Costco Wholesale (COST) 2025 Update Summary Industry and Company Overview - The call pertains to Costco Wholesale, a leading retail company, focusing on its sales results for August 2025 and providing forward-looking statements regarding its performance and market conditions [1][2]. Core Points and Arguments - **Sales Performance**: - Net sales for August 2025 reached $21.56 billion, marking an increase of 8.7% from $19.83 billion in August 2024 [2]. - Comparable sales growth was reported as follows: - US: 6.1% - Canada: 6.8% - Other International: 6.7% - Total Company: 6.3% - E-commerce: 18.4% [2][3]. - **Comparable Sales Excluding Gas and FX**: - US: 6.7% - Canada: 9.4% - Other International: 5.3% - Total Company: 6.9% - E-commerce: 18.3% [3]. - **Traffic Growth**: - Comparable traffic increased by 4% globally and 4.3% in the US [3]. - **Impact of Foreign Currencies**: - The US dollar's fluctuations affected sales: - Canada: -1.2% - Other International: +1.7% - Total Company: +0.1% [4]. - **Gas Price Deflation**: - Gas price deflation negatively impacted total reported comparable sales by approximately -0.6%, with the average worldwide selling price per gallon down by about -5.2% year-over-year [4]. - **Average Transaction Value**: - The average transaction value increased by 2.2% worldwide, and by 2.7% when excluding gas deflation and foreign exchange impacts [4]. Regional and Merchandising Highlights - **Regional Performance**: - Strongest comparable sales in the US were observed in the Midwest, Southeast, and Northwest regions. - Internationally, Australia, Taiwan, and the UK showed the best results [5]. - **Cannibalization Impact**: - The negative impact of cannibalization on total company sales was approximately -60 basis points [5]. - **Merchandising Categories**: - Food and sundries showed positive mid-single-digit growth. - Fresh foods increased by mid to high single digits, with strong performance in meat and produce. - Non-foods experienced high single-digit growth, particularly in jewelry, majors, and garden categories. - Ancillary business sales rose by low single digits, with optical, pharmacy, and hearing aids being top performers. - Gas sales declined by mid-single digits due to price changes [6][7]. Future Outlook - The September reporting period will cover five weeks from September 1 to October 5, 2025. - Q4 and total year FY 2025 earnings will be released on September 25, 2025, with a conference call scheduled for 2 PM PT [8]. Additional Information - The call will remain available until 4 PM Pacific Time on September 11, 2025 [9].

Financial Data and Key Metrics Changes - In Q2 2025, the company reported revenue of $146 million, an increase of 8% year over year, and cash from operations of $36 million, both exceeding the high end of the guided range [8][14] - Earnings per share (EPS) for the quarter was $0.24, up 20% year over year [8][14] - Gross margins for the MedTech and Specialty Audio segment were 50.6%, down 280 basis points year over year, but improved 200 basis points sequentially [14][15] Business Line Data and Key Metrics Changes - MedTech and Specialty Audio revenue was $67 million, up 10% year over year, driven by increased demand in hearing health and specialty audio [9][14] - Precision Devices segment revenue was $79 million, up 6% year over year, with gross margins at 38.7%, an increase of 150 basis points from the previous year [10][16] Market Data and Key Metrics Changes - The primary end markets served, including medtech, defense, and industrial sectors, are expected to remain insulated from tariff impacts, with demand gaining strength [6][10] - Bookings trends in the Precision Device segment have shown positive growth for three consecutive quarters, indicating strong demand across various end markets [11][22] Company Strategy and Development Direction - The company is focused on leveraging unique technologies and creating custom products, aiming for organic growth acceleration in 2025 and beyond [12][13] - New product initiatives, such as the inductor line and specialty film production line, are expected to expand the total addressable market (TAM) and drive future growth [12][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the hearing health business and the overall strength of demand across segments, anticipating year-over-year growth for the full year 2025 [10][25] - The company is closely monitoring the industrial market, which has shown sensitivity to recessions but currently exhibits stable demand [6][10] Other Important Information - The company repurchased $30 million worth of shares in Q2, funded by strong cash generation from operations [12][18] - The net leverage ratio based on trailing twelve months adjusted EBITDA was 0.7x, with liquidity exceeding $350 million [18][42] Q&A Session Summary Question: What is providing the upside in guidance? - Management noted strong bookings in the Precision Device segment, with a book-to-bill ratio above 1.15, indicating broad-based demand across medical, defense, and industrial markets [22][25] Question: Any early thoughts on Q4? - While not providing specific guidance, management expects year-over-year and sequential growth in Q4 based on strong order activity [27][28] Question: Expectations for gross margin expansion? - Management anticipates gross margins to improve by at least 100 basis points in Q3, driven by capacity utilization in high-performance products [29] Question: Insights on M&A opportunities? - The M&A pipeline remains strong, with management being disciplined in pursuing opportunities that align with corporate strategy [39][40]

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Company and Industry Summary Company Overview - The company reported net sales of **$20.97 billion** for the month, representing an increase of **6.8%** from **$19.64 billion** in the same period last year [3] Sales Performance - Comparable sales results for the month were as follows: - **U.S.**: **4.1%** - **Canada**: **3.3%** - **Other International**: **6.6%** - **Total Company**: **4.3%** - **E-commerce**: **11.6%** [3] - When excluding impacts from changes in gasoline prices and foreign exchange, comparable sales were: - **U.S.**: **5.5%** - **Canada**: **6.3%** - **Other International**: **8.4%** - **Total Company**: **6%** - **E-commerce**: **12%** [4] Traffic and Transaction Insights - Comparable traffic or frequency increased by **3.4%** worldwide and **2.8%** in the U.S. [4] - The average worldwide selling price per gallon of gas decreased by approximately **10.4%** year-over-year [5] - Average transaction value increased by **0.9%**, and when excluding gas deflation and foreign exchange, it was up **2.5%** [5] Regional Performance - Strongest comparable sales in the U.S. were observed in the **Northwest**, **Midwest**, and **Los Angeles** regions [6] - Internationally, the best results were in **Mexico**, **Taiwan**, and **Korea** [6] Merchandising Highlights - Foods and sundries showed positive mid to high single-digit growth, with strong performance in: - **Cooler** - **Candy** - **Frozen Foods** - Fresh foods increased by high single digits, particularly in: - **Meat** - **Bakery** - Non-foods also performed well with mid single-digit growth, especially in: - **Jewelry** - **Majors** - **Gift Cards** - Ancillary business sales declined by low to mid single digits, while pharmacy, optical, and hearing aid departments were top performers [7][8] Challenges and Risks - The negative impact of foreign currencies on total and comparable sales was approximately: - **Canada**: **-1.6%** - **Other International**: **-1.0%** - **Total Company**: **-0.4%** [5] - Gas price deflation negatively impacted total reported comparable sales by approximately **-1.3%** [5] - The negative impact of cannibalization was approximately **-70 basis points** for the company in May [6] Future Outlook - The upcoming June reporting period will include five weeks, starting from June 2 and ending July 6, compared to the previous year's five weeks from June 3 to July 7 [8]

Financial Data and Key Metrics Changes - The company reported Q1 2025 revenue of $132 million, at the high end of the guided range, with EPS of $0.18, also at the midpoint of guidance [11][18] - Gross margins for Q1 were 48.7%, down 450 basis points year-over-year, primarily due to a supply agreement impacting margins and unfavorable customer mix [18] - Cash from operations exceeded the high end of the guided range, driven by higher than expected customer prepayments [20][21] Business Line Data and Key Metrics Changes - MedTech and Specialty Audio revenue was $60 million, slightly up year-over-year but seasonally down from Q4 [11][18] - Precision Device segment revenues were $73 million, flat compared to Q4, with gross margins at 35.7%, flat year-over-year [12][18] - The company expects year-over-year revenue growth to accelerate in Q2 2025, driven by strong demand in MedTech and Specialty Audio [12][16] Market Data and Key Metrics Changes - The company estimates that less than 5% of revenue is subject to current tariffs, with less than 3% of cost of goods sold impacted [6][8] - Inventory levels at distributors are normalizing, leading to increased order activity, particularly in the industrial market [33][52] Company Strategy and Development Direction - The company is focused on growth in 2025, with expectations for year-over-year revenue growth and strong cash generation [15][24] - The management highlighted the importance of partnerships with customers to drive innovation and performance enhancements in products [12][16] - The company plans to explore acquisition opportunities and maintain manageable debt levels while investing in capacity expansion [14][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow despite the current tariff environment, citing essential nature of products in MedTech and defense sectors [4][10] - The company is monitoring the macroeconomic environment closely, particularly in the industrial market, but currently sees no significant impact on demand [10][33] - Management anticipates a stronger second half of 2025, driven by increasing order activity and a growing backlog [39][40] Other Important Information - The company repurchased $5 million in shares and reduced debt by $15 million during Q1 [14][21] - The company expects capital spending to be 5% of revenues as it increases investments in capacity expansion related to the specialty film line [23] Q&A Session Summary Question: Can you discuss overall end market customer exposure and outlook? - Management noted no change in demand and higher expectations for Q2 compared to the previous quarter, emphasizing the essential nature of products in MedTech and defense [30][32] Question: Any updates on the $75 million capacitor order for the energy market? - Management confirmed a substantial prepayment received in Q1, indicating strong customer commitment and no expected impact on delivery starting in 2026 [35] Question: Can you provide insights on gross margin trajectory for Q2 and Q4? - Management expects significant sequential improvement in gross margins, driven by increased capacity utilization and better customer mix [38][39] Question: Are there opportunities for market share gain from competitors? - Management acknowledged receiving inquiries from customers considering switching suppliers due to tariff impacts, particularly in the industrial space [45][46] Question: Can you comment on bookings and receivables? - Management reported strong bookings trends and noted that receivables were up due to timing of customer payments, with no collection issues [49][55]