Q3 2025 Costco Wholesale Corp Earnings Call
Ladies and gentlemen, thank you for standing by my name is Abby and I'll be your conference operator today.
At this time I would like to welcome everyone to the Costco Wholesale Corporation third quarter 2025 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 session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one a second time.
Speaker Change: Thank you and I would now like to turn the conference over to Gary Miller Chip Chief Financial Officer, you may begin.
Gary Miller: Good afternoon, everyone and thank you for joining Costco's third quarter of 2025 earnings call.
Speaker Change: I'd like to start by reminding you that these discussions will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Gary Miller: These statements involve risks and uncertainties that may cause actual events results <unk> performance to differ materially from those indicated by such statements. The.
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 day. They are made and the company does not undertake to update these statements except as required by law.
Apparel sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not intended as substitutes for net sales presented in accordance with GAAP.
Before we dive into our financial results I'm delighted to say that wrong doctors, who is joining us again for today's call I'll now hand over to Ron Pennsylvania comments.
Speaker Change: Thank you Gary and good afternoon, everyone and thank you for joining us today as we wrap up the third quarter of fiscal 2025, let me make a few brief comments on some of the highlights.
Ron Pennsylvania: Since our last earning call we've opened nine warehouses, including relocation in Melbourne, Australia, our 37th warehousing, Japan, and seven net new low U S locations.
Ron Pennsylvania: We plan to open another 10 warehouses during the fourth fiscal quarter, which will include our second warehouse in Sweden, our 20th warehouse in Korea, and our 110th warehouse in Canada.
Ron Pennsylvania: For this fiscal year, we expect to open 27, new warehouses, including three relocations for a total of 24 net new buildings.
Ron Pennsylvania: This will bring our total warehouse count to 914 worldwide.
Ron Pennsylvania: Our merchandising and operations team did a fantastic job in the quarter delivering some strong financial results, while also maintaining our competitive price position, despite a challenging macroeconomic backdrop.
Ron Pennsylvania: Capitalizing on the focus on scale, we are able to achieve through our limited SKU count and global footprint. We continue to increase the overall value of our membership including extended gas station opening hours and lowering prices on some key items, such as eggs butter and olive oil.
Ron Pennsylvania: The combination of expanded gas station hours, new gas station openings and lower prices at the pump have led us to having two of our all time highest gallon of weeks in the U S. During the last month.
Ron Pennsylvania: In times of the consumer uncertainty our curriculum signature brand is uniquely positioned to provide our members with great quality and great values and during the third quarter sales of Kirkland signature items again outpaced our overall sales growth with our chaos sales penetration up approximately 50 basis points year over year.
Ron Pennsylvania: We continue to move more kirkland signature product sourcing into the countries or regions, where the items are sold and this is helping us to lower cost and mitigate some of the potential impact of tariffs.
Ron Pennsylvania: Meaning agile as the situation with tariffs evolves, while also supporting the commitments, we've made with our long term suppliers.
Ron Pennsylvania: As an example of this during the third quarter, we rerouted many goods sourced from countries with large tariff exposure to our non U S markets.
Ron Pennsylvania: In the U S. We pulled forward some items that we had planned for the summer and source additional locally produced goods to reduce tariff impacts and ensure that we were in stock.
Ron Pennsylvania: Actions such as these are allowing us to continue to provide great values for our members, while also delivering value to our shareholders.
Ron Pennsylvania: Digital and technology are important parts of our future growth and we're investing to improve the member experience. A recent example in E. Commerce is the launch of buy now pay later offering through our partnership with a firm.
Ron Pennsylvania: This new program allows our members greater access to the Costco values on big ticket items, such as appliances furniture consumer electronics and much more exclusive rates for the Costco members.
Ron Pennsylvania: While still early days, we've been pleased with the initial sales results.
Ron Pennsylvania: And in our warehouses, we continue to work on opportunities to further improve the member experience. Please be on the lookout for several new technology pilots, we're focusing on to help our members check out to our front end at a faster pace.
Ron Pennsylvania: As we look ahead to the remainder of the fiscal year, while the impacts of tariffs and the outlook for the economy in general remain unknown. We are confident in the ability of our operators and merchants to rise to the challenges and continues to offer great service and find consistent values for our members.
Ron Pennsylvania: Our results in recent quarters that reinforced for us that in uncertain times, our values resonate with members as strongly as ever.
Gary Miller: With that I'll turn it back over to Gary to discuss the results for the quarter, then I'll jump back onto during Q&A to field some questions.
Ron Pennsylvania: Thanks, Rong and today's press release, we reported operating results for the third quarter of fiscal 2025. The 12 weeks ended on May the 11th.
Speaker Change: We have once again published a slide deck on our investor site under events and presentations with supplemental information to support today's press release.
Ron Pennsylvania: You might find it helpful to have this presentation in front of you as I walk through our results.
Ron Pennsylvania: Net income for the third quarter came in at $1 9 billion or.
Ron Pennsylvania: A $4.28 per diluted share more.
Ron Pennsylvania: More than 13% for 168 billion or $3.78 per diluted share in the third quarter last year.
Ron Pennsylvania: These results were driven by strong sales and margin performance. Despite the headwind of a $130 million LIFO charge in the quarter and operating income being negatively impacted by a catch up accrual of $40 million for the increase in employee vacation days included in our March 2025 employee agreement.
Ron Pennsylvania: As in Q2 foreign exchange rates also negatively impacted the translation of international net income to U S dollars.
Ron Pennsylvania: In Q3, the impact was $35 million or <unk> <unk> per diluted share.
Ron Pennsylvania: Net sales for the third quarter was 61 96 billion.
Ron Pennsylvania: An increase of 8% from 50 739 billion in the third quarter last year.
Ron Pennsylvania: U S comparable sales were up six 6% or seven 9%, excluding gas deflation, Canada comp sales were up two 9% or seven 8% adjusted for the gas deflation and FX.
Ron Pennsylvania: Other international comp sales were up three 2% or eight 5% adjusted.
Ron Pennsylvania: This all led to total company comp sales at five 7% or 8% adjusted.
Ron Pennsylvania: Finally e-commerce comp sales were up 14, 8% or 15, 7% adjusted for FX.
Ron Pennsylvania: In terms of Q3 comp sales metrics.
Ron Pennsylvania: Foreign currencies relative to the U S dollar negatively impacted sales by approximately one 2%.
Ron Pennsylvania: While gas price deflation negatively impacted sales by approximately one 1%.
Ron Pennsylvania: Okay.
Ron Pennsylvania: Traffic or shopping frequency increased five 2% worldwide and five 5% in the U S.
Ron Pennsylvania: Our average transaction or ticket was up <unk>, 4% worldwide and up one 1% in the U S.
Ron Pennsylvania: This includes the headwinds from gas deflation and FX.
Ron Pennsylvania: For those items tickets would have been up two 7% worldwide and three 3% in the U S.
Ron Pennsylvania: Moving down the income statement membership fee income.
Ron Pennsylvania: We reported membership fee income of $1 4 billion in.
Ron Pennsylvania: An increase of $117 million or 10, 4% year over year.
Ron Pennsylvania: Membership fee income growth was 11, 4%, excluding FX and the recent membership fee increase represented approximately four 6% of fee income in the quarter.
Ron Pennsylvania: In terms of renewal rates at Q3 end, our U S and Canada renewal rate was 92, 7% and the worldwide rates came in at 92%.
Ron Pennsylvania: As cohorts of new members from digital acquisition campaigns and warehouse openings in Asia move in and out of the calculation that will continue to be some volatility in this number quarter to quarter.
Ron Pennsylvania: The decrease in the renewal rates in Q3 versus Q2 were primarily attributable to sign ups from a groupon promotion in the fall of 2023 entering the renewal rate calculation for the first time this quarter.
Ron Pennsylvania: Higher penetration of online sign ups entering the renewal rate calculation also contributes to the lower renewal rate.
Ron Pennsylvania: These new digital memberships are net positive as they grow the overall membership base and are generally younger members, but they also renew at a slightly lower rate.
Ron Pennsylvania: We ended Q3 with $79 6 million paid household members up six 8% versus last year, and $142 8 million cardholders up six 6% year over year.
Ron Pennsylvania: Our Q3 end, we had $37 6 million paid executive memberships up 9% versus last year.
Ron Pennsylvania: I could give members represented 47, 3% of paid members and 73, 1% of worldwide sales.
Ron Pennsylvania: Turning now to gross margin our reported rate in the third quarter was higher year over year by 41 basis points coming in at 11, 5% compared to $10 eight 4% last year and up 29 basis points, excluding gas deflation.
Ron Pennsylvania: Core was higher by 36 basis points and higher by 27 basis points without gas deflation.
Ron Pennsylvania: In terms of core margins on their own sales core on core margins were higher by 36 basis points.
Ron Pennsylvania: Significant part of the increase was driven by our fresh departments, where our strong sales leverage benefited our payroll costs and spoilage results.
Ron Pennsylvania: Additionally, the decrease in some key commodity and ingredient costs such as dairy.
Ron Pennsylvania: AG and olive oil were a tailwind in fresh and food and sundries.
Ron Pennsylvania: In general we feel margin pressure during times of inflation on these types of ingredients as we keep prices low for our members and the opposite is often true when prices fall as we feel the margin really faster, while also being able to lower prices more quickly than our competitors.
Ron Pennsylvania: An example of this during the quarter as our cross selling program, where we help prices lower input costs were elevated and are now seeing margin relief as far as costs have come down.
Ron Pennsylvania: Food and Sundries margin also increased during the quarter. In this case, we were able to lower egg prices by approximately 10% and booked high by $1 per unit or approximately 7%. While also returning margins to more normal levels.
Ron Pennsylvania: Lastly in core on core non food margins were up slightly worldwide, but down slightly in the U S.
Ron Pennsylvania: Ancillary and other businesses gross margin was higher by 30 basis points, and 27 basis points without gas deflation improved margins in gas and e-commerce with the main drivers of the increase.
Ron Pennsylvania: LIFO negatively impacted the gross margin rate by 23 basis points, both with and without gas deflation.
Ron Pennsylvania: We had a $113 million LIFO charge in Q3, this year compared to an $11 million credit in Q3 last year.
Ron Pennsylvania: I'll share more color on lifestyle and inflation a little later in the call.
Ron Pennsylvania: Although it was lower by two basis points, both with and without gas deflation.
Ron Pennsylvania: This relates to the catch up accrual for the increased employee vacation days included in our March 2025 employee agreement.
Ron Pennsylvania: This change impacts gross margin for the employees that work in our supply chain and manufacturing departments.
Ron Pennsylvania: Moving now to SG&A.
Ron Pennsylvania: Our reported SG&A rate in the third quarter was higher or worse year over year by 20 basis points coming in at nine 6% compared to last year's 896%.
Ron Pennsylvania: SG&A was higher or worse by 11 basis points adjusted for gas deflation.
Ron Pennsylvania: The operations components of SG&A was higher or worst 13 basis points and five basis points without gas deflation.
Ron Pennsylvania: This increase was due to our investment in employee wages, partially offset by sales leverage and productivity improvements.
Ron Pennsylvania: The incremental year over year impact from this year's March employee agreement was mid single digit basis points on top of the low double digit basis point impact from our July 2020 for wage increase.
Ron Pennsylvania: We will lap the July increased 10 weeks into the 16 week fiscal fourth quarter.
Ron Pennsylvania: Central was higher or was two basis points and one basis point without gas deflation stock compensation was lower or better by one basis points, both with and without gas deflation.
Ron Pennsylvania: The opening was higher or worse by one basis points, both with and without gas deflation driven by more new warehouse openings in the quarter. This year.
Ron Pennsylvania: Other was higher or worse by five basis points, both with and without gas deflation, reflecting the catch up accrual for higher vacation days in our 2025 employee agreement.
Ron Pennsylvania: Below the operating income line net interest and other was $50 million this year versus $87 million last year. The differentiator over here was largely attributable to foreign exchange.
Ron Pennsylvania: And in terms of our income taxes, our tax rate in Q3 was 26, 2% compared to 26, 4% in Q3 last year.
Ron Pennsylvania: Turning now to some key items of note in the quarter.
Ron Pennsylvania: Capital expenditure in Q3 was approximately 113 billion.
Ron Pennsylvania: And we estimate capex for the full year will be a little over $5 billion.
Ron Pennsylvania: Taking a deeper look into core merchandising sales fresh category comparable sales were up high single digits. This was led by double digit growth and meet with approach is also performing very well in the quarter.
Ron Pennsylvania: Non foods also had comp sales in the high single digits.
Ron Pennsylvania: <unk> continues to do an excellent job, finding new and exciting items at great values, which are resonating well with our members even if they remain very choice full and they're spending on discretionary items.
Ron Pennsylvania: In the quarter Golden jewelry majors toys, housewares and home furnishings were all up double digits.
Ron Pennsylvania: While we continue to grow share in those non food departments. We are seeing some deceleration in year over year growth as we start to lap tougher compares in bullion and gift card sales from a year ago.
Ron Pennsylvania: Food and sundries had mid to high single digit comps with Cola and frozen foods, showing the strongest results.
Ron Pennsylvania: In addition to lowering prices on butter and eggs a few other examples where we were able to lower prices in the quarter to provide greater value to our members included two litre Kirkland signature organic extra Virgin olive oil from $24 99 to 18 39.
Ron Pennsylvania: Kirkland signature chocolate macadamia clusters from 17, 99% to $14 69.
Ron Pennsylvania: Kirkland signature organic mixed nut butter from 869% to $7 59.
Ron Pennsylvania: As Ron mentioned earlier, we are continuing to move more items to locally source production, which is allowing us to lower prices in those markets.
Ron Pennsylvania: For example in the quarter with our characteristic nature ultra clean laundry products. These skus are now sourced in Asia for our APAC warehouses, allowing those to significantly lower transportation costs and reduce remember prices in the region by approximately 40%.
Ron Pennsylvania: In the U S. We are sourcing more American make good square available, including items, such as mattresses pillows and plastic resin goods.
Ron Pennsylvania: New Ks offerings are another way, we are delivering more value to members.
Ron Pennsylvania: These items typically offer members, 15% to 20% value compared to the national brand alternative with equal or better quality.
Ron Pennsylvania: In Q3, we launched over 40, new Ks items, ranging from many Muslim bites to smoked pork ribs, and various new apparel items.
Ron Pennsylvania: Within ancillary businesses pharmacy, and optical departments led the way.
Ron Pennsylvania: We are able to bring significant value to our members and optical through the combination of our labs, which manufacture our own high quality lenses, coupled with great prices on a wide range of frames, including luxury brands.
Ron Pennsylvania: Gas comps were negative low double digits during the quarter driven by a lower average price per gallon.
Ron Pennsylvania: I'll now share some additional color on inflation and tariffs.
Ron Pennsylvania: Fresh and food and sundries inflation remained relatively similar to last quarter.
Ron Pennsylvania: In non food, we saw low single digit inflation return for the first time in a number of quarters.
Ron Pennsylvania: This was driven primarily by imported items.
Ron Pennsylvania: As a reminder, about a third of our sales in the U S are imported and about two thirds of those sales are in non foods.
Ron Pennsylvania: Items imported from China represent about 8% of total U S sales.
Ron Pennsylvania: The inflation experienced a non foods was the primary driver of the $130 million of LIFO charge for the quarter, which is calculated comparing the net landed cost of inventory at the beginning of the fiscal year with a net landed cost of inventory on hand at the end of the current quarter.
Ron Pennsylvania: Based on our LIFO accounting methodology, if the current rate of inflation is maintained until our fiscal year end, we would have an additional $40 million to $50 million LIFO charge in the fourth quarter.
Ron Pennsylvania: Any change in the level of inflation in the fourth quarter could increase or decrease the size of that charge.
Ron Pennsylvania: As we navigate an evolving environment with tariffs we are working closely with our suppliers to find ways to mitigate the impact on cost, including moving production and sourcing to other countries, where it makes sense to do so.
Ron Pennsylvania: As Ron mentioned earlier, we are leveraging our scale and global operations to help inform this approach.
Speaker Change: At Costco, we remained committed to providing quality items at the lowest possible prices and raising prices is always thing as the last resort.
Speaker Change: The evolving landscape with tariffs is adding complexity and challenges for how we operate our business, but we believe our expertise in buying unlimited SKU count model gives us greater agility to navigate the environment and ultimately increase our member values compared to the market.
Ron Pennsylvania: The global supply chain remains relatively stable, although as previously shared shipping delivery dates are generally less predictable than they were pre COVID-19.
Ron Pennsylvania: While the spot rate for shipping containers. This increase recently in response to a short term increase in demand during the window that reciprocal tariffs are being paused. Our shipping is generally covered by contracts and so we have not seen any material impact.
Ron Pennsylvania: Turning now to digital and e-commerce.
Ron Pennsylvania: We continue to make progress with technology.
Ron Pennsylvania: On last quarter's call one of our key focus areas is building capabilities to deliver more personal relevant experiences for our members, helping them save time and money.
Ron Pennsylvania: In the third quarter successes included a targeted mother's day campaign to members who had purchase traditional mother's day gifts last year and the launch of a personalized product recommendation helps our members showcasing items based on previous browsing history, new items, they might find relevant and best selling items in that geographical area code.
Ron Pennsylvania: In jewelry toys health and beauty majors, housewares small electrics and apparel all grew double digits year over year.
Ron Pennsylvania: We continue to grow share in big and bulky items sold online powered by our investment in Costco logistics.
Ron Pennsylvania: The combination of great values and the delivery experience that includes installation and haul away of all of the items is resonating extremely well with our members and resulted in a 31% increase in items delivered in the quarter.
Ron Pennsylvania: Costco next our curated marketplace also continues to show healthy year over year growth in Q3 fiscal year 2025, our sales on Costco next equaled our total sales for all of fiscal year 2022, and we are excited about the pipeline of new vendors in development for future rollout.
Ron Pennsylvania: Finally in terms of upcoming releases, we will announce our may sales results for the four weeks ended Sunday June 1st on Wednesday June four after market close.
Ron Pennsylvania: That concludes our prepared remarks, and we'll now open the lineup for questions.
Ron Pennsylvania: Thank you.
Ron Pennsylvania: We will now begin the question and answer session.
Ron Pennsylvania: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Ron Pennsylvania: If you would like to withdraw your question simply press Star one a second time.
Ron Pennsylvania: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Ron Pennsylvania: To be able to take as many questions as possible. We ask that you. Please limit yourself to one question.
Ron Pennsylvania: It is star one to join the queue.
Speaker Change: And our first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.
Speaker Change: Hey, everyone I wanted to ask Ron since he's in the room. So Costco has continually invested in price and the nice thing is that you don't really have to catch up over time curious what youre, telling the merchants right now given this moment in time.
Ron Pennsylvania: Pedal to the metal and some different about the posture.
Ron Pennsylvania: Are you seeing in places, where you're holding relative to the market are you seeing tonnage and unit volume actually change meaningfully.
Ron Pennsylvania: Yes.
Ron Pennsylvania: Very good questions.
Ron Pennsylvania: It is.
Ron Pennsylvania: It's quite complicated as Gary said now as we're dealing with a moving tariffs seems as things continue to change each day.
Ron Pennsylvania: We have been very fortunate with some of the key commodities coming down and then our buyers are immediately the first one is down in those good. So we take every advantage of every opportunity that we can lower prices and we've seen our competitive landscape improved slightly at the latter part of the quarter, which was very good for us. So it means that we're doing the right thing, but we're going to continue.
Ron Pennsylvania: To invest in price, it's what we do it's how we grow our business and we're going to continue to try and mitigate as much of this impact on tariffs as we can for our members. So it's.
Ron Pennsylvania: As we've always done its full full full force ahead on lowering prices, where we can.
Ron Pennsylvania: Yeah.
Ron Pennsylvania: Okay. Thank you good luck.
Ron Pennsylvania: Okay.
Speaker Change: And our next question comes from the line of Christopher <unk> with Jpmorgan. Your line is open.
Ron Pennsylvania: Thanks.
Speaker Change: Good evening guys.
Speaker Change: So quick follow up on that last question and then an add on so when Brian when you mentioned that improved in the latter half of the latter part of the quarter is that because your peers are raising prices. So.
Speaker Change: How our price gaps changing given the inflation thats going on out there.
Speaker Change: And secondly, as you think about that.
Speaker Change: March April period.
Speaker Change: Do you did extremely well in the non foods category clearly there are a lot of that is sure to what extent could you quantify pull forward and some of these tariffs items that you saw in like the end of March beginning of April thanks, very much.
Speaker Change: You are welcome I think that the Delta improvement has really been on.
Speaker Change: Very hard focus on movement and trying to work with our suppliers and lowering price wherever we can I truly believe that we are the first one down when wherever we have those opportunities and that does create that improve delta for us. So we're watching pricing daily and if not hourly on every key commodity and you have commodities like butter and eggs come down there.
Speaker Change: Quite a halo effect of many of the different items. So our buyers are on top of that.
Speaker Change: Talking to all the suppliers that would benefit from those reductions in cost and trying to really move that those products into lower cost as soon as we can so I can't speak for the others, but I can speak for us it's about lowering their prices as soon as we can and take advantage of those opportunities as far as non foods, yes, we did.
Speaker Change: As we saw things starting to build on this tariff front, our buyers were very proactive and they pulled a lot forward a lot of our summer goods most of our patio program. Our sporting goods program got in early this year got it in ahead of the.
Speaker Change: The tariff impacts and that allowed us to hold prices are come just slightly up on prices when we needed to be so that has really helped and then some key categories that we have had good healthy inventory on such as furniture appliances or not so much impacted which has been a big driver for us in non fluids as well so it was been.
Speaker Change: <unk> movement of goods and like I spoke about the things that were hit with a higher tariff we've partnered with our other regions around the world with non U S tariff impacts.
Speaker Change: And then anything in terms of how much demand maybe pulled forward.
Speaker Change: Yeah.
Speaker Change: I think that there was slight we saw a slight impact on it to quantify it. It was very tough to do that was very tough to quantify that we signed a certain percent of a pull forward of the fear of tariffs.
Speaker Change: Got it thanks very much.
Speaker Change: Welcome.
Michael Lasser: And our next question comes from the line of Michael Lasser with UBS. Your line is open.
Michael Lasser: Good evening. Thank you so much for taking my question.
Speaker Change: It seemed like you were sitting a reminder.
Speaker Change: We'll soon lap.
Speaker Change: Outside growth from precious metals and gift cards.
Speaker Change: To what extent should we recalibrate our expectation.
Speaker Change: Costco lap some of those outsized gains if you can quantify that that would be super helpful.
Speaker Change: And then as part of that at what point does Costco, just retail limitation to its rate of growth in the United States.
Speaker Change: The company has got to be mindful of depleting. The overall membership experience as these club so.
Speaker Change: So busy and it's difficult to find parking parking its difficult to navigate through.
Speaker Change: The store it takes us.
Speaker Change: A little longer to get in and out what percentage of your clubs in the United States would you say are currently at that level or protein that level. Thank you very much.
Speaker Change: Okay.
Speaker Change: Hi, Michael Yeah. Thanks for the questions. So just to cover the first part I think Ronald jumping on the second part of the question. Yes, we were sharing on the call you may recall, we've been sharing on previous quarters that we were up double digits in non foods. When we were high single digits. This quarter. So part of the commentary that I shall I wish to remind you that some of that would be a reflection of the fact that we are cycling.
Speaker Change: Bodie and starting to flow through on a year over year basis, particularly online and then also gift cards, we had a particularly strong program of gift cards last year. So as we cycle. Those you saw still very strong non food sales and strong market share gains, but the number would have decelerated into that high single digit range I think it's kind of difficult.
Speaker Change: To predict obviously, where the consumer behavior goes in the future because of some of the things that Rob mentioned around the uncertainty and also when you look at our individual month to month data. We obviously are sharing very transparently every month, what our sales results are and theyre going to be periods, where like we said earlier in April where there's probably if you look at individual item.
Speaker Change: <unk> is like consumer electronics, and even in paper paper products. The way it looked like a higher level of sales in April because of that so you probably see a little bit of relief in some of those areas flowing through in the next couple of months.
Speaker Change: But I wouldn't really say, we have anything other than confidence in what our buyers are doing and finding great quality items at great value a.
Speaker Change: Newness in terms of new and exciting items had a member everything we're still seeing right now would be that sort of the state of the consumer is that they're very focused on those three things, but where you can meet those three things really well with value and quality and newness. Our members are still spending and buying non foods items. So we think that the teams are doing a great job and we continue to see opportunity.
Speaker Change: To grow in that space.
Speaker Change: And on the operation side, you know it is a strategic priority for all of US in the company right. Now is the continued to how we improve the member experience in our high volume warehouses and as we speak about the fourth quarter openings about 80% of those warehouses were opening are going to cannibalize. Some high volume locations for us that's going to take some relief off so we.
Speaker Change: Strategically look at new markets for openings, but where the real importance on strategically cannibalizing those warehouses, where we can make that improvement of member experience in there as well.
Speaker Change: Recent expansion of gasoline ours was a great indicator that the throughput for our members improved nicely and we saw that immediately and gallon increases and on the technology front, we have realized with some of these pilots as we are working through these different systems to speed up the front end experience and get that moving flowing quickly.
Speaker Change: The back side of that as it turns over parking spaces quicker than when you turn of our parking spaces quicker. It makes the whole experience better. So we are very mindful of the high volume warehouses, we have and we are strategically working on many different fronts. So how do we continue to grow the volume in those existing buildings and continue to infill and look for new Mark.
Speaker Change: That's in the U S. As we do in all the regions around the world.
Speaker Change: I guess, maybe just one thing to add to Ron's comment Michael is while I think you see in our 10-K each year, we show the year by year sort of vintage of our warehouses and I think the ones that runs, particularly talking about where we have over $400 million of sales, which.
Speaker Change: As I think about 40, offsite warehouses, where were in that sort of category. You said that the highest priority that I think as we do that there is still tremendous growth in the less mature warehouses and we see year over year continue to grow. So I think that gives us a lot of confidence that while we make those enhancements that Ron mentioned, we still have significant opportunity with the vast majority of our warehouses to continue.
Speaker Change: Grab on to it.
Speaker Change: And then to look into mature like at <unk>.
Speaker Change: Our highest sales warehouses today.
Speaker Change: Thank you very much and good luck.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Scot Ciccarelli with Trust. Your line is open.
Scot Ciccarelli: Good afternoon, guys I appreciate the time.
Scot Ciccarelli: I think you guys have increased your EBIT margin on a year over year basis, now by eight or maybe nine quarters in a row. However, slate.
Scot Ciccarelli: Though we've had a pretty funky macro environment tariffs, obviously being that the latest piece of that is there any reason, we would see that trend change over the next few quarters because it does seem like it's a bit of a conscious decision not just randomness.
Speaker Change: Hi, Scott Yeah. Thanks for the question.
Speaker Change: I would say overall I know I've mentioned this last quarter as well when we talked about the gross margin rate that we really.
Speaker Change: Probably less focused than you might think on the individual quarters were more really focused on how we manage the business for the long term and so you are going to see I think individual fluctuations quarter by quarter as we make decisions to invest in the business at certain times to grow the company and.
Speaker Change: And certainly at other times like we saw in this quarter of course with gross margin rate in particular.
Speaker Change: We saw some real benefits in fresh productivity and.
Speaker Change: Lowest foil agent and also some of the benefits of deflation in certain commodities.
Speaker Change: It's fair to look at our model over the longer term I wouldn't particularly pick a number of quarters, but I think over the longer term looking at generally how we've been able to grow the business and grow profitability and I think our philosophy overall as you I know you've heard probably my predecessor, Richard say this many times is that our goal is to continue finding ways to drive value for our members lowering our prices.
Speaker Change: Consistently and doing that through our global buying doing that for in country production Kirkland signature growth as Ron mentioned earlier and even some of the newer opportunities like e-commerce growth and getting more profitable in E Commerce and building the retail media business, but in all cases, our philosophy is how do we take 90% of that value and give it back to the amendment to drive top line.
Speaker Change: And we do think over time, we can still be increasing our margin debate as part of that plan, but that is our overall philosophy side, we wouldn't particularly guide to guide at elevation that we wouldn't guide to thinking about an individual quarterly cadence, but thats more philosophically, how we think about growing the company.
Speaker Change: Understood Thanks, Brent per ton.
Speaker Change: Yeah.
Speaker Change: And our next question comes from the line of Hans <unk> with Bernstein. Your line is open.
Hans: Great. Thank you for taking my question, Gary I wanted to follow up on your LIFO comment clearly a lot of your peers.
Speaker Change: Inventory accounting, which is likely to drive margins maybe in the opposite direction in the next quarter with you sorry for your LIFO estimates about the other kind of $40 million to $50 million LIFO charge in Q4.
Speaker Change: Getting that correctly, you are suggesting a moderation in the LIFO impact in.
Speaker Change: In Q4 and in the coming quarters, how should we can hear you that too in the 2022 Purion H Glenn you had more of the full 12 months impacts of FIFO headwind.
Speaker Change: Hey, guys.
Speaker Change: Heartland differ from that thank you.
Speaker Change: Sure maybe break the question into a couple of parts because I think it's probably helpful. Just to explain how I hate to get too technical on the accounting side, but just at least give a brief explanation of how we follow rules and calculating our LIFO charge.
Speaker Change: So essentially you may recall the first two quarters of this year, we were seeing slight deflation in non foods. So we actually had a credit to our LIFO charge for the first two quarters, largely because foods and sundries and fresh with generally sort of fairly stable and sort of low inflation, which continues to be true and non foods being deflationary and the third.
Speaker Change: Quarter, we saw non food start to become slightly inflation rate and so because of the way our LIFO calculation works, where essentially estimating for the full year.
Speaker Change: What the LIFO charge will be so we're saying what will our inventory net landed cost of an item times. The number of items that we have in inventory at the end of the year, how will that cost compare to the cost that we started the year and what we do is we sort of calculate what we estimate that will be for the end of the year and then we take the.
Speaker Change: The amount for the number of quarters. So if you think about the third quarter, we saw higher inflation and as we are calculating out our estimate our point estimate for the end of the year based on that calculation is about $145 million call. It for the full year based on the current inflation rate that we're seeing so we have to take three quarters not quite three quarters 913, so nine periods.
Speaker Change: 13 periods in the year to date catch up in the quarter alone. So the $130 million charge is a charge for the quarter, it's really a true up for the whole of the year for our estimates of inflation and because we will have 413th of that charge in the fourth quarter. If inflation stays the same that's why the $40 to $50 million.
Speaker Change: It'll charge comes in in the fourth quarter. So really all of that is getting us to the same data that we're looking at today, which is saying we believe there is inflation in our system because of the higher cost in non foods the inflation latest turn slightly positive on an.
Speaker Change: Non foods, we're estimating based on current inflation rates that we see the charge for the year will be $145 million, we'd have to catch that up in the first three quarters. So it was $130 million charge in the in the first three quarters that we show in Q3, and then there'll be an incremental $40 million to $50 million charge in Q4 that $40 million to $50 million estimate.
Speaker Change: It's really just based on what our current inflation rate so as that inflation rate stays the same.
Speaker Change: <unk> situation doesn't really change materially that's our best estimate of what that outcome would be for the year. If we went to see higher tariffs, which led to higher cost of goods or lower tariffs and lower cost of goods that could move that number up.
Speaker Change: <unk> down and we'd have to true it up for the whole year in the fourth quarter, because it's an estimate of the inventory value at the end of the year. So I'm sorry, if that was a bit long winded, but I was trying to make sure I am giving you kind of have the math works because it could feel a bit misleading that were saying there was $130 million of inflation during the quarter, but it is really a true up for the first three quarters of the year.
Speaker Change: Yes.
Speaker Change: And then I would say in general that still means that inflation is below what it would've been back in the post COVID-19 period, our inventory levels are anywhere between $12 billion to $13 billion and so if you think of a charge of $145 million of <unk>.
Speaker Change: LIFO charge that is really only 1% to one 5% of inflation overall within that within our LIFO calculation. So it's still relatively low overall inflation, but it certainly is a change in trajectory from what we were seeing in the first two quarters.
Speaker Change: That's very helpful. Thanks, and just a quick follow up does that some of that bleed into the first half of next year as well.
Speaker Change: Okay.
Speaker Change: It really depends on what happens with inflation going forward. So it wouldn't.
Speaker Change: We take the new level of inflation at the end of the fiscal year and then our LIFO forecast for 2026 will be based on whether we think whether we think inventory there.
Speaker Change: The amount of inventory and the net landed cost of the product will increase in that year. So it really depend on it that wouldn't be a carry over from current inflation into 2026, but if inflation was to rise again that could create a higher LIFO charge in 2006 or lower LIFO charges, if tariffs were reduced right.
Speaker Change: Great very helpful. Thank you.
Speaker Change: So just to clarify.
Speaker Change: The LIFO charge, the 12% to $13 billion as the U S inventory because we were still on the retail method for our most of our international countries. So it's really based on a U S business that the LIFO charges incurred.
Speaker Change: Alright, thank you.
Speaker Change: And our next question comes from the line of Greg <unk> with Evercore ISI. Your line is open.
Greg: Hi, Thanks.
Speaker Change: One quick clarification.
Speaker Change: And then and then follow up on digital on the inflation.
Speaker Change: Inflation in grocery last quarter, you said it was slightly positive was that around zero and 1% is that the sort of range we're talking about.
Speaker Change: Yes, it would be in that range, maybe slight to slightly higher than that Greg, but youre in the right ballpark low single digits for sure and again very similar to last quarter and grocery.
Speaker Change: A bit like it's been for the year to date. There are some items that are inflationary within grocery so while egg prices have come down as we mentioned earlier on it.
Speaker Change: In the year, there are still inflationary compared to what we would've seen an X last year things like pulp is still inflationary as well within grocery, but then you've got bunch of flowers flower in cheese and some of the dairy items that are turned deflationary. So there's quite a bit of moving parts in there, but it really hasnt changed materially since the earlier part of the year overall.
Speaker Change: And I would I would love to do is just go deeper on digital just given the double mid teens growth could you just level set us now on what percentage of the business is digital and particularly that Costco logistics up 31% and what percentage of E. Commerce is now done through Costco logistics.
Speaker Change: Yes on the first part of the question.
Speaker Change: It depends on the definition you use if you just do the sort of math on that on our business and how we define digital which as a reminder, it doesn't include the delivery solutions that we offer through <unk>. It doesn't include our travel business what I most of it would be online. So theres a number of elements that I think others might including that so the e-commerce business that we won.
Speaker Change: So on the straight math on how we define it it would be about 8% of our business.
Speaker Change: We included some of the components that others would include it probably takes it to slightly north of 10% and then if you take gas out of our total sales, which.
Speaker Change: There isn't an ecommerce element to gas.
Speaker Change: It's around the 12% of total <unk>.
Speaker Change: Hills that we generate.
Speaker Change: Today.
Speaker Change: Greg and then.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: For <unk> in terms of ex Costco logistics it is.
Speaker Change: This is Ron it's about $20 to 25% of our total deliveries for Costco logistics, but it is about 80% to 85% of our big and bulky. We don't run we make our buyers make decisions of what to put through that network or whatnot put through it and so they look for the best cost delivery source and so we know that big and bulky patio.
Speaker Change: Old furniture televisions saves those kind of things.
Speaker Change: All but the Super specialty stuff, we run through Costco logistics, so a big chunk of that business has gone through the network.
Speaker Change: Big and bulky.
Speaker Change: Is there any any members that haven't used your digitally at in some way shape or form or is it still is only half the people that really use it.
Speaker Change: Yes, it's over half of the downloaded the app for sure, but there's still plenty of opportunity for growth in <unk> and we still see it as an area, where we'd expect to outpace our overall growth and as we continue to improve the member experience with enhancements every quarter, Greg around whether its the.
Speaker Change: Inventory available on the app or improving the search functionality improving.
Speaker Change: The way in which we communicate with members as I talked about earlier on the call. We believe all of those things are going to drive more digital engagement, we think tied to even some of the comments that Ron was making about speed of checkout, where members use the digital wallet and have that that payment card integrated within the wallet. It significantly increases the speed of checkout through the check lane in the warehouse as well so we still think.
Speaker Change: There's plenty of opportunity to keep driving higher penetration of digital engagement with our members.
Speaker Change: And we think it's got a runway to continue to grow in the future.
Speaker Change: Great quarter and thanks for the details.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open.
Speaker Change: Hi, Thanks, Good afternoon, Ron you called out some technology efforts at the front end.
Speaker Change: As an opportunity could we double click on that a little bit and then with regards to the extended hours of operation at the gas stations themselves. So we thought about testing that within the clubs. Thanks.
Gary Miller: Sure. The first question, yes, as Gary said, we found the digital really enhances the speed of checkout and so we are really working hard on the digital membership card usage as well we've also engaged in some.
Speaker Change: Scanning go done by Costco kind of test that we're doing out there that had been extremely successful.
Speaker Change: Moving people through the lines and expediting the transactions we've seen some very very early results have been very positive and great adoption from our members seeing that as well. So we're just looking at the whole overall our operations team is really focused on the front ends and we know there's many benefits to that.
Speaker Change: That part of the Costco experience of moving people through much better. So it really is using the digital enhancements that we have available today and we think we will see some good things going through there and we continue to look at the hours of the operation as well gas has been very accretive to gallon.
Speaker Change: Gallon growth in our sales in the gas business. So we continue to look at the operation side of things as well.
Speaker Change: The warehouse hours.
Speaker Change: Great. Thank you.
Speaker Change: And our next question comes from the line of John <unk> with Guggenheim Securities. Your line is open.
Speaker Change: A quick one for Gary one for Ron for Gary I know, you've got a depo opening in Florida or soon.
Speaker Change: Can you remind us on the supply chain side distribution transportation, what's the opportunity there to continue to lower cost from.
Speaker Change: From where we are now and then and then Ron have you.
Speaker Change: Have you made any changes with regard to tariffs on how you think about receipts.
Speaker Change: Demand planning over the next six months and how you flow that in.
Speaker Change: It's harder maybe if you choose inventory, but how do you attack that.
Speaker Change: If at all.
John: Okay. Thanks, John on the <unk>.
Speaker Change: <unk> as you know I think that.
Speaker Change: It's certainly interesting being relatively new to the company to see really how efficiently. We operate our depot network. Because I think you may be familiar with we generally are not really holding inventory in any of the depots were moving product straight through so I think it ties a little bit to your point as we grow in scale, how do we make sure we optimize the network to be even more efficient just because of the <unk>.
Speaker Change: Kind of operations that we have now and we know that when we look at our most productive warehouses and highest volume areas, we see incremental leverage thats created in our overall financial model. So I don't think there'd be any thing we called out as being a change in strategy, but certainly continuing to invest capital in places where it makes sense to optimize the network for depots, we think can help.
Speaker Change: Continue to improve our efficiency and then I think the second part of it would probably be more in E. Commerce as we as we're growing that business. We have built out the Costco logistics network and invested in.
Speaker Change: Actually on the west side of the country I would say when we when we acquired NOL that was a strong presence in the east less presence in the west and so we built out that network and I think it's part of how we keep showing improvement quarter over quarter in the gross margin line, where E. Commerce continues to improve part of that is really leveraging those investments to drive more scale and more efficiency in our e-commerce.
Speaker Change: Operations, that's probably the bigger area, where you see it now results quarter to quarter.
Speaker Change: Yep.
Speaker Change: And the question on strategic planning of future buying yes. We are buyers are extensively going through short term midterm and long term strategies as far as buying goes as you know the continuous changing environment out there as presented a lot of opportunities for that group to stay on top of this and we're having to make some decisions based on.
Speaker Change: The current information that we know today as you can imagine with our volume and the size of our company or.
Speaker Change: Our commitments are six to eight months out for supply with a lot of our suppliers and doing that.
Speaker Change: We're empowering our buyers to make decisions now based on the importance of the item and is it something that we can replace with something domestically here or is it something that we need to go ahead and move on quickly and bring in prior to any future tariff increases so.
Speaker Change: They have a strategic plan out there they're looking at different areas. We went through a lot of this exercise during the Covid days when you Couldnt get goods out of China for a different reason that they're shipping backups that we have there and I think our bias our buying team executed great results. So during those periods of being very nimble and going out and finding new.
Speaker Change: Places that bring value and quality to our members. So we're going to remain nimble, we're going to make good decisions and the nice part is we do have some non U S business that we can work closely with this if we do get caught with something at a higher tariff rate that we don't feel.
Speaker Change: Would be something good for our members here in the U S. We can work with the other regions to move goods out there as well.
Speaker Change: Thank you.
Speaker Change: You're welcome.
Speaker Change: And our next question comes from the line of <unk> Parikh with Oppenheimer. Your line is open.
Parikh: Afternoon, and thanks for taking my question. So two quick ones for me. So just going back to the core on core margin improvement Gary do you expect some of the positive drivers you saw during the quarter to continue near term and then second just on tariffs just given maybe theres. Some hopes out there. Some of these hires will be rolled back if we do see that would you expect your vendors to reduce some of the tariff induced price increases.
Parikh: Yeah. Thanks for you on the <unk>.
Speaker Change: Core gross margin I would say some of those were fairly unique to the quarter in the sense that.
Speaker Change: The adjustment that we saw around some of the deflation in.
Speaker Change: Some of the ingredients that I talked around around butcher and eggs and dairy and I think as you know we continue to look for ways to invest in the mandate to drive topline growth in our sales. So I think again versus sort of maybe talking about what might happen in the next few quarters I think of it.
Speaker Change: Really sort of reflecting what I said earlier in the call where how can we continue to invest those dollars to drive more value for the member drive topline growth in the company I do think that we've been able to be somewhat nimble in that if there are continued impacts on inflation and non foods, obviously, we could see some impact there that way.
Speaker Change: Sure.
Speaker Change: Giving back to the member essentially to try and hold on some of the increases there and the benefits that we've had on things like fresh in particular, why you look at the productivity improvements and spoilage improvements. Obviously those are the things that can potentially fund our investments in other areas to ensure that we're delivering for value more value for the member. So I think we look.
Speaker Change: At it more on the longer term versus the short term benefits, but we'll continue to look for ways to invest to drive topline growth in the business.
Speaker Change: And then I think from a tariff rollback is kind of really difficult to predict obviously, we're operating in really a dynamic environment and where we're staying agile I think all of our suppliers are staying agile and really the focus is on how do we react to that at the moment and make sure that we're there for our members in managing prices.
Speaker Change: Products and continuing to find the most relevant items to the member side, it's a little bit difficult to predict what might happen around the corner, but I think as Ron mentioned earlier, we believe we're because of our limited SKU counts and the expertise of our buyers on that long term commitment to our suppliers that we have we believe there is opportunity for us to continue to widen our value versus the market as we adapt to the changing.
Speaker Change: <unk>.
Speaker Change: Great. Thank you.
Speaker Change: And our next question comes from the line of Kelly Bania with BMO capital markets. Your line is open.
Kelly Bania: Hi, good evening, thanks for taking our questions.
Kelly Bania: Wanted to try and see if we can understand.
Kelly Bania: Stamp on inventory planning here.
Kelly Bania: You made the comment that raising prices as a last resort.
Kelly Bania: Clearly consistent with Costco pricing philosophy, but.
Kelly Bania: As we look out into the back half of this year.
Kelly Bania: Can you give us a sense of how much price.
Kelly Bania: That might not be able to mitigate that might end up having to be passed on and how that could impact your unit.
Kelly Bania: Particularly.
Kelly Bania: On the discretionary side of the business, how you might be planning those and then I guess also with respect to inventory are you seeing in environment.
Kelly Bania: Supporting an elevated level of opportunistic buys.
Kelly Bania: Dynamic environment.
Kelly Bania: Sure. Thanks Kelly.
Kelly Bania: I think as I mentioned, a moment ago, it's just such a dynamic environment right now that really the focus that we've had in our buying teams has really staying agile to manage the situation.
Kelly Bania: I think I mentioned on the prepared comments a lot of the focus the team has right now is as we look at the impact of tariffs where are the places we can work with our suppliers to find ways to be offsetting some of the impact of those where are places, where we could potentially be sourcing with them from different countries, it's not practical to minimize the impact and in some.
Kelly Bania: This is we're also looking at I think the benefit of being a limited SKU count model is we can look at rotating into different items and and <unk>.
Kelly Bania: Finding different assortment that makes more sense for the members. So I think to answer your question, it's probably it's difficult to say in general terms, because it really depends on the individual items and looking at how do we make sure we're delivering the best value for the member and delivering the right items that will really resonate with them and drive the volume that we allow allow us to keep.
Kelly Bania: Those prices very low.
Kelly Bania: And really kind of giving a item by item I will give you a couple of examples that might be helpful. As we as we looked at what happened with fresh for example, during the last quarter.
Kelly Bania: We saw inflation as a result of Paris, because we import certain fresh items from central and South America. So on pineapples and bananas for example, because that key staple items to the member and we felt it was important to to really.
Kelly Bania: Eliminate the impact there for the member by working with our suppliers and by finding efficiencies and accepting that there may be a margin impact we essentially held the price on those to make sure that we're protecting the member when we looked at we also saw its flowers from central and South America, we looked at that item and decides.
Kelly Bania: While we were able to offset some of the tariffs through similar activity that we did increase some price there because we felt that that was something that the amendment will be able to absorb and it was more of a discretionary item there if I look at the non food examples.
Kelly Bania: Starting to look now because of the potential impact of tariffs is where all that places where there are items that are produced in the U S. While we might have opportunities to lean in more to some of those items as they are a great value it might be live goods mattresses and pillows I mentioned I think in the prepared comments on the call even use outdoor furniture. Some of these areas where we are.
Kelly Bania: I think that could be opportunities to really deliver value for the member when there are maybe some places where that value might not be there because of the impact of tariffs our health and beauty would be another. Good example, I think in nutritional items that are growing really strongly for us and we see strong continued appetite for those items for members are looking to to really see where there are opportunities.
Kelly Bania: To to buy great items at great quality and value for our members there as well.
Kelly Bania: Thank you.
Speaker Change: Just curious if I could just follow up with a question on the partnership.
Speaker Change: And the thought process. There clearly Costco has maybe add more defined set of payment options for members than typical retailer. So just curious if you tested this and how what you expect to get out of this is it just more support for kind of the big and bulky.
Speaker Change: Purchases.
Speaker Change: Yeah.
Speaker Change: Any thoughts there.
Kelly Bania: Yes, it's very much issue described Kelly, we saw that actually we saw a partly because with our firm has.
Kelly Bania: <unk>.
Kelly Bania: A white label product, if you like where its offering service to members that there were some costco members that were already using afirma as a solution for part of purchasing certain products at Costco, while not coming through our ecosystem and not getting the full value from Costco with the exclusive pricing that we can offer to members on the FM product.
Kelly Bania: Through our through our website and through our digital solutions and as we looked at the growth that we're seeing which has been very strong in many of those big and bulky and large purchase items. We recognize there are some members that want to be able to structure those payments over a period of time and we believe it's an opportunity for us to be able to deliver more value for the member by having.
Kelly Bania: Exclusive pricing that while also giving them more options in the way in which they can they can buy the product.
Kelly Bania: Thank you.
Speaker Change: And our next question comes from the line of Kate Mcshane with Goldman Sachs. Your line is open.
Kate Mcshane: Hi, good afternoon, thanks for taking our question.
Speaker Change: The numbers really speak for themselves when it comes to membership growth.
Kate Mcshane: I was wondering if there was anything to note just given that in several months.
Speaker Change: Price increase in terms of any kind of member response.
Speaker Change: And internationally.
Speaker Change: Any kind of impact from Costco being a U S brand.
Kate: Yes, Thanks Kate.
Kate: Overall, our membership I'd say, we're very pleased with the metrics we tend to look at it across renewal rates continued sign of activity overall, and then is the membership pans in the income grabbing and when we look at those three metrics. We're pleased with the overall direction that we're seeing in all of those metrics.
Kate: It's a little bit early in the renewal calculation still to have a really good feel for any impact from the membership fee increase that we just be starting to see some of that into the number now, but nothing that we'd flagged as material in the in the numbers that we're seeing in renewal rate and I think as we've shared before we really haven't heard a lot of member feedback I think the fact, we've 87 years to increase the <unk>.
Kate: When we when we typically would do it in five and say there was a level of understanding it may be coming and then also holding on menu prices around the hotdog and the rotisserie chicken at times when inflation was higher as well so nothing in general I would call out there and and overall that in terms of the international business to your question.
Kate: I would say that we said our members a very vocal and sharing feedback and I think there is we certainly hear some feedback from members that they they.
Kate: I wish the relationship was better today between the countries, but but in terms of.
Kate: Sales growth as you saw in our published numbers. We continue to have really strong sales growth in Canada and internationally. In fact I was just looking this morning, all of our international countries had positive comp growth during the quarter as well so.
Kate: There's really nothing that we'd call out other than I think there is definitely a recognition that there's this tension.
Speaker Change: Pension at the moment between the relationships.
Kate: Thank you.
Peter Benedict: And our final question comes from the line of Peter Benedict with Baird. Your line is open.
Peter Benedict: Alright, guys. Thanks for thanks for sneaking me in I guess.
Peter Benedict: Question on the renewal rates I know you flagged that they would be coming in a little bit because of the nature of the past sign ups. How long do you think this persists.
Speaker Change: When do you think it may stabilize and then any theories as to why these digital members renew at a lower rate do you have any strategies to address that.
Peter Benedict: Is it just the nature of it.
Peter Benedict: The number or the new customers that are signing up just curious your thoughts on that thank you.
Peter Benedict: Yes, Thanks, Peter I'd say overall, we expect its likely to continue for a while you may recall last quarter. It bumped up by 20 basis points. This quarter it bumped down by 30 basis points of the SRU.
Peter Benedict: You kind of have this lag of.
Peter Benedict: Periods of time, where we've got these digital promotions that we're doing that are coming into the into the calculation and there are some members that have taken advantage of a unique promotion there and there are also a younger on average younger age of member in that group as well. So we tend to see they renew at a slightly lower rate overall within digital.
Peter Benedict: I think this is something that we would expect to see for a period of time to come because of those factors and then you add to that that there wasn't really any impact from this in this quarter, but we do have Asian warehouses opened that have a large number of members per warehouse can be four to five times. The average that we see in the U S per warehouse and some of that is really in.
Peter Benedict: Firstly, I, just traveling long distances to come and see the warehouse for the first time and then we do see a lower renewal rate on those warehouses.
Peter Benedict: The denominator is big so it does have an impact there as well.
Peter Benedict: So I do think you should expect that to continue for the foreseeable future I think to the second part of your question that we do see as an opportunity, especially with the digital members that are as we see more members start to sign up digitally getting them into the warehouse engaging with them more through more relevant and personalized communication. There is an opportunity to move those members of the loyalty card.
Peter Benedict: And renewal rates and more significantly.
Peter Benedict: Part of that.
Peter Benedict: In truth is also just have a maturity in general when we look at that.
Peter Benedict: Younger members.
Peter Benedict: They generally renew at a slightly lower rate and so it's not a surprise to us that that's the case, but we think theres an opportunity for us to improve that renewal rate by continuing to engage with them more effectively digitally and making sure we bring them into the warehouse.
Speaker Change: That's helpful color. Thanks, Karen good luck.
Peter Benedict: Thanks.
Speaker Change: And ladies and gentlemen, this will conclude our question and answer session and today's call. We thank you for your participation and you may now disconnect.
Speaker Change: Yeah.
Peter Benedict: Yeah.
Peter Benedict: Yeah.