in that let's call. It a mid twenties. It looks like this year will be closer to 30, just wanted to get a sense of the opportunity to potentially accelerate that unit growth, especially in the U S. Just given some of your competitors are planning to accelerate growth from here.

Speaker Change #122: You know it is a it is a good base when you look at I talked before about manage cannibalization and when you do these <unk> and <unk>.

Rupesh Dhinoj Parikh: And when you do these infills, and, you know, 29 locations is a solid number for us. As you start getting into infill, some of these projects take a little longer, you know, it's a little tougher than there's not a whole lot of green land out there for us to go in and open up a warehouse.

Speaker Change #122: 29 locations is a solid number for us as you start getting into infill. Some of these projects take a little longer it's a little tougher than theres not a whole lot of.

Speaker Change #122: Greenland out there for us to go in and open up a warehouse. So we have to do some creative things to find a way to infill in a very high market International.

Ron M. Vachris: So we have to do some creative things to find a way to fill in a very high market. International expansion continues to be strong. However, some of the countries or regions that we do business in take quite a bit longer to get things done.

Speaker Change #122: <unk> expansion continues to be strong some of the countries or regions that we do.

Speaker Change #122: <unk> take quite a bit longer to get things done so I think youll see that ebb and flow.

Ron M. Vachris: So I think you'll see that ebb and flow that number 25 to 29 is 25 to 30 is a good number for us; we feel good with our staffing and leadership and building out the infrastructure behind these warehouses. So we open with great solid support there. Great, and then maybe just one follow-up question.

That number of 25% to 29.

<unk> is a good number for us we feel good with our staffing and leadership in building out the infrastructure behind these warehouses. So we open with great solid support there.

Speaker Change #123: Great and then maybe just one follow up question. So you know.

Rupesh Dhinoj Parikh: So in terms of, you know, if you guys added Uber to a number of locations, so you know, if you guys think about the intermediate to longer term, like, what do you expect multiple providers to be all Costco US stores over time? So maybe just more rationale in terms of adding Uber and longer. You know, we saw that we were testing Uber for some time in Texas, we had a test going on there, and we did see a new cohort of members who were engaged on the Uber platform.

Speaker Change #124: As you guys added Uber to a number of locations. So you know as you guys think about the intermediate to longer term, where do you expect multiple providers are all Costco U S stores over time, so maybe that's more the rationale in terms of adding Uber and our longer term vision.

Rupesh Dhinoj Parikh: Uber also allowed us to expand our international footprint, too. So we're going to be out in Japan, Korea, Taiwan, the UK, which we'll be expanding to where we don't have grocery delivery now. So there were some real benefits to that relationship, along with the long-standing Instacart relationship that we had been very good for many years.

Speaker Change #123: Yeah.

Speaker Change #123: We saw we were testing Uber for some time in Texas, We had a test going on there and we did see a new cohort of members engagement that that are.

Speaker Change #123: Humor platform Uber.

Speaker Change #125: <unk> also allowed us to expand our international footprint too so we're going to be out in Japan.

Speaker Change #125: Japan Korea, Taiwan U K.

Speaker Change #125: That will be expanding in where we don't have grocery delivery now. So there were some real benefits to that relationship along with the long standing insert the card relationship that we've had has been very good for many years. So we think that it does open up the window for us for some new member engagement and we also think that it's going to be very good for us internationally and expansion there.

Ron M. Vachris: So we think that it does open up a window for us to engage some new members. And we also think that it's going to be very good for us internationally and for our expansion there as well. Great, thank you. Your next question comes from the line of Christopher Horvers with J.P. Morgan. Please go ahead. Hi, good afternoon. It's Christian Carlino on behalf of Chris.

Speaker Change #125: Well.

Speaker Change #126: Great. Thank you.

Speaker Change #127: Your next question comes from the line of Christopher <unk> with Jpmorgan. Please go ahead.

Christian: Hi, Good afternoon, it's Christian <unk> on for Chris could.

Christian Carlino: Could you speak to some of the innovation you're seeing in non-foods and anything else you think is driving some of the performance, particularly in discretionary categories, you know, you called out toys, sporting goods, and home. So maybe any, any additional color you can provide on those in particular. And while you're clearly gaining share, when you compare your own performance and some of the syndicated data out there, does the emerging newness suggest there's also somewhat of a rising tide in some of these categories that saw some pull forward over the pandemic?

Speaker Change #129: Could you speak to some of the innovation you are seeing in non foods and anything else. You think is driving some of the performance, particularly in discretionary categories, you called out toys sporting goods and home. So maybe any incremental color you can provide on those in particular and while you are clearly gaining share when you compare your own performance of some of the syndicated data out there does it.

Speaker Change #130: Emerging newness suggest there is also somewhat of a rising tide in some of these categories that saw some pull forward over the pandemic. Thanks.

Speaker Change #131: Well, Yeah, I think if you look at if you could talk about the home category and definitely as furnishings, which was one that was quite soft post pandemic that has come back strong in furniture those type of things that went home decor.

Christian Carlino: Thanks. Well, yeah, I think you know, if you look at the home category, and definitely the furnishings category, which is one that was quite soft post-pandemic, that has come back strong and furniture, those type of things that when it comes to home decor, it's been some very unique items. I mean, we've got seven-foot artificial trees that have come in and just exploded out of the warehouses, and those are going at a nice clip.

Speaker Change #132: It's been some very unique items I mean, we've got seven foot.

Christian Carlino: Domestics, you know, most unique items, Swedish dish towels, import items we're finding from around the world are doing very well, but it really comes down to unique items at great values that are exciting the members in all those categories. The housewares categories have been great. You know, sporting goods and toys, inflatable outdoor toys have been a big, big category for us as well. You know, we've added the Kirkland Signature driver to our golf lineup, and it sells out as quick as it goes online. So we're seeing wins in several different categories. Got it.

Speaker Change #132: Artificial trees that have come in and just exploded out and just blowing out of the warehouses and those are going.

Speaker Change #132: Nice clip domestics, most unique items Swedish dish towels import items were planning from around the world are doing very well, but it really comes down to unique items at great values that are that are exciting the members and all of those categories. The housewares categories have been great.

Speaker Change #132: Sporting goods and toys inflatable outdoor toys have been a big big category for us as well.

Speaker Change #132: We've added the circumstance mature driver and does our golf lineup that has that sells out as quick as it goes online. So we're seeing wins in several different categories.

Speaker Change #133: Got it that's really helpful.

Ron M. Vachris: That's really helpful. And just broadly, are you seeing the competitive environment heat up in terms of peers investing in price, particularly in non-foods? You have some peers talking more and more about looking to drive units. Others are talking about, you know, a big step up in appliance promotions recently. So any color, any color on what you're seeing competitively?

Speaker Change #134: Just broadly are you seeing the competitive environment heat up in terms of peers investing in price, particularly in non foods.

Speaker Change #135: You had some peers talking more and more about looking to drive units others talking about a big step up in appliance promotions recently, so any color or any color on what youre seeing competitively.

Ron M. Vachris: You know, there'll be ebbs and flows with the competition, but I'm very confident that we are always in the right position, and we're staying ahead of that to keep the value there for our members. So those things are cyclical, but we're going to be of value every day. And I think maybe just one thing to mention on that, Ron, too, you mentioned it earlier, but on the appliances, obviously, making sure we're always very competitive on price, but I do think the acquisition of Innovel Costco Logistics now and the value that we offer members there, including the delivery, the installation, and the removal of the old appliances, is proving to be a real differentiator for us in the member experience as well. Absolutely. Got it. Thank you very much. Your next question comes from the line of Scott Mushkin with R5 Capital. Please go ahead.

Speaker Change #136: There'll be ebbs and flows with the competition, but I'm very confident that we are always in the right position and we're staying ahead of that to keep the value of their for our members. So these are those things are cyclical, but we're going to be a value every day.

Speaker Change #137: And I think maybe just one thing to mention on that ran through you mentioned it earlier, but with the on the appliances all of us.

Lee: Lee, making sure we're always very competitive on price, but I do think the the acquisition of <unk> Costco logistics now and the value that we offer members that through both including the delivery and the installation and the removal of the old appliance is proving to be a real differentiator for us on that member experience as well absolutely.

Speaker Change #137: Yeah.

Speaker Change #139: Got it thank you very much.

Speaker Change #140: Your next question comes from the line of Scott, Michigan with RFID capital. Please go ahead.

Speaker Change #141: Hey, guys. Thanks for taking my questions and Gary welcome, it's nice to be talking to you at Costco.

Scott Andrew Mushkin: Hey guys, thanks for taking my questions and Gary, welcome. It's nice to be talking to you at Costco, and Ron. Thanks for coming.

Speaker Change #142: Thanks I.

I appreciate it.

Scott Andrew Mushkin: I appreciate it. So, my first question is kind of the opposite of what everyone asks all the time about the fee. But given some of the stuff you've outlined around media and maybe driving the SG&A down, you know, why do you need to increase the fee? Well, your sales are strong, your fee income growth is strong. So what... Just because you've always done it doesn't mean you should do it.

Speaker Change #142: So.

My first question.

Speaker Change #142: Kind of the opposite of what everyone asked all the time around the fee.

Speaker Change #142: But given some of the stuff you outlined around media and maybe driving the SG&A down why do you need to increase let's see right.

Speaker Change #142: Your sales are stronger fee income growth is strong so what.

Speaker Change #143: Just because you have always done it doesn't mean you should do it so it won't be the rationale behind driving a fee increase at this point.

Ron M. Vachris: So what would be the rationale behind driving a fee increase at this point? You know, fee increases go back to the members in lower prices. I mean, one of the key parts that we use that money for is that it allows us to broaden that distance from the competition and bring greater values to improve our operation overall for the member. So that's the primary focus. Okay, and then my next question actually kind of dovetails with the last one, but, you know, you guys talked about the consumer being a little bit better overall. And I guess what I was wondering.

Speaker Change #142: Yes.

Speaker Change #144: Fee increases go back to the members and lower prices.

Speaker Change #144: I mean, that's that it creates.

Speaker Change #144: That's one of the key parts that we use that money for is that it allows us to broaden net debt.

Speaker Change #144: <unk> from the competition and bring greater values and improving our operation overall for the member. So that's that's the primary focus.

Okay.

My next question actually is kind of dovetail on the last one but.

Speaker Change #145: You guys talked about the consumer being a little bit better overall.

Speaker Change #146: What I was wondering.

Scott Andrew Mushkin: You know, is that really a Costco phenomenon? In other words, are you gaining share? And that's what's really driving your improvements in some of these categories, like electronics and appliances and big ticket items, rather than the consumer actually getting better? Is there any way to tease that out?

Speaker Change #147: Is that really a costco phenomenon in other words are you gaining share.

Speaker Change #147: And that's what's really driving your improvements in some of these categories like electronics and appliances in big ticket.

Speaker Change #147: Rather than the consumer actually getting better and is there any way to tease that out.

Speaker Change #148: I would say that that's very fair. We are merchants report monthly on industry trends in the country and you know it.

Ron M. Vachris: I would say that that's very fair. Our merchants report monthly on industry trends in the country or internationally, as we say, and we can see our sales performance compared to the rest of the market. And I would think that you're spot on when you say that we're gaining market share. Scott, maybe one thing I would just add, too, is that we're all reading a lot about the consumer, of course, and what they're going through right now, and I think what we see is that value and quality have never been more important, and so that plays to, as Ron described earlier, what we deliver, and we're making sure that the teams are laser-focused on every day delivering that value and quality, and so I think we' Yeah, we definitely like our Costco here at the Mushkin residence. So, thanks, guys. I appreciate it.

Speaker Change #148: Internationally as we are seeing and we can see our sales performance compared to the rest of the market and I would think that you're spot on when you say that we're gaining market share.

Scott: Scott maybe one thing I would just add to it I think we're all reading a lot about the consumer calls and what they're going through right now.

Ron I'll: I think what we see is that value and quality has never been more important and so that plays too as Ron described earlier, what we deliver and we're making sure that the teams are laser focused on every day delivering that value and quality and so I think we're drawing customers to what Costco is offered for many years and it's never been more relevant than NAV based on what we're hearing from members and consume.

Scott: Yes.

Speaker Change #150: Yes, we definitely like our Costco here at the Moskin residents. So thanks guys appreciate it.

Scott: Thank you Scott.

Speaker Change #151: Your next question comes from the line of Edward Kelly with Wells Fargo. Please go ahead.

Gary Millerchip: Thank you, Scott. Your next question comes from the line of Edward Kelly with Wells Fargo. Please go ahead. Hi, good afternoon, everyone.

Kelly Ann Bania: Hi, good afternoon, everyone.

Kelly Ann Bania: I want to ask you about maybe, you know, a membership fee increase, but in a different way, and you just touched upon it, you know, a little bit about, you know, the membership fee increase, right, just gets reinvested in your members. But can you talk a little bit more about, you know, how you think about, you know, the areas of reinvestment? I'm sure you probably have already done a lot of work around, like, where you would like that to go. Is there anything that's unique about where, you know, reinvestment might come to this time around? Just thoughts around that.

Speaker Change #152: John I wanted to ask you.

John Edward Heinbockel: Maybe in our membership fee increase but in a different way and you just touched upon it.

John Edward Heinbockel: A little bit about membership fee increase Ryan just gets reinvested.

John Edward Heinbockel: To your members, but can you talk a little bit more about how you think about.

Speaker Change #154: The areas of reinvestment.

Speaker Change #155: I'm sure you probably have already done a lot of work around like where you would like that to go is there anything that's unique about where.

Speaker Change #156: <unk> My Mic might come through this time this time around just thoughts around that.

Ron M. Vachris: You know, it's moving as time moves, and you see pricing in categories and where we have the greatest opportunity to be more competitive for our members. And it may be in an area where if fresh foods is seeing some price inflation, we may invest more in the fresh foods departments for that period of time. You know, the nice part about our model with 3,600, 3,700 SKUs is that we're still quite nimble as big as we are.

Speaker Change #156: Yeah.

Speaker Change #157: It moves as time moves and Youll see pricing in categories.

Speaker Change #157: Where we have the greatest opportunity to be more competitive for our members and it may be in an area that the fresh foods is Samsung price inflation, we may invest more in the fresh foods departments for that that period of time.

Speaker Change #157: The nice part about our model with 36 3700, Skus is we're still quite nimble as big as we are so we can shift and based on the needs of our members and where we think the best investment and margin would.

Kelly Ann Bania: So we can shift and, you know, based on the needs of our members and where we think the best investment in margin would take care of them, we're able to shift that thought process and move it around. So I wouldn't say that there's any set, okay, if the membership fee goes up, it's going to be spent in these areas. We work as a team, and we continue to monitor it throughout the year, and we act as needed.

Speaker Change #157: Take care of them, we're able to shift that thought process.

Speaker Change #157: And moving around so I wouldnt say that Theres any set okay. If membership fee goes up its going to be spent in these areas. We work as a team and we continue to monitor throughout the year and react as needed.

Speaker Change #158: Okay, and just a quick follow up on club throughput.

Kelly Ann Bania: Okay, and just a quick follow-up on club traffic. You know, it's remarkable how, you know, you drive up to a Costco club and it's hard to find a place to park, but yet, you guys can still compete the way that you do. How are you thinking about ways to improve throughput? And I don't know if both, you know, byline pickup is part of that. How do you think about things like scanning, though? Or maybe it's club density. Just curious as to how you will solve for that over time.

Speaker Change #159: It's remarkable how you drive up to a Costco club and it's hard to find a place to park, but yet you guys can still comp the way you do.

How are you thinking about throughput.

Ways to improve that and I don't know.

Speaker Change #160: <unk> pick up as part of that how do you think things like scanning, though or maybe it's put density just curious as to how you solve for that over time.

Ron M. Vachris: You know, a good part of those are things like our e-commerce business and, you know, how we can move some of those goods out of the warehouse and move that business online. And as Gary spoke about, now that we have control over Costco logistics, we can bring great value to that experience as well. We continue to look at technology. You know, we're testing some front door scanners that are going to speed up our registers significantly. When we get all the scanning and memberships verified at the front door, it shows a significant improvement in our register speed. And so that, in turn, turns over parking spaces much quicker.

Speaker Change #161: The part a good part of those is our things like our E Commerce business and how we can how we can move out some of those goods out of the warehouse and move that business online and as Gary spoke to now that we have control over Costco logistics, we can bring great value to that experience as well.

Speaker Change #161: We continue to look at technology.

Speaker Change #161: We're testing some front door scanners that are going to stay or speeding up our registers significantly when we get all the scanning and memberships are verified at the front door. It has shown a significant improvement in our registry speed and so that in turn turns over a parking space is much quicker and so those kind of things along with you.

Ron M. Vachris: And so those kind of things, along with, you know, strategic infills to help open up parking opportunities and gas expansions where those are needed as well. So there are several different levers that we'll continue to pull on how we can, you know, best serve the member in that building and where we need to make sure that we can look at throughput. All right. Thank you, guys. You're welcome. Your next question comes from the line of Oliver Chen with TD Cowan. Please go ahead. Hi Ron and Gary.

Speaker Change #161: Strategic infill to help open up parking opportunities in gas expansions, where those where needed as well. So there are several different levers that we will continue to pull on on how we can best serve the member in that building and where we need to make sure that we can look at throughput.

Speaker Change #162: Alright, Thank you guys.

Speaker Change #163: Youre welcome.

Speaker Change #163: Yeah.

Speaker Change #164: Your next question comes from the line of Oliver Chen with TD Cowen. Please go ahead.

Oliver Chen: Hi, Ron and Gary you've done some really creative merchandising around <unk>.

Oliver Chen: You've done some really creative merchandising around UPTs and units for transaction with pickup items and innovation on that treasure hunt. What are your thoughts there? Also, a big ticket in electronics. Previously, it was a bit of a drag.

Oliver Chen: Units per transaction with with pick up items and innovation on that treasure Hunt what are your thoughts there.

Ron M. Vachris: Just would love your thoughts on what you're seeing there. And the third part is the marketplace, the marketplace model, and the concession model, and alternative inventory models. What are your views of opportunities there? Because they're really big ones and your members are so loyal to you as well. Thank you. On your UPT, you were asking about the transaction impact.

Speaker Change #166: Also a big ticket and electronics previously previously it was a bit of a drag just would love your thoughts on.

Speaker Change #166: What youre seeing there.

Speaker Change #167: And third party marketplace, the marketplace model and the concession model and alternatives.

Speaker Change #168: Corey models, what are your views of opportunities there.

Speaker Change #169: Really big ones in your member.

Speaker Change #170: The royalty you as well thank you.

On your <unk>, you were asking about the transaction impact.

Ron M. Vachris: And thinking strategically about adding units to people's baskets going forward and merchandising in that way as well, if it's something you see in terms of an opportunity. Absolutely, we were just in a session with our grocery divisions and talking there. And we've seen great success with international foods that have been brought into the US and then from the US into the other regions of the world where we do business.

Speaker Change #171: And thinking strategically about adding units peoples baskets going forward.

Speaker Change #171: In merchandising in that way as well if it's a if that's something you see in terms of an opportunity.

Ron M. Vachris: But you want to take care of not only the consumables on the grocery side, but when we bring in an item that's a success in Taiwan or Korea or the UK, and it creates that excitement for the member, that's when we really have done a good job of triggering that impulsive purchase, where members are trusting the buyers, and they will add that additional item to their cart. So that's been a big win for us. And again, it happens a lot of times with that treasure hunt.

Speaker Change #172: So absolutely that's one of the Big we were just in a session with our grocery divisions and talking there and we've seen a great success in international foods that have been brought in to the U S. And then of the like from the U S into the other regions of the World, where we do business, but you want to take care of not only the consumables and the grocery.

Speaker Change #172: Side, but when we bring in an item that's a success in Taiwan or Korea, or the U K and it creates that excitement for the member that's when we really have done a good job of triggering that impulsive purchase where members are trusting the buyers and they will add that additional item to their cart. So that's been a big win for us.

Ron M. Vachris: I mean, you know, you've heard the phrase, people come in to spend $100 and walk out with 300. That's because our buyers do and our operators do a great job in making the warehouses exciting, and keeping those, you know, on the forefront of what they're, When they come in to do their basic shopping, they pick up a few additional items that just compel them at the time. I think maybe just to add on that, Ron, too, I mean, the nice thing about the opportunity there for us is with trips up by 5%, that's really why the average basket size has been more flat recently, and that's because we've been growing member engagement in consumables, as Ron mentioned, with food and fresh, and so it does present a great opportunity, and I think it also speaks to the team doing a good job of driving more frequency of member visits, so it creates a great opportunity for us to drive more of that basket size as well.

Speaker Change #172: And again it goes a lot of times with that treasure Hunt I mean, you've heard the place people come in to spend $100 and walk out with 300.

Speaker Change #172: That's because our buyers to our operators do a great job and making the warehouses exciting and keeping those on.

Speaker Change #172: On the forefront of what they are.

Speaker Change #172: When they come in to do their basic shopping they pick up a few additional items that just compel them at the time I.

Speaker Change #173: I think maybe just to add on that around here I mean, the nice thing about the opportunity therefore is with.

With trips up by 5% that's really why the average basket size has been more flat recently and that's because we've been growing member engagement in consumables as Ron mentioned with food and fresh and so it does present, a great opportunity and I think it also speaks to the team doing a good job of driving more frequency.

Speaker Change #173: Member visits so it creates a great opportunity for us to drive more of that basket size as well.

Ron M. Vachris: Then your question on Marketplace is a significant opportunity for us moving forward. I mean, we really do indeed see that, I think, especially with our limited skew count in the warehouse, how can we expand the offering to the members, and bring value to their membership card beyond what's within our four walls or what's on Costco.com.

Speaker Change #173: And then your question on marketplace is a significant opportunity for us moving forward I mean, we really do indeed see that I think especially with our limited SKU count and the warehouse how can we expand the offering to our members bring value to their membership card beyond what's within our four walls or whatsoever, Costco Dot com and we see this as a.

Gary Millerchip: And we see this as a great growth driver for us in the future and a way to bring expanded value to the members as we look forward. And so I'm quite bullish on Costco Next and what that can become in the future. I think the difference for us on that would be, of course, as we are with Costco, Next is just being very curated for the members, so we're, unlike a traditional marketplace that is about maybe just sheer volume, for us, it's about making sure that the member's getting something that truly is unique and valuable and being consistent with who we are. But there's tremendous upside opportunity there in that regard.

Speaker Change #173: A great growth driver for us in the future and a way to bring expanded value to the members as we look forward. So.

Speaker Change #173: Quite bullish on Costco next and what that can become in the future.

Speaker Change #173: I think the difference for us on that would be of course as we always cost going next is just being very curated for the Memphis eyewear. Unlike a traditional marketplace that is about maybe just sheer volume for us it's about making sure that the members getting something that truly is unique and valuable and being consistent to who we are in.

Speaker Change #173: There is tremendous upside opportunity there in that regard.

Speaker Change #173: Okay.

Gary Millerchip: Okay, and finally, on that big ticket question, I would love any green shoots on electronics or TV. And the last question on Asia, you have the same day in China, and you've done a lot of great things in the Asian region.

Speaker Change #174: Okay, and finally on that Big ticket question would love any green shoots on electronics or TV.

Speaker Change #175: The last question on Asia, you have same day in China, and you've done a lot of great things in the Asian region, just would love any update there in terms of the progress you made in the big opportunity for more and sales as well. Thank you.

Ron M. Vachris: Just would love any update there in terms of progress you've made and the big opportunity for more infills as well. Thank you. Yeah, I think just briefly on electronics. We believe, as Ron referenced earlier, we look at a lot of the market data, and we believe that we're winning with the member there in terms of the value that we're delivering and when we look at our trends versus the market.

Ron I'll: Yes, I think just briefly on electronics that we believe I think Ron referenced earlier, we look at a lot of the market data and we believe that where we're winning with the member there in terms of the value that we're delivering and when we look at our trends versus the market. So we feel good about our ability to continue to outpace the market there and were seeing a good opportunity within <unk>.

Ron M. Vachris: So we feel good about our ability to continue to outpace the market there, and we're seeing a good opportunity within digital, in particular, to really drive more connection with the member and take some of those big ticket items from the warehouse online as well. And in Asia, I think it would be consistent with what we've talked about with warehouses in the past that we think all of the markets offer us a great opportunity for growth.

Ron I'll: Digital in particular to really drive more connection with the member and take some of those big ticket items.

From the warehouse to online as well.

Ron I'll: In Asia, I think it would be consistent with what we've talked about with warehouses in the past that we think.

Ron I'll: All of the markets offer us great opportunity for growth some of those markets in Asia are more mature, but there's still significant opportunities to open new warehouses and filling in those markets and then obviously, we have markets like China, where we're really just starting that journey, but there's tremendous growth opportunity as we identify the right the right path forward in that market.

Ron M. Vachris: Some of those markets in Asia are more mature, but there are still significant opportunities to open new warehouses and fill those markets. And then, obviously, we have markets like China where we're really just sort of starting that journey, but there's tremendous growth opportunity as we identify the right path forward in that market. Grocery delivery in China, we're up and going in six buildings.

Ron I'll: The grocery delivery in China were up and going in six buildings, where we just opened our seventh warehouses week that will start up this weekend, it's been a big win for our members.

Ron M. Vachris: We just opened our seventh warehouse this week, and that will start up this weekend. It's been a big win for our members. You know, delivery within two hours is what is able to be done.

Its delivery within two hours is what was able to be done and so we're seeing some good incremental shops initially out of that program and we look forward to good things in the future on that.

Speaker Change #176: Thank you best regards.

Oliver Chen: And so we're seeing some good incremental shops initially out of that program. And we look forward to good things in the future on that. Thank you. Best regards.

Joseph Isaac Feldman: Thank you. Our final question comes from Joe Feldman with the Tesley Advisory Group. Please go ahead.

Speaker Change #176: Thanks.

Speaker Change #176: Okay.

Speaker Change #177: Our final question comes from Joe Feldman with Telsey Advisory Group. Please go ahead.

Speaker Change #178: Great Hey, guys. Thanks for taking my questions.

Joseph Isaac Feldman: Great. Hey, guys, thanks for taking my question. A lot have been asked, but I just want to ask about Costco Logistics. What was driving that 28% increase, which is very strong? Was it, you know, new relationships with some of the other retailers or partnerships or just anything you could share that would be helpful? Yeah, that is other that is only they we only deliver Costco members' orders through Costco logistics.

Joseph Isaac Feldman: A lot have been asked but I just wanted to ask with Costco logistics.

Speaker Change #180: What was driving that 28% increase which was very strong was it.

Speaker Change #180: New relationships from some of the other retailers where partnerships or just anything you could share on that would be helpful.

Speaker Change #181: Yeah that is other that is only we only deliver costco members orders through Costco logistics, there are no partnerships going through those numbers that you see.

Joseph Isaac Feldman: There are no partnerships going through those numbers that you see. We do a trace amount of Sears numbers, but that's not in any of the numbers that we report the growth in. That is just part of the past relationship that's there as well.

Speaker Change #181: We do a trace amount of Sears numbers, but that's not in any of the numbers that we report the growth in that is just part of our past relationship that's there as well.

Speaker Change #181: And it is appliances furnishings and outdoor were the three big drivers appliances were.

Gary: Almost 30% growth for us in the period and again to Gary's point, it's that member value of the all in what you see is what you pay price for delivery installation hollaway everything you need done at one time that has really resonated with our members and there has been a great driver of sales force.

Ron M. Vachris: And appliances, furnishings, and outdoor were the three big drivers. Appliances were, you know, almost 30% growth for us in the period. And again, to Gary's point, it's that member value of, you know, the all-in, what you see is what you pay price for delivery, installation, hallway, everything you need done at one time that has really resonated with our members and has been a great driver of Salesforce.

Joseph Isaac Feldman: That's great. That's great. Thanks, guys. And then there is just one other question.

Speaker Change #183: Sure I'll give you a practical example is a new entrant in the Seattle market I just had the cost calculation logistics deliver two mattresses <unk> Tvs and in a couple of chats as well for me. So that's the kind of stuff I think that we're seeing really resonate with members.

Speaker Change #184: Got it that's great. That's great. Thanks, guys and then on <unk>.

Ron M. Vachris: I know it's still relatively small, I think, but the Costco NEC, you know that. It seems like it's ramping nicely. I guess, how will that continue to ramp in the future? Like, where do you see that going, and, you know, how important is that a driver?

Speaker Change #185: Just one other question I know, it's still relatively small I think but the Costco next.

Speaker Change #185: Is that.

Speaker Change #186: Sort of it seems like it's ramping nicely I guess, how will that continue to ramp in the future like where do you see that going in.

Speaker Change #187: How important is that a driver like is that sort of the basis for this marketplace that Oliver was just asking about.

Ron M. Vachris: Like, is that sort of the basis for this marketplace that Oliver was just asking about? You know, as Gary mentioned earlier, Costco Next is a bit unique, but it is a fully curated marketplace, as there are many other marketplaces out there that are just for somebody to go on and sell goods on. These are relationships that our buyers have with our suppliers, and we're creating new suppliers as well. This has not only been a new way to sell goods, but we've also found that we can find some really neat items that are selling through Costco Next that we, in turn, then bring into our warehouse.

Speaker Change #188: As Gary mentioned earlier Costco next is a bit unique but is that a fully curated marketplace is theres. Many other marketplaces out there that are just for somebody to go on and sell sell goods on this marketplace. These are relationships that our buyers have with our suppliers and we're creating new suppliers as well this.

Speaker Change #188: Not only been a new way to sell goods. We've also found that we can find some really neat items that are selling through Costco next that we in turn then bring into our warehouse. So it is a great testing ground for newness new items, a way to expand categories of accessories for certain categories that you have swing set.

Ron M. Vachris: So it is a great testing ground for new items, a way to expand categories of accessories for certain categories that, you know, we have swing sets that we sell online, but you have additional swings and slides and other activities that you sell that we normally wouldn't be able to fit into a warehouse. So it really complements the core warehouse business but gives us an opportunity to expand member value to these other partners as well. So we see a lot of upside there. Got it.

Speaker Change #188: That we sell online, but you have additional swings and slides.

Speaker Change #188: Other activities that you sell that we normally wouldn't be able to fit into a warehouse. So it really complements the core warehouse business, but gives us an opportunity to expand my remember value to these other partners as well so we see a lot of upside there.

Speaker Change #189: Got it that's great. Thanks, guys. Good luck with the fourth quarter.

Joseph Isaac Feldman: That's great. Thanks, guys. Good luck with the fourth quarter.

Krista: Thank you. We have no further questions in our queue, and with that, this does conclude today's conference call. Thank you for your participation, and you may now disconnect. We have no further questions in our queue, and with that, this does conclude today's session.

Speaker Change #190: Thank you.

Speaker Change #191: We have no further questions in our queue and with that this does conclude today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change #191: Okay.

Speaker Change #191: We have no further questions in our queue and with that this does conclude today's.