Costco Wholesale Corporation (NASDAQ:COST) Q4 2020 Earnings Conference Call - Final Transcript

Sep 24, 2020 • 05:00 pm ET


Costco Wholesale Corporation (NASDAQ:COST) Q4 2020 Earnings Conference Call - Final Transcript


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Richard A. Galanti

quarter, notwithstanding the negative impacts from gas deflation and FX, which were included in that number. We've kept you up to date in our monthly sales calls on the impacts from the pandemic as we've been able to identify those. Overall merchandise sales in the core, core being Food and Sundries, Hardlines, Softlines and Fresh, as well as pharmacy have all been strong, while sales in our other ancillary and travel businesses, though now open, have been soft.

Next, moving down the income statement, membership fee income. We reported fourth quarter membership fee income of $1.106 billion, up $56 million from $1.05 billion in the fourth quarter of '19. The $56 million increase ex-FX would have been $60 million up. During the quarter, we opened eight net new units and 13 for the entire fiscal year. In terms of renewal rates, at fourth quarter end, our US and Canada renewal rate remained at 91.0% and worldwide rate also remained at its similar number from a quarter ago at 88.4%.

In terms of the number of members at Q4 end, both member households and cardholders, total paid households at fourth quarter end was up -- came in at 58.1 million and cardholders 105.5 million. In the fourth quarter, we standardized the membership count methodology globally, which we've apparently done differently in different markets of North America versus others. And so, that increase includes that slight adjustment. The change resulted in adding approximately 1.3 million paid members and 2.0 million cardholders to our member base. So as an example, from Q3 to Q4 when we showed going from 55.8 million to 58.1 million or up 2.3 million, that 2.3 million increase includes the 1.3 million adjustment upwards. Similarly, the 3.7 million increase from the end of third quarter to fourth quarter, that 3.7 million increase includes 2.0 million of an adjustment. I'd like to note, however, that neither the membership fee income dollars nor the renewal rate calculations were affected by this adjustment. At fourth quarter end, paid executive memberships totaled 22.6 million, an increase of 765,000 during the 16 weeks since third quarter end.

Going down to the gross margin line, our reported gross margin came in at 11.24%, up 18 basis points from last year's fourth quarter gross margin of 11.06%. That 18 basis point increase, excluding gas deflation, would have been minus 4 basis points and excluding a portion of the direct COVID expenses would have been up 8 basis points. And I'll show you that in the numbers that I ask you to jot down here.

If you jot down the following numbers, two columns. First column will be fourth quarter as reported. Second column will be fourth quarter ex-gas deflation. The first line item would be core merchandise. Year-over-year, on a reported basis, core merchandise was up 101 basis points, ex-gas deflation up 82 basis points. So, plus 101 basis points and plus 82 basis points in the first line item.

Ancillary businesses, being the second line