Costco Wholesale Corporation Q3 FY2025 earnings call

• Warehouse openings: Opened 9 warehouses in Q3, plan to open 10 in Q4, 27 total for fiscal year 2025, bringing total to 914 worldwide. • Merchandising and operations: Strong financial results despite macroeconomic challenges. Increased membership value with extended gas station hours, lower prices on key items. Kirkland Signature sales outpaced overall growth. • Digital and technology: Launched buy now, pay later with Affirm, and technology pilots to improve checkout speed. • Core merchandising: Fresh category comp sales up high single digits, non-foods comp sales in high single digits, food and sundries mid to high single digits.

Net sales for the third quarter were $61.96 billion, an increase of 8% from $57.39 billion in the third quarter last year. U.S. comparable sales were up 6.6% or 7.9% excluding gas deflation. Canada comp sales were up 2.9% or 7.8% adjusted for gas deflation and FX. Other international comp sales were up 3.2%, or 8.5% adjusted, and total company comp sales were 5.7% or 8% adjusted. E-commerce comp sales were up 14.8% or 15.7% adjusted for FX. Membership fee income was $1.24 billion, an increase of $117 million or 10.4% year over year. Ended Q3 with 79.6 million paid household members, 42.8 million cardholders, and 37.6 million paid executive memberships. Gross margin reported rate in the third quarter was 11.25%, higher year over year by 41 basis points, with core margins higher by 36 basis points.

• Warehouse openings: Expect to open 27 warehouses in fiscal year 2025, including 3 relocations, totaling 24 net new buildings. • LIFO charge: Estimate $40-50 million LIFO charge in Q4 if inflation remains at current rates.

• Tariffs: Impact on costs and pricing, need to mitigate through sourcing and local production. • Renewal rates: Volatility due to new digital memberships and Groupon promotions affecting renewal rates. • Macro environment: Consumer uncertainty and economic challenges affecting sales.

Q: Simeon Gutman asks Ron about price posture and tonnage change.

A: Ron responds about continuing to invest in price and mitigating tariff impacts.

Q: Christopher Horvers asks about price gaps and non-foods pull forward.

A: Ron talks about lowering prices and proactive buying to pull forward goods.

Q: Michael Lasser asks about lapsing of outsized growth and warehouse capacity.

A: Gary and Ron discuss deceleration in non-foods growth and strategic warehouse openings to improve member experience.

Q: Jiang Ma asks about LIFO charge and future inflation.

A: Gary explains LIFO calculation and how current inflation impacts future charges.

Q: Greg Melich asks about digital percentage and e-commerce.

A: Gary and Ron discuss digital engagement percentage and growth opportunities in e-commerce.

Q: Chuck Grom asks about technology efforts and gas station hours.

A: Ron talks about digital checkout pilots and considering extended hours in warehouses.

Q: John Heinbockel asks about supply chain and tariffs.

A: Gary and Ron discuss supply chain optimization and strategic buying to mitigate tariff impacts.

Q: Rupesh Parikh asks about core margin improvement and tariffs.

A: Gary discusses core margin drivers and uncertainty around tariff rollbacks.

Q: Kelly Bania asks about inventory planning and Affirm partnership.

A: Gary talks about inventory agility and benefits of Affirm partnership for big-ticket purchases.

Q: Kate McShane asks about membership growth and international impact.

A: Gary discusses membership metrics and international sales growth despite feedback tensions.

Q: Peter Benedict asks about renewal rates and digital members.

A: Gary explains factors affecting renewal rates and opportunities to improve digital member engagement