The operator introduces the Costco Wholesale Corporation Fourth Quarter and Fiscal Year 2023 Operating Results Call. Richard Galanti, CFO, outlines the risks and uncertainties involved in the statements to be discussed. The fourth quarter of fiscal year 2023 saw an increase in net income and net sales compared to the previous year. Comparable sales in the U.S., Canada, and Other International regions were also reported.

In the fourth quarter, the company reported a 1.1% comp and 3.8% ex-gas deflation and FX. E-commerce was down 0.8% reported and 0.6% excluding FX. Food and sundries were strong, with fresh foods close behind, but non-foods categories offset some of the growth. Worldwide traffic increased by 5.2%, but average transaction or ticket was down due to weakness in non-foods and gas price deflation. Foreign currencies and gas price deflation negatively impacted sales. Membership fee income increased by 13.7% or 7% when adjusted for an extra week. Renewal rates in the US and Canada increased slightly, but the worldwide rate decreased due to international memberships renewing at a lower rate. Membership growth continues, with 71.0 million paid household members and 127.9 million cardholders.

In the fourth quarter, the company saw an increase in paid executive memberships and a rise in gross margin. Excluding gas deflation, gross margin was up 16 basis points, with core merchandise and LIFO contributing to the increase. However, ancillary and other businesses saw a decrease in gross margin, primarily due to gas. The 2% reward also had a small impact on gross margin. Overall, gross margin was up 42 basis points including gas deflation.

The company saw higher sales penetration from executive members in the fourth quarter, and a small LIFO charge compared to a larger one in the previous year. Margins improved due to less markdowns and better inventory positions. SG&A increased by 43 basis points, but operations and central expenses decreased. Overall, reported margins were up 43 basis points and ex gas deflation, up 21 basis points.

In the fourth quarter, the core operations of the company were higher by 18 basis points, excluding gas deflation. This was due to lower sales growth and higher top-of-scale wage increases. Central operations were also higher by 3 basis points. Interest expense and income were both higher due to an extra week and increased interest rates and cash balances. The tax rate was also higher due to increased international earnings. Overall, net income was up 16% year-over-year. The company opened nine new warehouses in the fourth quarter and a total of 23 for the full fiscal year, including three relocations.

Costco plans to open 10 new locations in the first quarter of fiscal year 2024 and spent $1.56 billion on capital expenditures in the fourth quarter of fiscal year 2023. E-commerce sales showed improvement in the fourth quarter, with big ticket departments making up over half of the sales. Appliance sales were up over 30% and 1-ounce gold bars are sold on the website but are quickly sold out. Costco Next, an online platform for suppliers, continues to grow. The company is making progress in their digital and mobile transformation efforts.

The paragraph discusses recent additions and upgrades made by Costco, including a redesigned account page and digital membership card, a new optical digital store, and improvements to the Costco app. It also mentions the company's progress and upcoming releases, as well as their estimates for inflation. The speaker, Richard Galanti, then opens the floor for questions.

In this paragraph, Richard Galanti, the CFO of Costco, is asked about the potential for a membership fee increase and its relation to inflation. Galanti responds that while it is a question of when, not if, there is no set plan for an increase at this time. He highlights the company's focus on member loyalty and value, and mentions that there has not been a significant change in spending despite recent increases in gas prices. He also mentions the addition of smaller, indulgent items in stores. Another analyst asks about the impact of gas prices on spending, to which Galanti responds that there has not been a significant change and that any increase in the number of items in a basket may be due to the addition of smaller indulgent items in stores.

The speaker, Richard Galanti, is responding to a question about inflation and the possibility of deflation. He clarifies that while inflation has been around 1-2%, it has been trending downward and may even be lower. He also mentions that some costs, such as freight and commodity costs, have decreased. In response to the question about investing in prices to drive sales, Galanti says they are always looking to lower prices and have seen success with this strategy in terms of increased traffic. He also clarifies that food and sundries prices are down, while shelf-stable products are up and general merchandise is down.

The speaker clarifies that the store's fresh section is flat, while food and sundries are slightly up. They are working with suppliers to push the envelope and bring down costs, but with oil prices rising, it's uncertain what will happen. The pressure on big-ticket and discretionary items is affecting overall sales and may lead to labor and SG&A deleveraging. However, the company is still focused on driving sales in the best way possible.

Richard Galanti, the CFO of Costco, discusses the impact of inflation on the company's pricing and unit elasticity. In the past, they have stated that a 4.5-5% increase in prices would result in zero, negative, or positive leverage with SG&A. However, they are not willing to compromise on the level of service or employee wages. When Costco implements temporary price discounts, they do see an increase in units sold, but it is not always predictable. This is more evident in the food category, especially when reducing the price of meat items.

During the recent earnings call, Costco's Richard Galanti discussed the potential impact of freight and raw material costs on big-ticket non-food items, stating that a $300 to $400 price decline could lead to increased sales. He also mentioned that the company is not providing guidance, but there are no major changes expected in gross margin and SG&A over the next four quarters. Galanti also noted that the company is on track to open 23 new stores this year, and that Costco is performing well in terms of managing wage hikes and competition. Regarding LIFO, Galanti stated that there won't be much impact going forward, as the company has already taken a $30 million charge in the previous year.

Richard Galanti discusses the inflationary trends in gas and certain fresh food items, but notes that they are small compared to the overall inventory. He does not have the specific details on these trends. He then talks about international membership trends, stating that new units in Asia typically have 50,000 to 100,000 new members, with some exceptions like Shanghai Minhang which had over 200,000. He notes that renewal rates in the first year can be as low as the mid-to-high 50s, but they usually increase over time. He compares this to the early years of Costco's history in the U.S.

The company's CEO, Richard Galanti, says that the day they opened, they didn't have as many national and local news events. However, they have seen an increase in people signing up from markets that are far away or choose not to come back. This has led to a slight decline in numbers, but it is due to the fact that they have opened more units and are renewing for the first time. The company plans to open mid-to-high 20s units in fiscal year 2024, with 70% of them being in the US and Canada. Galanti believes that there are more opportunities for in-fill in the US given their high volumes, and they have plenty of plans for overseas expansion. In terms of consumer health, the company's traffic continues to do well, with a 4-5% increase year-over-year. There are some concerns about student loan impact and potential trade down, but overall, the consumer is still strong.

Costco's renewal rates are strong, but there is some weakness in big-ticket discretionary items. However, compared to competitors, Costco does better overall. They have brought in smaller ticket items and new products to boost sales. In terms of retail media, Costco is focusing on digital and mobile through their app, but they are not disclosing specific numbers. Competitors are talking about doubling their numbers in the next few years, but Costco believes there is still room for growth.

The company prides itself on providing the best hourly wage package, with an average hourly wage of $26 and a rich healthcare plan. They have added a $2 premium for frontline workers during COVID and have had multiple wage increases since then. They also contribute 3-9% to their employees' 401(k) plans.

The speaker discusses the pressure they face from competition and their advancements in technology, specifically the ability to scan barcodes. They also mention the positive impact of gas prices on their profits.

The speaker discusses how their company used to adjust gas prices daily based on the market, but now they are able to make more profit by keeping prices higher. They also mention their competitive position and their cash reserves, hinting at the possibility of a special dividend in the future.

The company is not focused on selling a high earnings multiple, but rather earning 5% on their assets. They are waiting to see what they will do next. The executive membership has seen significant growth, with about 1 million new members this quarter. The company has done a better job of communicating the value of the executive membership, resulting in higher spending from these members compared to regular members. The company is still attracting younger members, despite having an older average customer. The impact of the extra week was not quantified.

Richard Galanti, CFO of Costco, discusses the company's inventory levels and how they feel good about where they are currently. They are running above 100% on the inventory-to-payables ratio, which is something new for the company. As they anniversary the inflection of when they saw some weakness, it will help with big-ticket sales. The company is also feeling good about their supply chain and the timely delivery of products.

Richard Galanti, the CFO of Costco, believes that e-commerce has been a bright spot for the company, especially in terms of appliances. He also mentions that the company has done a good job of showcasing the value of their products online, not just the price. He briefly touches on the company's partnership with Instacart, stating that it has been a good relationship and they have expanded to include non-food items and prescriptions. Galanti also mentions that the company is testing EV charging in some locations.

The speaker discusses Costco's expansion plans in China and the success of their Costco Next program, which involves drop-shipping curated items from well-known brands. They also address potential inflation and its impact on margins.

Richard Galanti, CFO of Costco, discusses the potential impact of inflation on their business. He believes that it will be favorable for Costco because they are known for offering the best value. He also mentions their competition with Sam's Club and BJ's, but feels confident in their ability to compete and gain share in the market.

The paragraph discusses the increase in core and core margins for Costco in the quarter. This was mainly due to a decrease in markdowns and a decrease in inventory levels compared to the previous year. The company also mentions being back on track with seasonal in and out dates. They also mention the possibility of raising membership fees in the future, but only if the economy remains strong.

The company experienced a year where seasonal items came in late, so they marked them down to move them out. They have seen positive unit trends in certain electronics categories like gaming, Apple products, and tablets, but not notebooks and computers. The company plans to add another 150 locations in the U.S. over the next 10 years, and they are currently at 65-70% of their locations in the U.S.

The speaker discusses the increasing opportunities for their company, as evidenced by the higher volumes of units being sold compared to a few years ago. They mention that they are still not interested in BOPIS due to cost reasons, but are testing it for big-ticket items. They also mention that CPG companies are funding promotions more regularly, with a successful one being done last year and planned for this year.

Richard Galanti, Chief Financial Officer of Costco, discusses the company's approach to the holiday season. He mentions that Christmas goods are off to a good start and they are about the same timing as previous years. However, due to supply chain disruptions, some things came in early. They are approaching the holiday season aggressively in terms of having products to sell, but they also want to be cautious and avoid overstocking. They typically bring in a few items in the last couple of weeks before Christmas to avoid having to heavily discount them if they don't sell. Galanti wishes everyone a happy holiday and invites any further questions.

This summary was generated with AI and may contain some inaccuracies.