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 4-week retail month of August, which started on Monday, August 3; and ended on Sunday, August 30. This period is compared to the 4 weeks that began on Monday, August 5; and ended on Sunday, September 1, 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 4-week month of August came in at $13.56 billion, an increase of 15.0% from $11.79 billion last year. For the 16 weeks ended August 30, net sales came in at $52.3 billion, an increase of 12.7% from $46.4 billion last year. For the 52 weeks ended August 30, net sales came in at $163.2 billion, an increase of 9.2% from $149.4 billion last year. Comparable sales were as follows: on a reported basis, in the U.S., the 4 weeks was at 12.5%; 16 weeks, 11.0%; 52 weeks, 8.1%. In Canada, the 4 weeks was at 14.6%; 16 weeks, 9.1%; 52 weeks, 5.0%. Other international, the 4 weeks was at 16.1%; 16 weeks, 16.1%; 52 weeks, 8.9%. For the total company, the 4 weeks was at 13.2%; 16 weeks, 11.4%; and 52 weeks, 7.7%. E-commerce for the 4 weeks was at 101.9%; 16 weeks, 90.6%; 52 weeks, 49.5%. Comparable sales, excluding the impacts from change in gas prices and foreign exchange, were as follows: the U.S. with the 4 weeks was at 14.3%; 16 weeks, 13.6%; 52 weeks, 9.2%. Canada, 4 weeks is at 15.0%; 16 weeks, 12.6%; 52 weeks, 7.4%. Other international, 4 weeks is at 15.4%; 16 weeks, 18.8%; 52 weeks, 11.2%. Total company, the 4 weeks is at 14.5%; 16 weeks, 14.1%; 52 weeks, 9.2%. E-commerce, 4 weeks, 101.6%; 16 weeks, 91.3%; and 52 weeks, 50.1%. August sales were negatively impacted by the shift of Labor Day. The estimated negative impact on August sales and traffic was approximately 75 basis points in the U.S. and a little more than 50 basis points worldwide. Including the negative impact from holiday shift, our comp traffic or frequency for August was up 0.8% worldwide and 3.1% in the U.S. Worldwide, the average transaction was up 12.4%, which includes the impacts from foreign exchange and gasoline deflation. In terms of regional and merchandising categories, the general highlights were as follows: the U.S. regions with the strongest results were the Northeast, Southeast and Texas. Other international and local currencies, we saw the strongest results in the U.K., Japan and Korea. Foreign currencies year-over-year relative to the U.S. dollar impacted August comp sales as follows: in Canada, positively by approximately 40 basis points; other international, positively by approximately 150 basis points; and total company, positively by approximately 25 basis points. 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-teens. Departments with the strongest results were frozen foods, liquor and cooler. Fresh foods were up low 20s. Better-performing departments included meat and produce. Hardlines were positive high 20s. Better-performing departments included major appliances, which include consumer electronics, garden and sporting goods. Softlines were positive mid-teens. Small appliances, jewelry and apparel were strong in the month. Ancillary businesses were down low double digits. This was primarily as a result of lower gasoline, photo and food court sales. Optical and hearing aids were lower single digits year-over-year. Gasoline price deflation negatively impacted total reported comp sales by approximately 150 basis points. The average selling price was lower year-over-year at $2.39 per gallon compared to $2.80. Looking ahead, the September reporting period will include the 5 weeks beginning August 31 and ending October 4 compared to the 5 weeks beginning September 2 and ending October 6, 2019. September sales will be announced Wednesday, October 7, at 1:15 p.m. Pacific Time. Prior to September sales, we will be releasing our Q4 and total year fiscal 2020 earnings on September 24. Earnings will be announced after market close with a conference call to follow at 2:00 p.m. Pacific Time. The call can be streamed live via our Investor Relations website. Costco currently operates 795 warehouses, including 552 in the United States and Puerto Rico; 101 in Canada; 39 in Mexico; 29 in the United Kingdom; 27 in Japan; 16 in Korea; 13 in Taiwan; 12 in Australia; 3 in Spain; and 1 each in Iceland, France and China. Costco also operates e-commerce websites in the United States, Canada, U.K., Mexico, Korea, Taiwan, Japan and Australia. If you have any questions regarding our August 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, September 9. Thanks for calling, and have a great day.