The paragraph describes the introduction and initial statements made during the Costco Wholesale Corporation Fourth Quarter 2024 Conference Call. The conference operator, Krista, initially introduces the call and hands it over to Gary Millerchip, the Chief Financial Officer, who provides a disclaimer about forward-looking statements and the associated risks and uncertainties. Gary Millerchip then introduces Ron Vachris for opening comments on the fiscal year 2024's progress.

The paragraph outlines Costco's ongoing strategy in fiscal year 2024 to grow revenue by providing high-quality goods at low prices. The management team is proud of their 333,000 employees, particularly warehouse managers who are seen as key leaders. Emphasis is placed on promoting from within, with 95 new warehouse managers being promoted, 85% of whom started as hourly employees. The company achieved its target of 30 new warehouse openings, including its first in Maine and its 600th in Eau Claire, Wisconsin. Additionally, 12 out of 29 warehouse openings planned for fiscal 2025 will be outside the US. Costco's e-commerce and logistics operations continue to grow, with a notable 29% increase in deliveries of big and bulky items.

The business has strong momentum, especially with big and bulky items expected to drive e-commerce growth next year. Technological improvements, such as checking warehouse inventory via the Costco app and membership card scanners at entrances, have been well-received and are speeding up the checkout process. Further enhancements are in progress to benefit both online and in-store operations. Gary Millerchip then discusses the fourth-quarter fiscal 2024 results, noting a net income of $2.354 billion or $5.29 per diluted share, up from the same period last year. This year's results include a $63 million non-recurring tax benefit. Excluding this and normalizing last year's results for an extra week, net income and earnings per share increased by 12.7% and 12.6% respectively.

In the fourth quarter, net sales increased by 1% to $78.2 billion compared to last year, which adjusts to a 7.3% increase if accounting for an extra week last year. Comparable sales saw growth across various regions and channels, with total company comparable sales rising by 5.4% or 6.9% when adjusted for gas deflation and currency effects. E-commerce sales notably increased by 18.9% or 19.5% adjusted for currency effects. Currency fluctuations and gasoline price deflation negatively impacted sales by 0.9% and 0.6%, respectively. Shopping frequency increased globally by 6.4%, but the average transaction value decreased slightly. Membership fee income was $1.512 billion, a 0.2% increase despite the loss of an extra week and foreign exchange impacts. Excluding these factors, membership fee income rose by 7.4%. The US and Canada membership renewal rate was 92.9%, slightly down due to a promotional campaign that added over 200,000 new memberships.

In Q4 FY 2024, lower renewal rates for digital promotions negatively impacted the overall US renewal rate, though the worldwide rate remained steady at 90.5%, with international improvements balancing the US decline. Membership grew, with 76.2 million paid household members (up 7.3%) and 136.8 million cardholders (up 7%) year-over-year. Around half of new members were under 40, lowering the average member age. Paid executive memberships increased by 9.6% to 35.4 million, making up 46.5% of paid members and 73.5% of worldwide sales. The gross margin for Q4 improved by 40 basis points year-over-year to 11%, driven by e-commerce and gas sales. Core margins, excluding gas deflation, slightly declined. Ancillary and other businesses’ margins rose, largely due to gas and e-commerce performance. The 2% rewards grew modestly, benefiting from higher sales penetration among executive members.

The paragraph discusses various financial metrics and factors affecting the company's performance in the fourth quarter. The company benefited from an $8 million LIFO credit compared to a $30 million charge in the previous year. The SG&A rate increased by 8 basis points year-over-year, driven by higher wages and gas deflation, among other factors. Interest expense decreased due to debt reduction, while interest income dropped due to a significant dividend payout and lower cash balances. Foreign exchange resulted in an $18 million loss, reversing a $37 million gain from the prior year. The tax rate was lower at 24.4%, aided by net tax discrete items, otherwise it would have been 26.4%.

In Q4, the company opened 14 new warehouses, with 10 in the US and others in Japan, Korea, and China, incurring a capital expenditure of $1.58 billion for the quarter and $4.71 billion for the year. Non-food merchandise led with high sales growth, particularly in jewelry, gift cards, toys, home furnishings, tires, housewares, and health and beauty aids, the latter boosted by new luxury items. Fresh departments saw high single-digit growth, highlighted by a successful price reduction on Kirkland Signature chicken tenderloins. International food products and new Kirkland Signature items in food and sundries also performed well. The company lowered prices on various Kirkland Signature products, contributing to the brand’s faster growth compared to the overall business.

The paragraph highlights the company's commitment to sustainability and cost reduction, exemplified by transitioning KS laundry packs from rigid plastic tubs to pouches, reducing plastic usage by 80% and lowering prices by $1. Localizing production of bulky items like water, paper, and detergents to the countries they are sold in has reduced both costs and emissions. For instance, producing Kirkland Signature paper towels in Japan reduced emissions from shipment and lowered the price by 30%. The company plans to localize more products in Asian markets, expecting $30 million in annual savings for members. The pharmacy saw strong sales growth, while the optical department also performed well. Gas sales dipped slightly due to a 5% drop in average price per gallon, partially offset by a 3% increase in gallons sold. Overall inflation was flat, with slight inflation in food and deflation in non-food items. The supply chain reported good product flow through Panama and Baltimore.

The paragraph addresses several key points in Costco's recent performance and initiatives. Despite minor shipping delays in the Red Sea and supply issues with eggs, prime beef, and some vegetables, overall product availability has been good. The company's digital business has gained momentum, with significant increases in app downloads, search function effectiveness, e-commerce traffic, conversion rates, and average order value, contributing to strong sales growth. Double-digit year-over-year growth was noted in various product categories, and the buy online, pickup in warehouse option for TVs was successfully rolled out. Costco's curated marketplace, Costco Next, also saw substantial growth with additional vendors. Lastly, a membership fee increase took effect on September 1, with minimal early impact due to deferred accounting.

The benefits from recent investments will largely materialize in the latter half of fiscal year 2025 and into fiscal year 2026. The company remains committed to investing in employees and members, as demonstrated by recent wage increases and pricing decisions. They are optimistic about their momentum going into fiscal year 2024 and the growth opportunities ahead, aiming to deliver value and innovate with products like Kirkland Signature while expanding globally. They will report September sales results on October 9th. During the Q&A session, Simeon Gutman from Morgan Stanley asked how wage investments, which are crucial for Costco's culture, reconcile with the goal of achieving greater SG&A leverage. Gary Millerchip responded by emphasizing the company's focus on finding a balance in their business model.

The paragraph discusses Costco's strategy of investing in members, lowering prices, and investing in employees to drive top-line sales growth. Over the past year, Costco increased wages for starting positions and for managerial roles in warehouses. Recently, they also raised wages for hourly employees across the distribution network. Despite these cost increases, Costco has effectively managed them through productivity gains and sales leverage, aiming for sustainable and profitable growth. The paragraph concludes with a mention of the card readers' impact in stores, but no specific details are provided.

In the paragraph, Ron Vachris discusses the benefits of using card readers at the front door, a system implemented in the US after being used for over two years in Europe and the UK. This system provides real-time traffic counts, enabling better management of front-end lines and fresh food monitoring. It also shifts membership verification to the front door, improving productivity by notifying members of renewal dues before they reach the registers. Subsequently, Chris Horvers from JPMorgan asks about the risk of an emerging port strike on product availability and preparation for the holidays. Ron responds that the port strike is being closely monitored, acknowledging the known timing of the potential disruption.

The paragraph discusses the company's strategies to mitigate the impact of potential supply disruptions on their business, which primarily imports nonfoods and some limited food items. Around 25% of their total business is nonfoods, with some being domestically sourced. They’ve implemented various contingency plans, like clearing ports, pre-shipping, and exploring alternative transport routes. The company is closely monitoring the situation and has taken preemptive measures. Regarding ocean freight rates, they note that a significant portion of their freight is contracted, providing some insulation from fluctuating spot market rates, which have recently peaked but are now declining. They acknowledge that disruptions could cause rates to rise again but feel well-prepared thanks to their robust contracts.

In the paragraph, Gary and Ron discuss the rollout of membership card scanners across 350 US warehouses. The feedback from both members and operators has been very positive, resulting in an increase in new member sign-ups and renewals. This has improved productivity and interactions at the front end. Chuck Grom inquires about the impact of e-commerce and gas margins on the margin buildup, to which Gary Millerchip responds that both factors have contributed significantly, with e-commerce showing positive momentum over the past few quarters.

The paragraph discusses the company's progress in fulfillment, efficiency, and inventory management, highlighting positive trends in e-commerce growth. It notes no unusual factors affecting gas margins, attributing improvements to favorable conditions and comparisons to a lighter margin period in 2023. The conversation then shifts to new store growth, with a focus on an expected increase in international stores. Brandon Cheatham inquires about the decrease in U.S. store openings and the emphasis on international markets. Ron Vachris explains that the number of openings is largely timing-based, influenced by factors like infrastructure and utility availability, and mentions 12 international openings planned for next year.

The paragraph discusses the company's expansion plans and strategies. They anticipate balanced growth with significant opportunities for infill development across North America over the next several years. The company also plans to expand into 5 to 6 new international markets next year. In terms of membership fee increases, the company aims to enhance member value by lowering prices, introducing new products, improving member experiences, and investing in employee wages. This holistic approach is intended to ensure continued value delivery to members over time.

In the paragraph, the speaker discusses the company's recent actions, including wage increases and the introduction of new Kirkland Signature products, aimed at increasing value and reducing prices. They avoid providing specific guidance but express confidence in their momentum going into fiscal year 2024 and beyond. The company focuses on growth and profitability by investing in member value and employees while driving efficiencies. While they typically don't discuss yearly earnings cadence, they mention that deferred accounting for a membership fee increase will impact earnings mainly in the latter half of 2025 and early 2026. Additionally, specific factors like interest income and gas profit volatility from last year will affect Q1 comparisons. Therefore, earnings growth for 2025 may be less predictable. Lastly, the Operator announces the next question from John Heinbockel of Guggenheim Securities.

John Heinbockel starts the discussion by noting that core-on-core sales were up 9 basis points and asks Gary Millerchip for details by product category. Gary explains that food and sundries were slightly negative, fresh was slightly positive, and non-food was the strongest performer due to good product mix and strong sales. John then shifts the focus to Kirkland Signature, Costco's private label brand, asking about recent price decreases and how they compare to branded products. Ron Vachris responds, stating that Kirkland Signature’s market penetration is in the high 20s and growing. He also explains that they aim to demonstrate the benefits of price investment by starting with their own brand, and they are receiving strong support from global suppliers and partners to drive sales.

The paragraph discusses Costco's anticipation of continued growth and value enhancement for its Kirkland Signature items, which drive member loyalty. Gary Millerchip adds that maintaining disciplined margins on Kirkland products, combined with efficient global purchasing and in-country production, is creating overall positive effects on margins. This balance allows Costco to provide more value to members while supporting long-term growth. John Heinbockel then thanks them, and Scott Ciccarelli from Truist Securities poses questions about the frequency of non-member shopping and inflation/deflation expectations for fiscal '25. Ron Vachris responds that there is no specific number available regarding the ID scanning for non-members.

The paragraph discusses the company's exclusivity to members and the lack of precise data on non-member visitors. It then transitions to Gary Millerchip's comments on inflation, stating that overall inflation for the quarter was flat, with slight inflation in fresh produce and food categories. Different commodities show mixed trends, with some being deflationary (corn, flour, sugar) and others inflationary (butter, cocoa, eggs, cheese). The company aims to keep costs low and prices stable for members, and no significant changes from the previous quarter are observed.

The paragraph addresses a question about the customer response to a membership fee increase. Gary Millerchip explains that the fee increase was delayed by two years due to COVID-19 and high inflation. He states that the timing was chosen carefully as inflation began to dissipate. Despite the fee raise, there has been minimal negative reaction from members, and membership renewal rates remain stable. Millerchip attributes this to the company's efforts to maintain low prices on key items and investments in employee wages and cost reduction, demonstrating their commitment to delivering value to members.

In the paragraph, Rupesh Parikh from Oppenheimer asks about the health and behavior of consumers. Gary Millerchip responds by noting that quality and value are increasingly important to consumers. He highlights an encouraging trend where, as inflation has decreased, consumers have started spending more on non-food items across various categories. Notably, appliances and electronics have become more promotional, with consumers seeking deals. The company differentiates itself by not only offering competitive prices but also additional services like installation and removal. On the food front, there's a shift in spending from dining out to cooking at home, although alcohol sales remain relatively soft.

The paragraph discusses Costco's notable growth in ethnic food categories, Kirkland Signature products, and fresh items like meat, produce, and bakery. Consumer spending shows a preference for lower-cost protein items such as poultry and cheaper cuts of beef and pork, indicating careful spending choices. Despite this, Costco's quality and value continue to attract members. A follow-up question addresses Costco's focus on alternative revenue streams, including media. Gary Millerchip notes that the company views this as a significant long-term opportunity, focusing on enhancing technology infrastructure to provide personalized offers to members. Costco plans to reinvest most of the revenue from these new streams to drive growth, which they believe will be a competitive advantage with their CPG partners.

In the article, Kelly Bania from BMO Capital Markets questions Gary Millerchip about e-commerce performance, including its penetration, profitability, and impact on margins. Gary Millerchip highlights that their e-commerce has experienced significant growth, with over 20% compounded annual growth rate over the past decade. He mentions that their current e-commerce penetration is in the high single digits, but including digitally initiated transactions like Instacart and Uber, it would reach double digits. When asked about profitability, Millerchip does not provide a specific comment.

The speaker discusses how the cost-effectiveness of their fulfillment is improving over time due to sales growth and efficiency enhancements, despite being initially lower than traditional warehouse shopping. Michael Baker then asks about competitive pricing in groceries, noting increased promotional activities by grocery chains. Gary Millerchip responds, saying their primary focus is on being competitive with themselves, aiming to lower prices proactively while closely monitoring competition and noting an increase in promotional efforts, particularly in appliances and consumer electronics.

In the paragraph, the discussion revolves around concerns and observations about Costco's fuel sales and their impact on store traffic. Michael Baker inquires whether declining gas prices, which fell 15-16% year-over-year, have affected customer traffic, given that around 50% of gas customers also shop in the store. Ron Vachris responds, noting that while gallon growth was up 3%, it was slightly softer compared to the previous quarter. Despite this, he states that there is no significant concern as overall transactions remain positive and store traffic has not dropped. The focus then shifts to a question from Karen Short about Costco's pre-tax margin, noting its incremental rise and its impact on earnings and valuation.

Gary Millerchip emphasizes the company's primary focus on driving top-line growth, which involves investing in members and employees. He mentions that lowering costs and enhancing gross margins through strategies like global buying, Kirkland Signature growth, and e-commerce have been successful. Additionally, Retail Media offers future opportunities. While the goal isn't explicitly to grow margins, they tend to improve as a result of effective top-line growth. Ron Vachris adds that there are multiple ways for operators and buyers to improve margins, including lowering prices.

The paragraph discusses the company's operational efficiencies and improvements in profit margins, driven by factors like successful product sell-throughs, introducing new higher-margin items, and reducing operating shrinkage. While Karen Short inquires about future margin expectations, Ron Vachris avoids giving specific guidance but emphasizes ongoing opportunities to invest in members and employees while improving profitability. Greg Melich then asks about gasoline profitability, with Gary Millerchip responding that the company doesn't share specific profitability details but notes that gas profitability tends to be fairly stable despite short-term market volatility.

The paragraph is part of a Q&A session of a conference call where several topics are discussed. One speaker mentions that recent volatility in the gas business due to world events is not expected to change its overall stable trajectory. Average wages in the US and Canada are now just over $30 an hour, up from a previous estimate of $26. There are no current plans to introduce Kirkland Signature into the gold bullion market. The session concludes with a thank you from Gary Millerchip, who looks forward to the next quarterly earnings call.

The conference call has ended, and participants are thanked for their involvement before being instructed to disconnect.

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