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 September, which started on Monday, August 31; and ended on Sunday, October 4. This period is compared to the 5 weeks that began on Monday, September 2; and ended on Sunday, October 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 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 September came in at $16.84 billion, an increase of 16.9% from $14.41 billion last year. Comparable sales were as follows: On a reported basis, in the U.S., the 5 weeks is at 14.5%; in Canada for the 5 weeks, 17.5%; other international for the 5 weeks was 18.5%; and total company for the 5 weeks was 15.5%. E-commerce for the 5 weeks was at 90.3%. Comparable sales, excluding the impacts from change in gasoline prices and foreign exchange, were as follows: In the U.S., the 5 weeks was at 16.7%; Canada, 5 weeks, 18.0%; other international, the 5 weeks was at 17.5%; and total company, the 5 weeks was at 16.9%. E-commerce for the 5 weeks was at 90.1%. Sales -- September sales were positively impacted by a couple of holiday calendar shifts: Labor Day in the U.S.; and Chuseok and Moon Festival in Asia. The estimated positive impact on September sales and traffic was slightly less than 100 basis points worldwide, half relating to each holiday. The positive impact to the U.S. was slightly more than 50 basis points, and the positive impact to other international was approximately 300 basis points. Including the positive impact from the holiday shift, our comp traffic or frequency for September was up 2.6% worldwide and 6.1% in the U.S. Worldwide, the average transaction was up 12.6%, which includes the impacts from foreign exchange and gasoline deflation. In terms of regional and merchandising categories, the general highlights were as follows: U.S. regions with the strongest results were the Southeast, Northeast and Texas. Other international and local currencies, we saw the strongest results in Korea, U.K. and Mexico. Foreign currencies year-over-year relative to the U.S. dollar impacted September comp sales as follows: Canada, positively by approximately 25 basis points; other international, positively by approximately 165 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 low 20s. Departments with the strongest results were liquor, frozen foods and foods. Fresh foods were up mid-20s. Better-performing departments included meat and produce. Hardlines were positive mid-20s. Better-performing departments included sporting goods, garden, hardware and major appliances, which include consumer electronics. Softlines were positive high teens. Small appliances, home furnishings and housewares were strong in the month. Ancillary businesses were down low double digits. This was primarily as a result of lower gasoline, food court and photo sales. Optical was flat, and hearing aids were lower single digits year-over-year. Gasoline price deflation negatively impacted total reported comp sales by approximately 170 basis points. The average selling price was 16% lower year-over-year at $2.39 per gallon this year compared to $2.85 last year. Looking ahead, the October reporting period will include the 4 weeks beginning October 5 and ending November 1 compared to the 4 weeks beginning October 7 and ending November 3, 2019. We'll see the negative impact from the shift of Chuseok and Moon Festival in October and anticipate a greater impact than in September given that October is a 4-week reporting period. October sales will be announced Wednesday, November 4 at 1:15 p.m. Pacific Time. If you have any questions regarding our September sales results or any other Investor Relations questions, please 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 p.m. Pacific Time, Wednesday, October 14. Thanks for calling. Have a great day.