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 March, which started on Monday, March 2, and ended on Sunday, April 5. This period is compared to the 5 weeks beginning on Monday, March 4, and ending on Sunday, April 7, 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 and sales release 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 March came in at $15.49 billion, an increase of 11.7% from $13.87 billion last year. Comparable sales were as follows: on a reported basis, in the U.S., the 5 weeks was at 10.7%; 31 weeks, 8.0%. For Canada, the 5 weeks was at 1.2%; 31 weeks, 5.4%. Other international, the 5 weeks was at 12.2%; 31 weeks, 7.0%. Total company, 5 weeks, 9.6%; and 31 weeks, 7.5%. And e-commerce for the 5 weeks is at 48.3%; 31 weeks, 22.2%. Comparable sales excluding the impacts from changes in gasoline prices and foreign exchange were as follows: in the U.S., the 5 weeks was at 12.1%; 31 weeks, 7.9%. Canada, the 5 weeks is at 7.2%; 31 weeks, 6.4%. Other international, the 5 weeks was at 19.2%; 31 weeks, 8.4%. And total company, 5 weeks, 12.3%; 31 weeks, 7.8%. And e-commerce, the 5 weeks was at 49.8%; 31 weeks was at 22.4%. March sales were significantly impacted by the COVID-19 pandemic. The initial response to the pandemic led to significant sales and traffic increases in our warehouses as we disclosed last month concerning sales in the last week of February. Those increases extended midway through the March reporting period. Around that time, in part in response to government actions, we began implementing operational changes. One example is limiting the number of individuals allowed in our warehouses at any given time, depending on local requirements. In addition, we have changed warehouse hours, temporary closed some segments of our business such as optical, hearing aid and minilab, limited service at food courts, and in some locations, ceased sales of certain merchandise deemed nonessential by regulators. These developments slowed sales as compared to the first half of March. In terms of regional and merchandising categories, the general highlights were as follows: in the U.S. regions with the strongest results were the Texas, Northeast and Midwest; other international, in local currencies, we saw the strongest results in Taiwan, U.K. and Australia. Foreign currencies year-over-year relative to the U.S. dollar impacted March comp sales as follows: Canada had negatively by approximately negative 410 basis points, other international negatively by approximately 620 basis points and total company negative by approximately 140 basis points. The negative impact of cannibalization was approximately 10 basis points in the U.S., 120 basis points in other international and 20 basis points for total company. Moving to merchandise highlights. The following comparable sales results by category for the month exclude the impact of foreign exchange: food and sundries were positive mid-30s. Departments, with the strongest results were food, frozen food and sundries. Fresh foods were up mid- 20s. Better-performing departments included meat and produce. Hard lines were negative low single digits. Underperforming departments were tires, sporting goods and lawn and garden. Softlines were down mid-20s. Underperforming departments included luggage, jewelry and apparel. Within the ancillary businesses, pharmacy and gas had the best comp sales. Gasoline price deflation negatively impacted total reported comp sales by approximately 130 basis points. The average selling price was lower year-over-year at $2.38 per gallon this year compared to $2.78 a year earlier. Our comp traffic or frequency for March was up 3.7% worldwide and 5.3% in the U.S. The average transaction was up 5.7% for the month which includes the impacts from foreign exchange and gas deflation. Looking ahead, the April reporting period will include the 4 weeks beginning April 6 and ending May 3 compared to the 4 weeks beginning April 8 and ending May 5, 2019. April sales will be announced Wednesday, May 6 at 1:15 p.m. Pacific Time. Costco currently operates 787 warehouses, including 547 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, 12 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, Japan and Australia. If you have any questions regarding our March 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, April 15. Thanks for calling and have a great day.