Costco Wholesale Corporation (COST) Earnings Call Transcript & Summary

Hello, and thank you for calling Costco Wholesale Corporation. I'm David Sherwood, AVP of Finance and Investor Relations, and I will review our sales results for the 5-week retail month of December, which started on Monday, December 2 and ended on Sunday, January 5. This period is compared to the 5 weeks beginning on Monday, December 3 and ending on Sunday, January 6, 2019. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results and/or performance to differ materially from those indicated by such statements. 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 date they are made, and the company does not undertake to update them, except as required by law. As reported in our release, net sales for the 5-week month of December came in at $17.04 billion, an increase of 10.5% from $15.42 billion last year. December sales were positively impacted due to the timing of Thanksgiving, Black Friday and Cyber Monday by approximately 1%, 2/3 traffic, 1/3 basket, while our online sales were positively impacted approximately 20% in the month. Comparable sales were as follows, on a reported basis: in the U.S., the 5 weeks was at 9.4%; 18 weeks, 6.7%. Canada, 5 weeks was at 9%; 18 weeks, 5.2%. Other international, the 5 weeks was at 7.5%; 18 weeks, 5.2%. Total company, the 5 weeks was at 9.0%; 18 weeks, 6.3%. And e-commerce, the 5 weeks was at 43.1%; 18 weeks, at 17.1%. Comparable sales, excluding the impacts from changes in gasoline prices and foreign exchange are as follows. In the U.S., the 5 weeks was at 8.4%; 18 weeks, 6.5%. In Canada, the 5 weeks was at 6.0%; 18 weeks, 5.8%. Other international, the 5 weeks is at 5.9%; 18 weeks, 5.5%. Total company, the 5 weeks was at 7.8%; 18 weeks, 6.3%. And e-commerce for the 5 weeks of 42.6%; 18 weeks, 17.1%. In terms of regional and merchandising categories, the general highlights were as follows: The U.S. regions with the strongest results were the Texas, Midwest and San Diego regions. Other international in local currencies, we saw the strongest results in Mexico, Taiwan and Australia. Foreign currencies year-over-year relative to the U.S. dollar impacted December comp sales as follows: Canada positively by approximately 230 basis points; other international, positively by approximately 140 basis points; and total company, positively by approximately 50 basis points. The negative impact of cannibalization was approximately 20 basis points in the U.S., 130 basis points in other international and 30 basis points for total company. Moving to the merchandise highlights. The following comparable sales results by category for the month exclude the impact of foreign exchange. Food and sundries were positive mid-single digits. Departments with the strongest results were candy, liquor and sundries. Hardlines were positive mid-teens, benefited by a positive impact from the holiday shift previously discussed. Better-performing departments were toys and seasonal, majors, garden and sporting goods. Softlines were up mid-single digits. Better-performing departments included housewares, domestics, jewelry and apparel. And finally, fresh foods were up mid-single digits. Better-performing departments included service deli and meat. Within the ancillary businesses, gas, hearing aids and pharmacy had the best comp sales increases. Gasoline price inflation positively impacted total reported comp sales by approximately 80 basis points. The average selling price was higher year-over-year at $2.76 per gallon this year compared to $2.55 a year earlier. Our comp traffic or frequency for December was up 5.4% worldwide and 6.2% in the U.S., including a positive impact from the timing of Thanksgiving and Cyber Monday. The average transaction was up 3.4% for the month, which includes the benefits from foreign exchange and gasoline inflation and a positive impact from the timing of the holiday. Looking ahead, the January reporting period will include the 4 weeks beginning January 6 and ending February 2 compared to the 4 weeks beginning January 7 and ending February 3, 2019. January sales will be released at 1:15 Pacific time on February 5. Costco currently operates 785 warehouses, including 546 in the United States and Puerto Rico; 100 in Canada; 39 in Mexico; 29 in the United Kingdom; 26 in Japan; 16 in Korea; 13 in Taiwan; 11 in Australia; 2 in Spain; and 1 each in Iceland, France and China. Costco also operates e-commerce websites in the U.S., Canada, U.K., Mexico, Korea, Taiwan and Japan. If you have any questions regarding our December sales results or any other Investor Relations questions, please do not hesitate to call Bob Nelson at (425) 313-8255, Josh Dahmen at (425) 313-8254 or myself, David Sherwood, at (425) 313-8239. This recording will be available until 5:00 p.m. Pacific Time, Wednesday, January 15. Thanks for calling, and have a great day.