Richard Galanti, CFO of Costco Wholesale Corporation, welcomes everyone to the company's Fiscal Second Quarter 2024 Earnings Call. He mentions that the discussions will include forward-looking statements and outlines the risks and uncertainties associated with them. He also provides information on comparable sales and net income for the second quarter.

The second quarter results for this year included a tax benefit of $94 million and a net sales increase of 5.7%. The shift in the fiscal calendar had a negative impact on sales. Comparable sales were reported for the US, Canada, and other international locations. E-commerce sales also saw an increase. Membership fee income and renewal rates also saw growth.

In the second quarter, the company saw an increase in paid household members and cardholders. Executive members represent a significant portion of sales. Gross margin was up compared to last year, with core merchandise, ancillary and other businesses, and LIFO all contributing to the increase. Core margin on their own sales also saw an increase, with food and sundries and non-foods performing well. Ancillary and other businesses saw an increase in gross margin due to e-commerce, while the 2% reward was lower due to higher sales penetration from executive members.

In the second quarter, the company experienced a $14 million LIFO credit, resulting in a 3 basis point increase in SG&A compared to the same period last year. Excluding gas deflation, SG&A would have been lower by 1 basis point. The operations component of SG&A was 11 basis points higher, mainly due to wage increases implemented in the past year. Central expenses were better by 4 basis points, while interest expense increased by $7 million and interest income and other increased by $102 million year-over-year.

In the second quarter, the company saw an increase in interest income due to higher rates and favorable FX, but this will decrease following the special dividend payment. The tax rate was lower due to the deductibility of the dividend. Net income was up 18.9% on a reported basis, but would have been 12.5% without the tax benefit. Four new warehouses were opened, including the sixth in China. For the full year, 30 new locations are estimated to open, and in the remaining quarters of fiscal 2024, 15 new locations are planned. CapEx for the second quarter was approximately $1.03 billion.

In this paragraph, the speaker discusses the company's plans for the upcoming year, including expected revenue and expansion in China. They also mention the success of their e-commerce sales, particularly in categories such as gold, appliances, and gift cards. The company has also seen success in their Costco Logistics department, with a record number of deliveries completed. The speaker attributes this success to their ability to clearly communicate the value of their products and services to their members, such as the inclusion of additional services in the price of items like tires.

The paragraph discusses the cost savings for Costco members on various items, including the new Costco Next brand sites offering top-quality brands at discounted prices. The company has made progress in their e-commerce and digital efforts, including a new mobile app homepage and the addition of Apple Pay. They have also introduced new food items in their food courts, such as a chocolate chip cookie and a turkey sandwich. Additionally, they have opened a fully operated sushi offering in Issaquah, Washington, with plans for more locations.

The company has successfully operated a sushi program in Asia for many years and is looking to expand it further. Inflation has been low, but the company is still reducing prices where possible. They have also seen good seasonal sell-through and have not experienced significant shipping or supply chain issues. Finally, sales results for February have been positive compared to the same time last year.

In February, sales for the company were $18.21 billion, a 6.9% increase from last year. The US reported a comp of 3.4%, Canada 8.4%, and other international 10.8%. Worldwide, comp traffic was up 6.2% and comp frequency in the US was up 5.0%. Foreign currencies and gas price deflation had a negative impact on sales. The strongest US regions were Midwest, Southeast, and Northeast, and in other international markets, Mexico, Australia, and Korea saw strength. Food and sundries, fresh foods, non-foods, and ancillary businesses all had positive comps, with food court, pharmacy, and optical performing well. Gas sales were down due to lower prices. The next sales results will be announced on April 10th.

Richard, who will be retiring next year, thanks the listeners for joining the call and allowing him to share Costco's ups and downs. He has been hosting the call since the company went public in 1985. He will be stepping down as CFO in March and retiring from the board next January. He expresses gratitude for the journey and the great people he has worked with. The new CFO, Gary Millerchip, joined last week and will continue to provide transparency and straightforwardness. The floor is now open for questions. The first question is about membership and the framework for driving profit growth, with Richard emphasizing that there are enough levers in the business to do so.

The paragraph discusses the potential for a membership price increase at Costco and the factors that will determine when it will happen. The company is currently performing well and all metrics are trending in the right direction. The decision to increase prices will not be based solely on a slowdown in business, but rather on a combination of factors. Additionally, the potential for a price increase may be more likely in the future due to inflation. The company has historically aimed for a comp of 4-5% to maintain leverage, but this may change in the future.

Richard Galanti discusses the Company's strong performance during the COVID-19 crisis and the impact it had on SG&A. He notes that the Company has been able to maintain high productivity and market share, despite changes in the market. He also mentions that the Company's culture of prioritizing customers, employees, and shareholders has remained unchanged.

Richard Galanti, CFO of Costco, was asked a question about his successor and how they would maintain the company's values and culture. He responded by saying that the culture is deeply ingrained in the company and that even new hires have to go through a two-hour orientation to learn about the company's values. He also mentioned that most metrics are moving in the right direction, but did not specify which ones are not.

Richard Galanti, the CFO of Costco, states that there are no signs of saturation or peak in metrics for mature locations. He clarifies that when he said "most," he was referring to the fact that nobody is perfect. He also mentions that their monthly budget meetings are exciting due to new merchandising strategies and being aggressive in the market. Galanti believes that they have a lot of levers to pull to drive their business. In response to a question about the improvement in discretionary business, Galanti credits it to changes in communication and pricing strategies. He also believes that there is room for further aggressive actions to drive the discretionary business, which is experiencing a rebound compared to the rest of the retail industry.

The speaker discusses the sales performance of the appliance and tire industries, which have seen a significant increase in sales in the past few weeks. They attribute this success to their focus on finding new ways to improve pricing and utilizing their global buying power. The company also prides itself on being quick to pass on savings to customers. The speaker also briefly mentions the success of their private brand, Kirkland, and notes that they have seen strong sales and member shopping behavior has been positive. They also mention that branded packaged good companies are working to increase their volumes.

Richard Galanti, the CFO of Costco, discusses the company's strategy for private label products and the impact of the economy on consumer behavior. He also talks about the growth and penetration of Costco Logistics, a delivery service for big ticket items like appliances and furniture. Galanti explains that the acquisition of Innovel (now Costco Logistics) has allowed the company to improve delivery times and reduce costs for these products.

In the previous year, the company did about 2.2 million drops in the US, none of which were done by themselves. With the acquisition of Innovel, they did over 4 million drops, with 70% of them being done by the company. They have reduced delivery times and introduced two-hour and three-hour windows for delivery. They have also improved the value of their products and have seen growth in categories such as appliances. The company has the potential to continue growing in these categories as they make up a small percentage of their total. Core margins were up 25 basis points this quarter, but it is unclear what specifically drove this strong performance.

In an earnings call, Costco CFO Richard Galanti discusses the company's performance in non-food and fresh food sales. Non-food sales were down last year due to supply chain challenges, but improved this quarter. Fresh food sales were also down slightly, but Galanti does not see this as a significant change. The company has improved expense controls, which Galanti attributes to increased focus and better budgeting. He also notes that the company has not cut wages to control expenses. Analyst Rupesh Parikh asks a follow-up question about the expense controls, and Galanti wishes him luck. The call also features a question from analyst Scott Mushkin.

Scott Mushkin congratulates Richard Galanti and asks about the potential expansion of the company's one-hour delivery service in China to other countries. Galanti explains that they already have same-day delivery in the US through partnerships with third-party companies. They plan to open 28 new clubs this year and the capacity of the organization may trend up in the next few years.

The company has had a fluctuating number of units opened each year due to shutdowns and construction delays, but they hope to maintain a steady growth of 25 units per year for the next five years, eventually increasing to 30. The company takes a hands-on approach to expansion, with regional executives traveling frequently to visit new and existing locations. They also prioritize opening the first location in a new country to train employees who can then help with future locations. The company is busy and plans to continue their slow and steady growth.

Richard Galanti, CFO of Costco, discusses the company's budget and projected sales for the next couple of years. He mentions that the budget has decreased from 32 to 28, but this is due to timing and delays in construction or other factors. He also mentions that the average ticket price has seen some pressure, possibly due to a mix change or lower pricing. However, overall, the company is still projecting flat inflation in the future.

Richard Galanti discusses the recent budget meeting and the positive outlook for the company's buyers. He also mentions that e-commerce penetration in the US would be higher if Instacart delivery was included. The company is now focusing on retail media and advertising dollars and has brought on experienced individuals to help with this area.

The speaker discusses the success of Costco in other forms of vendor buckets, such as end caps and advertising, and mentions the potential for more growth in this area. They also mention the decision to roll out Apple Pay and the potential impact on e-commerce. The speaker then addresses the Kirkland price gap versus national brands and notes that there has been an impact on unit elasticity due to the price discrepancy.

The historical view of Kirkland Signature products is that they must be at least as good as national brands and offer a 20% savings. However, due to rising costs in certain items like paper products, Kirkland Signature has seen a rise in unit market share. The company has been opening new stores internationally, which tend to start out slower but eventually catch up to the productivity of more tenured and domestic stores. In some cases, local vendors may be hesitant to sell to Kirkland Signature in new markets.

The speaker, Richard Galanti, discusses the success of the company in opening new locations and the increase in membership sign-ups. He also mentions that the company has a lot of potential for growth, both domestically and internationally. He dismisses concerns about membership sharing and nonmembers using the food court, stating that the issue is not as significant as it may seem.

During the COVID pandemic, there was an increase in membership sharing at the store, with some family members using another member's credit card to shop. This was allowed, but with the introduction of self-checkout, there was a small level of abuse. In response to complaints from paying members, the store implemented stricter policies and saw an increase in new signups. However, this issue is not significant compared to the total number of members. The store is also testing new measures, such as scanning membership cards upon entry, to address this issue.

In this paragraph, Richard Galanti discusses the pain points that Costco faces, including the challenge of managing high volume and pallets in their system. He also mentions the success of their stores, with 150 locations doing over $300 million in sales and 40 locations doing over $400 million. Galanti believes that opening more stores in existing cities can help drive sales, as well as implementing new technologies such as online warehouse inventory.

The speaker discusses the company's plans for online shopping and how they will let customers know if a product is available for pickup in their local store. They also mention the success of their email outreach efforts and the improvements in their digital platforms. A question is asked about the impact of foreign exchange on MFI growth and the competitiveness of customer acquisition in the club channel.

In response to a question about the increase in couponing among peers, Richard Galanti, the executive vice president and chief financial officer of Costco, stated that while the company has seen a significant increase in new members, they have not changed their promotional tactics. He also mentioned that the company's membership renewal rate of 93% includes first-year renewals and those who sign up through digital coupons. When asked about potential changes to the credit card rewards program, Galanti stated that the recent headlines about late fees may impact the economics of the program.

Richard Galanti, the Chief Financial Officer of a company, has announced his retirement. During a recent call, he discussed the company's renewal rate, which has remained flat overall but has improved by 10 basis points in the US and Canada. This improvement is offset by lower renewal rates in international markets, such as China, where many members sign up but do not renew after the first year. However, in other countries, the renewal rate has been gradually increasing over the years.

The executive members and auto renewal have helped increase penetration in the US and Canada, but not in all countries. New clubs in Asian markets tend to serve a higher number of households and value plays well despite smaller housing arrangements. The big ticket discretionary category has improved, possibly due to better explanations of value. The recent technology enhancements may impact the business in the future.

The speaker discusses how implementing certain strategies has led to significant sales increases in specific categories. They also mention that they are still a small percentage of the industry, making it easier to take market share. The speaker also mentions their exploration of AI technology and their future plans. The conversation ends with the speaker expressing gratitude for the opportunity to speak and looking forward to answering more questions in the future.

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