Costco(COST) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Net income for Q4 2024 was $2.354 billion, up 9% YoY, with earnings per diluted share at$ 5.29, compared to $4.86 in the previous year [10] - Net sales for Q4 2024 were$ 78.2 billion, a 1% increase YoY, or 7.3% when adjusted for the extra week in the previous year [11] - Comparable sales (comps) increased by 5.4% globally, with US comps up 5.3%, Canada up 5.5%, and other international markets up 5.7% [12] - E-commerce comp sales grew by 18.9%, or 19.5% when adjusted for FX [12] - Membership fee income increased by 0.2% to $1.512 billion, with a renewal rate of 92.9% in the US and Canada [13][14] Business Line Performance - E-commerce saw significant growth, with Costco Logistics delivering over 4.5 million items, up 29% YoY, driven by appliances and furniture [8] - Non-foods led core merchandising sales, with double-digit growth in categories like golden jewelry, gift cards, toys, and home furnishings [20] - Fresh departments saw high single-digit growth, with strong performance in meat, produce, and bakery [20][21] - Kirkland Signature products continued to grow faster than the overall business, with new items like organic maple syrup and aerosol whipped cream driving value [22] Market Performance - US comp sales increased by 5.3%, or 6.3% excluding gas deflation [12] - Canada comp sales rose by 5.5%, or 7.9% excluding gas deflation and FX [12] - Other international comp sales grew by 5.7%, or 9.3% when adjusted [12] - Gas sales were negatively impacted by a 5% decrease in average price per gallon, partially offset by a 3% increase in gallons sold [24] Company Strategy and Industry Competition - The company opened 29 net new warehouses in FY2024, with plans to open 26 net new buildings in FY2025, including 12 outside the US [7] - Costco is focusing on sustainability, with initiatives like reducing plastic packaging by 80% for Kirkland Signature laundry packs, leading to cost savings passed on to members [23] - The company is investing in technology, such as the Costco app and membership card scanners, to enhance the member experience and improve operational efficiency [9] Management Commentary on Operating Environment and Future Outlook - Management highlighted the importance of investing in employees and members, with wage increases and price reductions as part of the strategy to drive top-line growth [31][32] - The company is optimistic about growth opportunities in digital capabilities, global warehouse expansion, and innovation with Kirkland Signature products [28] - Inflation was effectively flat in Q4, with food and sundries slightly inflationary, offset by deflation in non-foods [25] Other Important Information - The company introduced a membership fee increase effective September 1, 2024, with most of the financial impact expected in the second half of FY2025 and into FY2026 [27] - Costco Next, the curated marketplace, added 11 new vendors, bringing the total to 86, with gross sales growing nearly 40% YoY [27] Q&A Session Summary Question: SG&A Leverage and Wage Investments - The company aims to balance investments in employees and members while driving top-line growth and productivity to offset wage increases [31][32][33] Question: Impact of Membership Card Scanners - The card scanners have improved front-end productivity and member interactions, with some locations seeing double-digit increases in new sign-ups [35][44] Question: Port Strike Risk and Ocean Freight Rates - The company has contingency plans for potential port disruptions, with nonfoods being the most exposed category [38][39] - Freight rates are expected to stabilize, with most of Costco's freight under contract, insulating the company from spot market volatility [41] Question: Inflation and Deflation Expectations - Inflation was flat in Q4, with slight inflation in fresh foods and deflation in non-foods, driven by commodity price changes [67][68] Question: Consumer Behavior and Health - Consumers are prioritizing value and quality, with increased spending on non-food items as inflation dissipates [76][77] Question: E-commerce Penetration and Profitability - E-commerce penetration is in the high single digits, with profitability improving due to sales growth and fulfillment efficiency [85][88] Question: Competitive Pricing in Grocery - Costco remains focused on being the first to lower prices and the last to raise them, with a proactive approach to pricing [91][92] Question: Gas Prices and Traffic Impact - Gas price declines have not significantly impacted warehouse traffic, with gallons sold up 3% YoY [94] Question: Pre-Tax Margin and Profitability - The company focuses on driving top-line growth while finding efficiencies in gross margin and SG&A to improve profitability [97][98] Question: Gasoline Profitability - Gasoline margins are relatively stable, with no significant changes expected in the near term [105] Question: Average Wages - The average wage in the US and Canada is just over$ 30 per hour [107]