COSTCO WHOLESALE CORP /NEW Q2 FY2025 earnings call

• Warehouse Openings: Opened 1 new warehouse in Q2, with plans for 28 new openings in fiscal 2025 (25 net new). Upcoming openings in Brentwood, CA; Highlands, CA; and others. <br> - Employee Agreement: New agreement effective, with $1 per hour top-of-scale increase in March 2026 and 2027, top-of-scale wage for US service clerks now $31.90, minimum wage $20. <br> - Sales and Margins: Strong net sales growth, positive comp sales across regions, e-commerce strength, but gas profitability lower. Core margins impacted by supply chain investments and mix changes. <br> - Merchandising: Non-foods had mid-teens comp sales, fresh foods high single digits, Kirkland Signature growing faster, food court and pharmacy strong.

Net Sales: Second quarter net sales were $62.53 billion, an increase of 9.1% from the second quarter last year. US comparable sales were up 8.3% (8.6% excluding gas deflation), Canada comp sales up 4.6% (10.5% adjusted for gas deflation and FX), other international comp sales up 1.7% (10.3% adjusted). E-commerce comp sales were up 20.9% (22.2% adjusted for FX). <br> Membership Fee Income: Reported $1.193 billion, an increase of $82 million or 7.4% year over year. US and Canada renewal rate was 93%, worldwide 90.5%. Paid household members were 78.4 million (up 6.8% vs last year), cardholders 140.6 million (up 6.6% year over year), and executive memberships 36.9 million (up 9.1%), representing 47.1% of paid members and 73.8% of worldwide sales. <br> Gross Margin: Reported rate was 10.85%, up 5 basis points year over year. Core margins were higher by 5 basis points, ancillary and other businesses' gross margin was higher by 1 basis point. E-commerce was strong but offset by lower gas profitability. <br> SG&A: Reported rate was 9.06%, down 8 basis points year over year. Lower due to higher labor productivity and cost discipline, with a new employee agreement creating a 13 basis point headwind from March 3rd.

• Projecting 28 new warehouse openings in fiscal 2025, 25 net new. <br> - Membership fee increase impact to be felt in Q4 2025 and Q1 2026. <br> - Forward-looking on foreign exchange headwinds and tariff impacts.

• Foreign exchange fluctuations negatively impacting international results. <br> - Uncertainty around tariffs and their impact on costs and member prices. <br> - Supply chain unpredictability affecting inventory and costs.

Q: Simeon Gutman on consumer spending and sales impact.

A: Gary on consumer focus on value, non-foods strength, fresh food trends. <br> Q: Michael Lasser on core margin decline.

A: Gary on margin improvement despite core margin dip, investment in member value. <br> Q: Christopher Horvers on weather impact and tariffs.

A: Ron on weather recovery, buyers dealing with tariffs. <br> Q: Scott Ciccarelli on tariffs and merchandise strategy.

A: Ron on using treasure hunt to find alternative goods. <br> Q: Jiang Ma on international sales timing and growth.

A: Gary on Chinese New Year timing impact, international growth plans. <br> Q: Oliver Chen on general merchandise, international products, and promotions.

A: Gary on consumer electronics trends, international product growth, promotions effectiveness. <br> Q: John Heinbockel on Kirkland Signature introductions.

A: Ron on Kirkland success rate, strategic item selection. <br> Q: Rupesh Parikh on wage headwind and productivity.

A: Gary on wage investment headwind and productivity efforts. <br> Q: Greg Melich on inflation and alternative media.

A: Gary on inflation trends, retail media strategy. <br> Q: Edward Kelly on throughput and gas hours.

A: Ron on checkout technology and gas hour extensions. <br> Q: Chuck Grom on digital MVM.

A: Ron and Gary on digital MVM effectiveness and flexibility. <br> Q: Kelly Bania on membership fees and executive programs.

A: Gary on membership fee changes in international markets and executive membership growth. <br> Q: Robbie Ohmes on gas volumes and average ticket.

A: Gary on gas volume trends and bakery inflation. <br> Q: Joe Feldman on gas volumes and store openings.

A: Ron on gas volume trends and store opening plans. <br> Q: Mike Baker on gas hours and price gaps.

A: Gary on gas hour impact and price gap focus.