Costco Wholesale Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Simeon Gutman - Morgan Stanley - Analyst : Hi, everyone. I hope you can hear me. My one question with a couple parts. Actually diagnosing the health of the consumer, can you give us some sense of how you're clearing some of the seasonal inventory, maybe apparel bigger ticket? And then once in a while we talk about market share in some discretionary, categories, can you share your perspective on that? Thank you.

Question: Oliver Chen - TD Cowen - Analyst : Hi, Ron and Gary, Happy Holidays. Their traffic continues to impress a lot as we look forward. What are your thoughts and key drivers and mix opportunities as you think about ticket and UPT. Also, you highlighted retail media, which is a huge great opportunity, how does that intersect with your important multi-vendor mailer and also, as you think about incrementality of that of that opportunity? That would be great to hear. Thank you very much.

Question: Oliver Chen - TD Cowen - Analyst : Thank you very much, very helpful.

Question: Christopher Horvers - JPMorgan - Analyst : Thanks, good evening, guys. So can you talk about what drove the core-on-core margin performance this quarter? You have the MFI now rolling through. How do you think about reinvestment of price either, in terms of expected price reductions that you see coming down the supply chain or maybe even going above and beyond that? And just as a side question, can you divine what's in the hardware category, is that consumer electronics? Thank you.

Question: Christopher Horvers - JPMorgan - Analyst : And then on the price investment side, your thought process there?

Question: Christopher Horvers - JPMorgan - Analyst : Thank you, have a great holiday season.

Question: Karen Short - Melius Research - Analyst : Hey, thanks very much. I know this is maybe a little out of left field but just curious, there's kind of been a trend in retail for some -- for stock splits generally. And I'm wondering what your philosophy is on that because I know you want your employees to have an opportunity to buy stock below the store manager level. And the second question that's kind of unrelated is just tariffs and any thoughts on that and thoughts on what that could do to inflation?

Question: Karen Short - Melius Research - Analyst : Great. Thank you very much. Have a great holiday.

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : Yeah, hi, good morning, everyone. I wanted to ask you about CapEx. CapEx is kind of been inching up over the last couple of years. But taking a step back and thinking about the evolution of your business, your goals growing the most. How are you thinking about the outlook for CapEx? Any meaningful changes ahead and as part of this, anything different sort of in the pipeline from a project or priority standpoint?

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : Okay, thank you.

Question: John Heinbockel - Guggenheim Securities, LLC - Analyst : Hey, guys, two quick things. Philosophically, price investments get a lot of publicity. But when you think about reinvesting the MFI increase price, product quality, right, IT labor, there's a lot of things to invest in. Where do those other things rank relative to price? And then what does the international club pipeline look like? I'm thinking in particular where you control sites, even though they may be years away. Is that -- I don't I it's over 100, but how big is that pipeline today?

Question: John Heinbockel - Guggenheim Securities, LLC - Analyst : Thank you. You're welcome.

Question: Rupesh Parikh - Oppenheimer & Co. Inc - Analyst : Good afternoon. Thanks for taking my question. So I just wanted to Gary to go back to your comment that core margins ex gas were up 17 basis points, and you called out Mix and credit card co brand program. Is there any more color you can provide in terms of what's driving that?

Question: Rupesh Parikh - Oppenheimer & Co. Inc - Analyst : Great. Thank you for all the call. Happy holidays.

Question: Peter Benedict - Robert W. Baird & Co. Incorporated - Analyst : Hey guys, Thanks for taking the question. I wonder maybe Ron for you on the runway for growth in the US. You said, 30 new clubs per year, next handful of years here, most of those are going to be in the US. You guys are just over 600 right now. I think if you include the other two players are talking about 1,400 plus clubs in the US, they're growing as well. How do you think about maybe the capacity for the club industry in the US and maybe for Costco in particular? What are you seeing that gives you confidence in your ability to keep going at this pace in the US?

Question: Peter Benedict - Robert W. Baird & Co. Incorporated - Analyst : Thank you very much.

Question: Greg Melich - Evercore ISI Institutional Equities - Analyst : Hey, thanks. I wanted to circle back on e-commerce, the growth there 13%. Could you update us on what the penetration is now? And also how if you add on Instacart and I guess the Uber Eats start where we're getting up to on that?

Question: Greg Melich - Evercore ISI Institutional Equities - Analyst : Got it. Thanks. And then maybe circling back on private label, could you just update us now on the penetration, especially given some of those great new items you've come out with that you highlighted earlier in the call and what that could eventually be?

Question: Greg Melich - Evercore ISI Institutional Equities - Analyst : That's great guys. Have a great holiday.

Question: Scott Mushkin - R5 Capital Research - Analyst : Thanks. Hey guys, thanks for taking my questions. So I just wanted to kind of maybe ask a higher level question around your business. The traffic growth, which is the lifeblood of a retailer has been very strong, given the size of the company you talked about the Pleasanton in opening. So I was wondering if you kind of give us an idea of what you think is driving this, is it the club format generally resonating consumer mind (technical difficulty) initiatives and how do we think it's (technical difficulty)

Question: Scott Mushkin - R5 Capital Research - Analyst : (technical difficulty) this type of traffic growth is your initiatives, the industry set and what your thoughts are about keeping this type of going for years?

Question: Robbie Ohmes - Bank of America - Analyst : Thank you. Thanks for taking my question. It's on the competitive impact. So it may end up sounding like more than one question. But I are there any competitive impacts you guys are seeing, worth calling out, benefits or headwinds? So maybe remind us when a regional player you compete with, raises their membership fee. Does that help you guys at all retain or retention rates, things like that? And also I know you've been asked this but any pressures you're seeing on the fact that you guys don't do scan and go and Sam's seems to be doing really well with it and any other competitive impacts you can call out? Thanks.

Question: Robbie Ohmes - Bank of America - Analyst : Great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 10:00PM, COST.OQ - Q1 2025 Costco Wholesale Corp Earnings Call

Question: Michael Lasser - UBS Securities LLC - Analyst : Good evening, thank you so much for taking my question. I'm given the recent sales contribution from categories like precious metals and gift cards, have you a, expanded the aperture of what Costco is now willing to sell or what the member is willing to buy from Costco? And b, have you changed your philosophy on the margin where you are expecting more profitability from traditional product vendors to offset the negative margin impact from selling these items that don't drive a lot of profit? Thank you very much.

Question: Michael Lasser - UBS Securities LLC - Analyst : But just to clarify that second point, are you having to offset the margin impact from selling these traffic driving items that don't carry a lot of margin by requiring even better margins on the rest of the assortment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 10:00PM, COST.OQ - Q1 2025 Costco Wholesale Corp Earnings Call

Question: Michael Lasser - UBS Securities LLC - Analyst : Thank you very much and have a good holiday.

Question: Chuck Grom - Gordon Haskett Research Advisors - Analyst : Hey, thanks very much. Ron, can you talk about Costco's right to earn more wallet share with your more affluent higher income shopper, particularly on the discretionary side of the business? And then Gary, just on on the margin bridge. Can you just explain why the 2% rebate was favorable five basis points? Historically, it's almost always negative or neutral. Thank you.

Question: Chuck Grom - Gordon Haskett Research Advisors - Analyst : Now, my question is, do you think you've earned the right to earn more wallet share with that higher income shopper?

Question: Chuck Grom - Gordon Haskett Research Advisors - Analyst : Okay. So it was essentially a true up then.

Question: Chuck Grom - Gordon Haskett Research Advisors - Analyst : Okay, great. Awesome. Thank you.

Question: Kelly Bania - BMO Capital Markets - Analyst : Hi, thanks for taking our questions, Ron and Gary. I was wondering if you could just talk a little bit about your partnerships with Instacart and Uber, now that you've had Uber for quite some time? What you've learned, what is the pace of growth and, and how that's adding to comps? And just general awareness among your membership base of the service there, particularly as you add new services like you mentioned, the pharmacy, I guess, coming in and what something like that could do to the growth there?

Question: Chuck Cerankosky - Northcoast Research Study - Analyst : Good afternoon, everyone. Could you talk a little bit about labor relations and the current negotiations with the teamsters, please?

Question: Corey Tarlowe - Jefferies LLC` - Analyst : Hi, good afternoon. Thanks for taking my question. I was wondering if you could talk a little bit about the international performance that you saw comps decelerated on a multi-year stack versus Q4. So just curious by region, if there's anything to call out that that changed versus the prior quarters? Thank you.

Question: Corey Tarlowe - Jefferies LLC` - Analyst : Thank you.

Question: Laura Champine - Loop Capital - Analyst : Thanks for taking my question. It's a follow up on your digital business which obviously is growing well. But how would senior management diagnose or grade your online presence from a look, feel, and function perspective relative to your competition? And related to that this growth in members who are are joining online, is that something you're driving or is that just an an output of the attractiveness of your online offer?

Question: Laura Champine - Loop Capital - Analyst : Got it. Thank you.