Costco Wholesale Corp Q2 2025 Earnings Call Transcript

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

Question: Simeon Gutman - Morgan Stanley - Analyst : Hey Ron. Hey Gary, it's Simeon Gutman. I will ask one question. I want to talk about sales impact and the consumer broadly. Curious if the consumer's willingness to purchase, either discretionary or nondiscretionary, as egg prices are booming, is the consumer cutting back at all? And then it looks like your results don't show an impact, especially in Canada, both in the quarter and in February. But curious if there's any slowing in any places from tariff backlash, et cetera.

Question: Simeon Gutman - Morgan Stanley - Analyst : Thanks guys, good luck.

Question: Michael Lasser - UBS - Analyst : Good evening. Thank you so much for taking my question. With core and core margin being down modestly this quarter, can we take that as a sign that the recent string of margin expansion that Costco has been able to achieve is coming to a conclusion or at least a pause, especially in light of what seems like going to be a much more inflationary environment and a difficult dynamic would have managed through the tariffs?

Question: Michael Lasser - UBS - Analyst : Thank you very much and good luck.

Question: Christopher Horvers - JPMorgan - Analyst : Thanks, good evening. So one quick follow up and and then an additional question. Other retailers are talking about weather having a negative impact on some of their more weather-sensitive businesses. So I guess turning the question upside down. Do you think about the 8-plus percent core comp that you saw on February, did you see any weather headwinds on your discretionary businesses? Or was it just simply offset on the egg side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 10:00PM, COST.OQ - Q2 2025 Costco Wholesale Corp Earnings Call And then on the tariffs, historically, foods for things that come from like Mexico that are fresh foods, historically, that stuff gets passed through directly to the consumer. How do you think about Costco's stance on that? There's opportunities made with eggs where you're vertically integrated and you can absorb some of the costs. But as you think about stuff like fresh food that's more commodity-based, would you just pass those price increases along? Thank you.

Question: Christopher Horvers - JPMorgan - Analyst : Great, thanks very much.

Question: Scott Ciccarelli - Truist Securities - Analyst : Hey guys, Scott Ciccarelli, With your treasure hunt structure, you guys have a lot of merchandising flexibility. So I guess if we get tariffs rolled into China, Mexico, Canada, would the strategy be more focused on, look, it is what it is. Costco still has the best value for those products relative to others? Or would there be a more aggressive effort to find goods from less tariff-impacted countries?

Question: Scott Ciccarelli - Truist Securities - Analyst : Thank you.

Question: Zhihan Ma - Bernstein - Analyst : Hi, thank you for taking my question. So a bit of a follow-up on the international side. First of all, a short-term question in terms of the February sales results. Is there any timing shift between January and February that led to this sequential slowdown in the Other International segment? And longer term, can you just provide an update for us to understand how do you think about the long-term international growth runway from here?

Question: Zhihan Ma - Bernstein - Analyst : Great, thank you.

Question: Oliver Chen - TD Cowen - Analyst : Hi, thanks, Ron and Gary, we had a question about general merchandise and electronics. Would love just thoughts on what you're seeing with respect to those categories and the health of the consumer. We've also thought that you've done a great job with UPTs and innovating with international products, it would be great to hear prospects there. And then a follow-up is on the more targeted and strategic multi-vendor mail as well as digital promotions and deals, what's happening there? It seems like there's some nice traction, and is it driving traffic? Or how are you approaching the next inning of that?

Question: Simeon Gutman - Morgan Stanley - Analyst : Thank you, best regards.

Question: John Heinbockel - Guggenheim - Analyst : Hey Ron, I had a couple of holistic questions with regard to KS. When you think about new item introductions, KS versus national brands, how does that kind of compare in most years? When you think about categories where KS is at a lower penetration, right, which is a lot of nonfoods, where can you kind of make breakthroughs there, right, and introduce KS items that don't currently exist? And then would you think a very high percentage of the KS introductions end up in permanent fixtures in the assortment?

Question: John Heinbockel - Guggenheim - Analyst : Thank you.

Question: Rupesh Parikh - Oppenheimer - Analyst : Good afternoon. Thanks for taking my question. So I guess, Gary, just going back to the 13 basis point headwind on the wage front, I think, starting in March. Is that headwind larger, given it's the first year of the agreement, given some of the other changes? And then just related to that, given that it is a significant headwind, do you guys see any new productivity opportunities to help offset some of the increased wage pressures? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 10:00PM, COST.OQ - Q2 2025 Costco Wholesale Corp Earnings Call

Question: Rupesh Parikh - Oppenheimer - Analyst : Great. Thank you I'll pass it on.

Question: Greg Melich - Evercore ISI - Analyst : I think I have one clarification and then my question. The clarification was on inflation. I heard up low single digits. Is it fair to say that grocery was slightly above 1% and then maybe general merchandise was deflationary? And then I wanted to ask about alternative media.

Question: Greg Melich - Evercore ISI - Analyst : Got it. And then on the alternative media, you talked about building that out. Could you help frame it a little bit, Gary, and the strategy behind it? I mean, some of your peers have shown 4% or 5% of digital revenues can be the advertising business. How do you guys think about that?

Question: Greg Melich - Evercore ISI - Analyst : One more reason for a bigger executive rebate.

Question: Greg Melich - Evercore ISI - Analyst : Alright, thanks Gary. Good luck, guys.

Question: Edward Kelly - Wells Fargo - Analyst : Yeah, hi, good afternoon guys, I wanted to ask you about throughput in the stores. Maybe you can talk just a little bit about like where you are from a standpoint of initiatives to drive better throughput. I know you're scanning now when people are coming in. I'm sure what you're doing with that data. But then when you think about checkout and exit, and obviously, it's a high-class problem but it's very busy. And then you did mention extending hours on the gas stations. Is that something that you maybe could take to the stores that would help with that problem?

Question: Edward Kelly - Wells Fargo - Analyst : Yeah, I'm sorry. Would you consider extending store hours? I know that's probably logistically a lot harder than it sounds. Just curious your thoughts there.

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

Question: Chuck Grom - Gordon Haskett - Analyst : Hey, thanks very much. I wanted to just go back to the digital MVM and was curious how vast that effort has been at this point in time. I guess, maybe how many members received the digital MVM? And are you replacing the paper MVM? And then I guess the ultimate question is, I guess, what have you learned so far in terms of elasticity or response rate?

Question: Chuck Grom - Gordon Haskett - Analyst : And just a quick follow-up, Gary. Just I guess when did you guys start that effort?

Question: Chuck Grom - Gordon Haskett - Analyst : Yeah, right. Okay. cool.

Question: Kelly Bania - BMO Capital Markets - Analyst : Hi, thanks for taking our ques questions on and Gary. Wanted to just ask about membership fees. Obviously, you've had the increase in US and Canada that's flowing through. But any update on where you are at with other international countries and if it's the right time for any changes there? And maybe just also an update on the other international countries' executive programs, if there's any plans for any additional rollouts there.

Question: Robbie Ohmes - Bank of America - Analyst : I was wondering if you could talk a little bit about the average ticket trends in the US ex gas and give a little more color on mix versus number of items versus inflation impact. And if anything is changing there in terms of how you're getting to average ticket ex gas? And maybe related to that, I was just kind of curious if sugar and butter and flour are deflationary. Why is bakery inflating? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 10:00PM, COST.OQ - Q2 2025 Costco Wholesale Corp Earnings Call

Question: Joseph Feldman - Telsey Advisory Group - Analyst : I had two kind of quick ones for you. First on gas volumes. I think I heard you guys say the volumes have been down and we heard that from another company you know pretty well, Gary. And I was just wondering what is driving that? It's a little surprising to me to hear that the volumes were down. The other question was about stores. If you could just remind us the kind of new versus existing market balance of stores and also US versus International for the year.

Question: Joseph Feldman - Telsey Advisory Group - Analyst : Good luck with this quarter.

Question: Michael Lasser - UBS - Analyst : Okay. First, as a lifelong resident of Sharon, Massachusetts, I'll just say that the entire town is really excited for your 900th store. The buzz is high. My question also on gas, I'm just wondering the -- extending the hours, has that led to incremental gallons? Are you seeing customers take advantage of that? And then a second question, just periodically, we ask about your price gaps versus others. How do you see those right now, particularly with some inflation creeping back in?