Costco(COST) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Net income for Q1 2025 was $1.798 billion, up from$ 1.589 billion in Q1 2024, representing a 9.9% growth excluding discrete tax items [16] - Net sales increased by 7.5% to $60.99 billion compared to$ 56.72 billion in the same quarter last year [17] - US comparable sales grew by 5.2%, or 7.2% excluding gas deflation, while Canada comp sales increased by 5.8%, or 6.7% adjusted for gas deflation and FX [17] - E-commerce comp sales surged by 13%, or 13.2% adjusted for FX [18] - Membership fee income rose by 7.8% to $1.166 billion, driven by growth in paid memberships [20] Business Line Performance - US bakery division sold a record 4.2 million pies in the three days before Thanksgiving [10] - US food courts sold 274,000 whole pizzas on Halloween, a 21% increase year-over-year [10] - US pharmacy business saw prescription growth exceed 19%, setting new volume records [11] - Costco Logistics completed nearly 1 million deliveries in Q1, with over 196,000 deliveries in the last week alone, a new record [11] - Fresh food sales led the way with high single-digit growth, while non-foods also saw high single-digit growth despite calendar shifts [31][32] Market Performance - US comp sales grew by 5.2%, or 7.2% excluding gas deflation [17] - Canada comp sales increased by 5.8%, or 6.7% adjusted for gas deflation and FX [17] - Other international comp sales rose by 4.7%, or 7.1% adjusted for gas deflation and FX [17] - E-commerce comp sales grew by 13%, or 13.2% adjusted for FX [18] Strategic Direction and Industry Competition - The company plans to open 29 new warehouses in fiscal 2025, with 10 located outside the US [9] - Costco continues to focus on delivering value through Kirkland Signature products, with price reductions on items like organic peanut butter and chicken stock [34] - The company is investing in retail media, with a successful campaign achieving 2-3x the expected return on ad spend [45] - Costco is also enhancing its digital capabilities, with the US app downloaded 2.9 million times in Q1, bringing total downloads to approximately 42 million [43] Management Commentary on Operating Environment and Future Outlook - Management noted that inflation was essentially flat in Q1, with slight inflation in food and sundries offset by deflation in non-foods [40] - The company is monitoring potential port strikes in India, the East Coast, and Canada, and adapting plans to ensure inventory availability [42] - Costco expects to continue growing its digital business, with e-commerce traffic, conversion rates, and average order value all increasing year-over-year [43] Other Important Information - The company opened seven new warehouses in Q1, including one relocation, and plans to open 29 new warehouses in fiscal 2025 [7][9] - Costco's sustainability commitments were updated and made available online, reflecting progress toward sustainability objectives [14] - The company's renewal rates were slightly impacted by higher growth in digital sign-ups, which renew at a lower rate than the base [22] Q&A Summary Question: Consumer Health and Seasonal Inventory - The company noted strong performance in non-food categories, with double-digit growth in gold, jewelry, gift cards, and home furnishings [52] - Seasonal sell-through was strong, with furniture, appliances, and sporting goods driving e-commerce sales [55] Question: Traffic Growth and Retail Media - Traffic increased by 5.1% worldwide, with items per basket up 2% in the US and worldwide [60] - Retail media is seen as an incremental opportunity, with early success in off-site campaigns [63] Question: Core Margin Performance - Core margins were up 17 basis points excluding gas deflation, driven by mix and the credit card co-brand program [116] - The company continues to invest in price reductions, particularly for Kirkland Signature products [72] Question: Membership Renewal Rates and Digital Sign-ups - Digital sign-ups are renewing at a slightly lower rate than the base, impacting overall renewal rates [79] - Costco Next, the company's exclusive member-only marketplace, is expected to enhance member relationships [81] Question: Stock Split and Tariffs - The company has no current plans for a stock split but will continue to evaluate the option [89] - Tariffs are seen as a cost-raising factor, but the company is prepared to manage through inventory adjustments and alternative sourcing [92] Question: CapEx and Growth Strategy - CapEx for fiscal 2025 is estimated at$ 5 billion, with continued investment in new warehouses and technology [101] - The company plans to open 30 warehouses annually, with a significant portion outside the US [112] Question: E-commerce Penetration and Private Label - E-commerce penetration is around 7-8% of total sales, with private label penetration reaching 33% in the US [135][137] Question: Competitive Landscape - The company sees itself as its own biggest competitor, with new warehouse openings driving incremental growth [153] - Scan and Go technology is not currently a priority, with focus on improving the front-end experience [158] Question: New Categories and Margin Impact - New categories like precious metals and gift cards are driving traffic and cross-selling, with no need to offset margin impact through other items [170] Question: Affluent Shopper Wallet Share - The company believes it has the right to earn more wallet share with higher-income shoppers through quality and value offerings [180] Question: Partnerships with Instacart and Uber - Partnerships with Instacart and Uber are growing strongly, enhancing delivery speed and convenience for members [191] Question: Labor Relations - The company is committed to fair and timely negotiations with the Teamsters union, maintaining a 40-year track record of positive relations [195] Question: International Performance - International performance remains strong, with no significant changes in regional trends [202] Question: Digital Business and Online Presence - The company is focused on improving its online presence, with recent enhancements to search functionality and inventory visibility [206] - Digital sign-ups are growing, but executive membership conversions are lower online due to lack of employee interaction [211]