The paragraph is an introduction to Costco Wholesale Corporation's first quarter fiscal 2025 conference call. The operator, Abby, welcomes participants and explains the procedure for the question and answer session. Gary Millerchip, the CFO, begins the call by stating that it will include forward-looking statements subject to risks and uncertainties, and he emphasizes that the company may not update these statements except as legally required. He also notes that comparable sales are supplemental information. Ron Vachris will also be joining the call for opening comments.

In the first quarter of fiscal 2025, Costco opened seven new warehouses, including six net new buildings, with four outside the US, and achieved record sales at its new Pleasanton, California location. The company plans 29 warehouse openings for the fiscal year, with 26 net new buildings and 10 outside the US. Costco's US bakery division set sales records, selling 4.2 million pies pre-Thanksgiving, and the food courts sold a record 274,000 pizzas on Halloween. The US pharmacy saw prescription growth over 19%, and Costco Logistics nearly hit one million deliveries in Q1, demonstrating the strength and efficiency of their business. These achievements are attributed to the efforts of over 330,000 employees worldwide.

The paragraph highlights Costco's appreciation for its employees and announces the availability of their updated sustainability commitments report. It then transitions to financial results for the first quarter of fiscal 2025, presented by Gary Millerchip. The results show a net income of $1.798 billion, up from the previous year, driven partly by a tax benefit. Net sales increased by 7.5% to $60.99 billion, with significant growth in US, Canada, and international comparable sales when adjusted for gas deflation and foreign exchange.

In the reported quarter, the company experienced overall comparable sales growth of 5.2%, or 7.1% when adjusted for gas price deflation and foreign exchange effects. E-commerce sales grew by 13%, slightly higher when adjusted for FX. Foreign currency fluctuations and gas deflation impacted sales negatively. Shopping frequency increased globally and in the US, and average transaction value saw a slight rise, with more significant increases when adjusted for adverse factors. Membership fee income rose by 7.8%, with minimal impact yet from recent fee increases due to deferred accounting. US and Canada renewal rates slightly declined, influenced by increased digital sign-ups, but overall membership metrics remain positive. The company ended the quarter with 77.4 million paid household members, showing a 7.6% increase from the previous year, and executive memberships and cardholders also saw growth. Executive members account for a significant portion of paid members and global sales.

In the first quarter, the company experienced a year-over-year increase in gross margin by 24 basis points to 11.28%, with core margins benefiting from product mix and a credit card co-brand program. Ancillary gross margins were slightly lower due to gas, partly offset by e-commerce gains. The 2% reward improved, and LIFO remained flat, with a slightly higher credit than the previous year. SG&A expenses increased by 14 basis points to 9.59%, driven by higher employee wages despite efforts to increase productivity. Interest expense slightly decreased to $37 million from the previous year. Gas deflation was accounted for in various adjustments throughout the financial report.

In the latest quarter, interest income decreased from $154 million last year to $96 million due to lower cash balances and interest rates. Foreign exchange gains of $51 million helped offset the decline in interest income. The tax rate was lower at 22%, impacted by a $100 million discrete item, otherwise, it would have been 26.5%. Capital expenditures in Q1 amounted to $1.26 billion, with a full-year estimate of $5 billion. Fresh merchandise sales led with high single-digit growth, particularly in meat. Non-food categories also grew, notably in gold and jewelry, gift cards, and other products, despite calendar shifts.

This quarter, the business expanded its range with new high-quality brands and saw growth in various categories, particularly in food and sundries, with strong performance in cooler and frozen foods. Kirkland Signature products outpaced overall business growth, with notable price reductions on select items and the introduction of innovative new products. Ancillary businesses like pharmacy showed the strongest sales growth, focusing on keeping prices low and enhancing technology for convenience. Although gas sales declined due to lower average prices, Costco’s travel services remained popular, offering diverse vacation options and delivering unique membership value.

The paragraph highlights Costco's travel business, noting attractive rates and added values such as a Costco shop card. Notable achievements include selling enough rental cars to fill US Costco parking spots 8.5 times and offering valuable cruise deals, with the largest being a $293,000 around-the-world cruise for two. Members using Costco travel spend twice as much as those who don't. Inflation is flat, with slight inflation in foods offset by deflation in nonfoods. Supply chain issues, like avian flu's impact on eggs and port strikes, affected some products, but inventory remains strong for holidays. Digital advancements, like warehouse inventory checks via the Costco app, continue to improve member experience, with 2.9 million app downloads in the quarter.

The paragraph reports on the strong growth in Costco's e-commerce traffic, conversion rates, and average order value year over year, with significant sales increases in hardware, sporting goods, gift cards, and home furnishings. Costco Logistics also contributed with growth in large items, and Costco Next achieved record sales during the Thanksgiving sales period. The company sees early opportunities in retail media, having completed a successful targeted campaign with a CPG partner, resulting in a high return on ad spend. Costco is expanding off-site media campaigns with over 25 suppliers. They also announced that December sales results will be released on January 8. The paragraph concludes by opening the floor for a Q&A session.

The paragraph is a response from Gary Millerchip to a question from Simeon Gutman about the health of the consumer and the handling of seasonal inventory. Millerchip explains that consumers are being selective in their spending, prioritizing newness, quality, and value. Despite this selectiveness, the company is experiencing strong performance in non-food categories like jewelry, gift cards, home furnishings, and more, with double-digit growth in some areas. This success is attributed to their merchants' ability to offer appealing products as inflation decreases.

The paragraph discusses trends in food and grocery shopping, highlighting a shift from dining out to cooking at home, as indicated by strong sales in meat and produce. There is a noted bifurcation in consumer behavior, with high-quality premium cuts selling well alongside increased interest in lower-priced options like poultry and certain beef and pork cuts. Ron Vachris mentions strong seasonal sales, despite a short period after Thanksgiving, attributing success to buyer experience. Gary Millerchip emphasizes the company's focus on delivering value to members and notes a growing market share. Finally, Oliver Chen from T. B. Cowen asks about future drivers and opportunities around ticket sales and units per transaction (UPT) as well as the potential of retail media.

Gary Millerchip discusses the positive trends in shopping traffic and frequency from their members, noting a 2% increase in items per basket in the U.S. and worldwide when adjusted for certain factors. He attributes this success to effective product offerings and execution by merchants and operators. From a media perspective, he views retail media as an incremental opportunity, particularly due to interest from marketing agencies. While still in the early stages, Millerchip is optimistic about retail media's potential for driving growth and incrementality, largely fueled by national brand suppliers investing in retail media through these agencies.

In this paragraph, Christopher Horvers from JPMorgan asks about the factors influencing the core margin performance for the quarter and the company's pricing strategies. Gary Millerchip explains that the core margin performance across foods, fresh, and nonfoods was relatively stable, with minor fluctuations. Ron Vachris clarifies that the hardware category includes typical household goods found in a hardware store. On pricing strategy, Vachris emphasizes the company's commitment to investing in price, potentially maintaining prices amidst rising commodity costs, and highlights their focus on leveraging their Kirkland Signature brand and collaborating with vendors to achieve lower prices for members.

In the paragraph, Jiang Ma asks Gary Millerchip about differences in renewal rates between online and offline sign-ups and the potential impact of Costco Connect on retail media growth and membership loyalty. Gary explains that Costco's overall membership metrics are strong, with a shift towards acquiring more members through digital channels, leading to a younger average member age. However, these digitally acquired members tend to renew at slightly lower rates compared to the historical member base. He mentions that renewal rates are reported with an 18-month lag.

The paragraph discusses the trends and future expectations for Costco's digital membership growth and its potential impact on overall membership renewal rates. Ron Vachris talks about "Costco Next," an exclusive marketplace for Costco members curated by their buyers, aimed to enhance member relationships and shopping options. In a Q&A exchange, Jiang Ma asks about the involvement of third-party marketplace vendors in Costco's retail media service, which is still being evaluated for member benefits. Karen Short from Melius Research asks about Costco's stance on stock splits for employee stock purchases and queries about the impact of tariffs on inflation. Gary Millerchip acknowledges these questions.

The paragraph discusses Costco's current stance on stock splits, noting that while they have done them in the past, there are no immediate plans for one due to the availability of fractional shares for investors. However, they acknowledge the perceived affordability benefits for retail investors and will continue to evaluate the possibility over time. Additionally, in relation to tariffs, the paragraph highlights the uncertainty and cost increases associated with them. Costco plans to navigate these challenges by leveraging their merchants and buyers' expertise, pulling forward inventory purchases, collaborating with vendors to mitigate costs, and considering alternative sourcing when feasible.

The paragraph features a discussion about the business's Capital Expenditure (CapEx) outlook, with Edward Kelly from Wells Fargo asking how the company's CapEx is evolving. Gary Millerchip responds by indicating that there haven't been major changes, but CapEx has gradually increased due to business growth, new warehouse openings, and inflation. Additionally, the company has been investing more in technology to modernize platforms and support future growth. The conversation is part of a larger context involving different SKUs, emphasizing that a portion of the business involves nonfoods and imports, though it's a minority of overall activity.

The paragraph discusses a company's strategic focus on maintaining and expanding its warehouse facilities and supply chain through investments in technology and digital capabilities. While continuing its existing growth strategy without major changes, the company considers multiple areas for reinvestment from membership fee increases, including pricing, product quality, employee wages, and innovation, particularly through its Kirkland Signature brand. The discussion also touches on plans for international expansion, with questions about the size and control of future sites, although specifics are not provided.

The paragraph discusses a company's strategy to provide significant value to its members, ensuring the membership fee offers more than what is paid. Ron Vachris mentions global expansion plans, with about 30 new warehouses expected annually, many outside the U.S., targeting countries like Canada, Mexico, Europe, and Asia. John Heinbockel and Rupesh Parikh ask further questions. Gary Millerchip provides details on the company's financial performance, noting stable gross margin rates, improvements excluding gas, and the impact of the credit card co-brand program, indicating overall stability in the company's financial results.

The paragraph discusses the company's financial performance, highlighting a significant challenge in gas margins due to volatility caused by a major event in the Middle East around a year ago. This volatility made gas margins unpredictable on a quarterly basis. However, improvements in e-commerce margins, benefits from product mix, and a favorable outcome from the co-brand credit card program helped offset the gas headwind. Overall, despite investing in lower prices to provide more value to members, the company saw a slight increase in gross margin. The discussion ends with a brief exchange between Rupesh Parikh and Gary Millerchip, followed by a transition to a question from Peter Benedict regarding growth in the US.

In the paragraph, Ron Vachris discusses Costco's expansion strategy in the US, highlighting the successful opening of new warehouses, such as the one in Pleasanton, California, and their positive impact on reducing pressure on high-volume locations. This strategy leads to increased member visits and incremental business growth. He mentions successful openings in smaller markets like Scarborough, Maine, indicating continued growth potential. The focus is on improving the member experience and expanding in both new and existing markets. The paragraph ends with a question from Greg Melich asking for an update on Costco's e-commerce growth and penetration, including collaboration with services like Instacart and Uber Eats.

In the paragraph, Gary Millerchip discusses the growth in digital sales, noting that despite a timing issue affecting November sales figures, the overall trend in digital metrics like downloads, traffic, and average order value was positive. He mentions that the digital business accounts for about 7-8% of total sales, outpacing overall growth. Including contributions from third-party sites and excluding gas sales, e-commerce penetration is over 10%. Greg Melich asks about private label penetration, and Ron Vachris responds that it has reached about 33% in the US.

The paragraph involves a discussion during a conference call, where Scott Mushkin from R5 Capital asks about the factors driving strong traffic growth in the company, particularly despite its large size. He also inquires about how the company plans to maintain this growth in the next few years. Ron Vachris responds, indicating that traffic growth is attributed to various factors, including company initiatives and possibly the club format, and expresses optimism about continuing this growth, citing success across different parts of the company.

The paragraph discusses the business strategy and competition impacts of a company, highlighting its focus on various segments like pharmacy, food court, fresh foods, tires, non-food items, and e-commerce. They attribute success to knowing their customers and executing well across all business areas. Robbie Ohmes from Bank of America inquires about competitive impacts, retention rates when competitors raise their membership fees, and the pressures from not offering a scan-and-go service like competitors. Gary Millerchip responds that they consider themselves their biggest competitor and mentions the trend of opening new warehouses, which generally results in incremental growth, though it may occasionally cannibalize their existing business.

The paragraph discusses the impact of opening new warehouses on existing traffic and highlights efforts to enhance member experience by improving engagement and productivity, notably mentioning disruptions in the industry and positive growth. It touches on technology integration, particularly self-checkout, to smooth the front-end experience, though Scan and Go isn't currently a focus. Michael Lasser from UBS then thanks them for taking his question, and the conversation continues.

In the article paragraph, Costco discusses expanding its product range, including categories like precious metals and gift cards, to offer high-quality and valuable options to members. Ron Vachris highlights the strategy of finding new areas that meet member needs, similar to past additions such as caskets and gasoline. Gary Millerchip adds that while these new products may not significantly boost margins, they drive traffic to Costco's website and enhance the overall digital business through cross-selling opportunities. Overall, Costco aims to remain flexible and continually adapt its offerings to improve member satisfaction and engagement.

The paragraph discusses Costco's strategy regarding e-commerce growth and margins. It explains that Costco creates awareness and traffic to their site by highlighting exciting items, which helps improve their e-commerce efforts without needing to advertise. Gary Millerchip clarifies that Costco isn't offsetting low-margin, traffic-driving items by demanding better margins elsewhere; instead, they improve their overall mix and leverage their low SG&A (selling, general, and administrative expenses) costs. This means they maintain profitability without needing higher margins on other items. The discussion shifts to Chuck Grom asking Ron Vachris about Costco's potential to capture more wallet share from affluent customers on discretionary items, and a follow-up question is posed to Gary about a 2% rebate's impact on margin, which has been favorable, contrary to historical trends.

In this paragraph, a conversation takes place during a call involving Chuck Grom, Ron Vachris, and Gary Millerchip. Chuck asks Ron if they believe they have earned the right to capture more wallet share from higher-income shoppers. Ron affirms, citing the strength of brands and quality products like Kirkland Signature. Gary then explains how 2% rewards are accrued conservatively throughout the year and adjusted in the first quarter to match actual spending. This quarter's adjustments are seen as balancing the increases from the previous year. Kelly Bania from BMO Capital Markets then asks about partnerships with Instacart and Uber, seeking insights on their growth, impact on comps, and how added services, such as a new pharmacy, might influence membership awareness and growth.

In the paragraph, Ron Vachris discusses Costco's strong partnerships with Instacart and Uber, which have enhanced their e-commerce delivery service by making it faster and more cost-effective for members. These partnerships allow Costco to deliver small non-food items quickly, improving convenience for customers. Gary Millerchip adds that this service is growing rapidly, outpacing their overall e-commerce business growth. A subsequent question by Chuck Sarankowski about labor relations and negotiations with the Teamsters prompts Vachris to affirm Costco's commitment to treating employees well and ensuring a fair and timely agreement with the Teamsters.

In the article, a representative of a company discusses their longstanding good relationship with the Teamsters union, emphasizing their commitment to treating Costco employees fairly. A question is then asked about the international performance that has decelerated over multiple years compared to a previous quarter. Gary Millerchip responds by noting that while there are some regional nuances, such as differing holiday impacts, the company is pleased with its international momentum and growth, which meets their expectations and market share goals. No unusual factors have been identified that would require special attention.

In the paragraph, Gary Millerchip and Ron Vachris discuss the company's digital business growth and their online presence compared to competitors. They are pleased with their progress, noting faster growth than the general US e-commerce market, but they acknowledge there's room for improvement. Recent enhancements like better search functionality and mobile app integration have received positive feedback. They emphasize that their focus is on continuing to enhance the member experience by working on foundational technology improvements, aiming to drive further digital business growth.

The paragraph discusses Costco's logistics improvements and plans for the future. It highlights progress such as reducing delivery times from two weeks to four days through efficient pre-deployment across the U.S. and increased app usage with enhanced functionality. The focus is on making forward-facing improvements in e-commerce and membership engagement over the next year. A challenge noted is fewer executive members signing up online, partly due to the lack of personal interaction explaining membership benefits. Costco aims to increase engagement with new members and educate them on the advantages of executive membership later on.

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