Costco Wholesale Corporation (NASDAQ:COST) Q1 2020 Earnings Conference Call - Final Transcript

Dec 12, 2019 • 05:00 pm ET


Costco Wholesale Corporation (NASDAQ:COST) Q1 2020 Earnings Conference Call - Final Transcript


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Richard A. Galanti

membership fee income. Reported membership fee income came in at $804 million, up 6.1% of $46 million from last year's $758 million. Deflation, foreign -- FX currencies would have impacted that by $1 million to a negative, so it would have been about $1 million higher ex-FX. In terms of renewal rates at Q1 end, our U.S. and Canada renewal rates was -- came in at 90.9% and worldwide rate was 88.4%. Both of these figures remaining at the same renewal rate levels that were achieved at the 12 weeks ago at the fiscal year-end.

In terms of number of members at Q1 end, member households and total cardholders at Q4 end back, I think on September 1st, we had 53.9 million member households at Q1 and 12 weeks later was 54.7 million and total cardholders increased from fiscal year end of 98.5 million to 99.9 million at Q1 end.

During the quarter, we had three new openings, all in the U.S., Business Center in Dallas, Texas and two additional Costco warehouses in Connecticut and Minnesota. We also relocated one of our units in Canada. At Q1 end, paid executive memberships were totaled at 21.4 million, an increase of 579,000 or 48,000 per week since Q4 end. This included the recent launch of offering Executive Membership [Technical Issues] first time as of the beginning of the fiscal year, even taking those out, the average weekly increase would have been ex the new [Indecipherable] -- executive members would have been 41,000 a week.

Going down to gross margin line. To the gross margin line, our reported gross margin in the fourth quarter was higher year-over-year by 30 basis points coming in at 11.05% as compared to a year ago 10.75% and again on a reported basis 30% ex-gas deflation would have been plus 26%. Doing the little chart that we do each quarter, two columns reported ex-gas deflation, first line item would be core merchandise year-over-year in Q1 of '20 compared to a year earlier quarter minus 3 basis points on a reported basis and minus 6 on a ex-gas deflation basis; ancillary businesses plus 20% and plus 19%, no change to the 2% reward and other was plus 13% and plus 13%. So a total of plus 30 basis points on a reported basis and plus 26% ex-deflation.

Now the core merchandise component of gross margin again lowered by three year-over-year reported minus 6 ex-gas deflation. Looking at the core merchandise categories in relation to their own sales core-on-core, if you will, margins year-over-year were higher by 4 basis points. Subcategories within the core margins year-over-year in Q1 showed increases in hardlines, softlines and food and sundries and a decrease in fresh foods, nearly all of that decrease in fresh foods was the result of the initial operating losses from our new poultry complex. That will be a small headwind throughout the year. Recall that we commenced operations at the Nebraska chicken plant on September 10th, with a -- roughly