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One by one, over the past year, many major retailers caved under pressure from conservative groups to weaken their diversity, equity, and inclusion (DEI) programs. But one chain bucked that trend: Costco Wholesale.In December, conservative think tank National Center for Public Policy Research submitted a shareholder <a target="_blank" rel="noopener noreferrer" href="https://s201.q4cdn.com/287523651/files/doc_financials/2024/ar/FY24-Proxy-Statement.pdf">proposal</a> that would have required Costco to evaluate DEI initiatives which it claimed hold “litigation, reputational and financial risks.” Hogwash, Costco’s board responded: DEI is good business, its directors said.“As our membership diversifies, we believe that serving it with a diverse group of employees enhances satisfaction,” Costco wrote. Costco shareholders and customers seem to agree. In the shareholder proxy vote, 98% of votes cast opposed the proposal. In the first three quarters of this fiscal year, net sales were up 8%, outperforming most competitors; and surveys of customer satisfaction suggested that no Costco users were defecting.

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WMA 2024-Costco

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G500-2023-Costco

The retail giant, beloved for its bulk discounts and its $1.50 hot-dog-and-soda combo, continued to benefit from the return to in-person shopping. Revenue rose 16% in 2022 over the previous year, while profits rose 17%. 
<ul> 
 	<li>At the end of its fiscal second quarter in March 2023, the company claimed a 92.6% membership renewal rate.</li> 
 	<li>As of May 2023, Costco had 123 million member-cardholders, in 14 nations; 852 warehouses; and 304,000 full- and part-time employees worldwide.</li> 
</ul>

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WMAC 2022-11-Costco

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G500 2022-26-Costco Wholesale

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F500 2022 Costco

Costco had a smashing 2021, closing the year in record-breaking style as the pandemic eased and shoppers returned to in-person shopping at their favorite retailers. Costco's $5 billion in net income was 25% higher than in the year prior. With inflation surging to a four-decade high, the wholesaler raised its prices but still saw a 91% membership renewal rate. Like many other employers in the U.S., Costco raised its minimum wage in the fight to retain talent, upping that rate to $17 in October 2021. The warehouse supermarket giant partnered with Uber to trial a delivery service in Texas, and it collaborated with public-health authorities to help get America vaccinated against COVID. Seeing more foot traffic in its stores, Costco debuted touchless condiment dispensers in its food courts, and brought back customer favorites like churros and smoothies to its menu. Costco pleased its investors as well as shoppers in 2021 by delivering a 52% shareholder return for the year.

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CTW 2021-03-Costco

In the war for retail talent during the pandemic, Costco Wholesale put its money where its mouth is. Already a leader in incentives like paid sick days, Costco in February raised the internal minimum wage for its 200,000-plus–person workforce to $16, keeping the pressure on competitors to pay their own workers more. Not long afterward, Amazon and Walmart each gave raises to hundreds of thousands of their workers. Costco’s reward for its efforts: double-digit percentage increases in sales—long after pandemic panic-buying eased—and customers as loyal as ever.

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G500-2020-033-Costco

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Costco Wholesale is known for its operation of membership warehouses globally, along with its e-commerce websites. The retailer offers branded and private-label products in a range of merchandise categories, including groceries, and is also responsible for gas sales, pharmaceutics, hearing-aid centers, and tire installation centers, as well as various online services. Costco was founded in 1976.

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Costco Wholesale (COST): Company Profile, Stock Price, News, Rankings

legacy

Costco Wholesale

costco wholesale

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Fiscal Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. And I would now like to turn the conference over to Gary Millership, Chief Financial Officer. You may begin.

Good afternoon, everyone, and thank you for joining Costco's second quarter twenty twenty five earnings call. In addition to covering our second quarter financial results today, we will also review our February sales results. I'd like to start by reminding you that these discussions will include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results and or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC.

Forward looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into the numbers, I'm delighted to say that Ron Backris is joining me for today's call. I'll now hand over to Ron for some opening comments.

Thank you, Gary, and good afternoon, everyone. Thank you for joining us today. As we wrap up the second quarter of fiscal twenty twenty five, I'd like to make a few brief comments on some of the highlights since we last spoke. While we only opened one new warehouse in the second quarter of fiscal twenty twenty five, we have big plans for the rest of the fiscal year. Tomorrow, we will open up in Brentwood, California, followed by an opening in Highlands, California the following day and four additional U.

S. Openings next week, including our Sharon, Massachusetts opening on March 12, which will be our 600 U. S. Warehouse and the nine hundredth Costco location worldwide. We're projecting 28 new openings during fiscal year twenty twenty five, of which three will be relocations for 25 net new buildings.

In addition to adding warehouses to serve our members, we also extended our gas station hours in North America during the quarter to make filling up at Costco more convenient for our members. Generally, our stations are now staying open an hour later than they did previously with some opening earlier as well. Our updated employee agreement took effect this week in The U. S. And Canada.

This agreement reflects our continued commitment to provide industry leading pay and benefits for our employees. Highlights from the new agreement include an immediate $1 hour top of scale increase, followed by an additional dollar top of scale increase on March of twenty twenty six and again in March of twenty twenty seven. The top of scale wage for U. S. Service Clerks is now $31.9 an hour.

Additionally, on March 3, our bottom of the scale wage increased by $0.5 an hour, taking our minimum wage to $20 an hour. The average wage for The U. S. And Canada employees is now a little more than $31 an hour, including hourly employee bonuses, with the majority of our employees at the top scale based on tenure. Paid vacations for new employees is now offered during the first year of employment and a six week of vacation is available to U.

S. Employees after thirty years of service. Our operations and merchandising teams did a fantastic job in the quarter, delivering strong operating results despite the uncertain macro environment. In particular, our Canada and other international business had an outstanding quarter, delivering record results on a constant currency basis, although reported results outside The U. S.

Were negatively impacted by foreign exchange fluctuations year over year. As we look ahead to the remainder of this fiscal year, headwinds from foreign exchange look likely to continue. Given events over the last week, it is difficult to predict the impact of tariffs, but our team remains agile and our goal will be to minimize the impact of related cost increases to our members. About a third of our sales in The U. S.

Are imported from other countries and less than half of those are items coming from China, Mexico and Canada. In uncertain times, our members have historically placed even greater importance on the value of high quality items at great prices, and our teams will continue to rise to this challenge by leveraging our global buying power, strong supplier relationships and innovation. With that said, I'll turn it back over to Gary to discuss the results of the quarter and February sales. I'll jump back on during Q and A to field some questions.

Thanks, Ron. In today's press release, we reported operating results for the second quarter of fiscal twenty twenty five, the twelve weeks ended February 16. We have once again published a slide deck on our investor site under Events and Presentations with supplemental information to support today's press release. You might find it helpful to have this presentation in front of you as I walk through our results. Net income for the second quarter came in at $1,788,000,000 or $4.02 per diluted share, up from $1,743,000,000 or $3.92 per diluted share in the second quarter last year.

Last year's results included a tax benefit of $94,000,000 or $0.21 per diluted share related to the tax deductibility of the special dividend paid to four zero one participants. Excluding this discrete tax item, net income and earnings per diluted share both grew 8.4%. A couple of additional data points that may be helpful relative to our reported net income. Operating income in the quarter increased 12.3% compared to last year. This was partially offset by a $70,000,000 year over year headwind in interest and other, and I'll share more detail on these items a little later.

And foreign exchange rate movements negatively impacted the translation of international net income to U. S. Dollars by $57,000,000 or $0.13 per diluted share. Net sales for the second quarter was $62,530,000,000 an increase of 9.1% from $57,330,000,000 in the second quarter last year. U.

S. Comparable sales were up 8.3% or 8.6% excluding gas deflation. Canada comp sales were up 4.6% or 10.5% adjusted for gas deflation and FX. Other international comp sales were up 1.7% or 10.3% adjusted. And this all led to total company comp sales of 6.8 or 9.1% adjusted for gas deflation and FX.

Finally, e commerce comp sales were up 20.9% or 22.2% adjusted for FX. In terms of Q2 comp sales metrics, foreign currencies relative to the U. S. Dollar negatively impacted sales by approximately 2.1%, while gas price deflation negatively impacted sales by approximately 0.1%. Traffic or shopping frequency increased 5.7% worldwide and 5.6% in The U.

S. Our average transaction or ticket was up 1% worldwide and up 2.6% in The U. S. This includes the headwinds from gas deflation and FX. Adjusted for those items, ticket would have been up 3.2% worldwide and up 2.8% in The U.

S. Moving down the income statement to membership fee income. We reported membership fee income of $1,193,000,000 an increase of $82,000,000 or 7.4% year over year. Membership fee income growth was 9.4% excluding FX. The recent membership fee increase contributed approximately 3% of fee income in the quarter.

Due to the effects of deferred accounting, the majority of the benefit from the membership fee increase will come over the next four fiscal quarters with the largest impact in Q4 fiscal year twenty twenty five and Q1 fiscal year twenty twenty six. In terms of renewal rates, at Q2 end, our U. S. And Canada renewal rate was 93%. The worldwide rate came in at 90.5%.

As cohorts of new members move in and out of this calculation, there could be one or two tenths of volatility in the reported number quarter to quarter. The biggest impacts come from digital promotions and Asia warehouse openings, both of which generate outsized membership sign ups, but also have lower renewal rates. We ended Q2 with 78,400,000 paid household members, up 6.8% versus last year and 140,600,000 cardholders, up 6.6% year over year. At Q2 end, we had 36,900,000 paid executive memberships, up 9.1% versus last year. Executive members now represent 47.1% of paid members and 73.8% of worldwide sales.

Turning to gross margin, our reported rate in the second quarter was higher year over year by five basis points, coming in at 10.85% compared to 10.8% last year and up four basis points excluding gas deflation. To simplify the gross margin matrix provided in our slide deck, starting this quarter, we have incorporated 2% reward as part of the business area which generated the reward. This is split between core and ancillary and other businesses. Core was higher by five basis points and higher by four basis points without gas deflation. In terms of core margins on their own sales, our core on core margins were lower by eight basis points.

This decline was due to investments in supply chain to support higher inventory and some mix changes in our non food categories. Ancillary and other businesses gross margin was higher by one basis point and flat without gas deflation. E commerce again showed considerable strength year over year, but this was offset by lower gas profitability. LIFO was lower by one basis point and flat without gas deflation. We had a $12,000,000 LIFO credit in Q2 this year compared to a $14,000,000 credit in Q2 last year.

Moving on to SG and A. Our reported SG and A rate in the second quarter was lower or better year over year by eight basis points, coming in at 9.06% compared to last year's 9.14%. SG and A was lower or better by nine basis points adjusted for gas deflation. The operations component of SG and A was lower or better by seven basis points and eight basis points without gas deflation. Higher labor productivity and great cost discipline by our operators drove this improvement.

Central and stock compensation were flat both with and without gas deflation and pre opening was lower or better by one basis point both with and without gas deflation, driven by fewer new warehouse openings in the quarter this year. As Ron mentioned earlier, our new employee agreement went into effect earlier this week. While there was no impact in Q2, we estimate that this will create a headwind to SG and A of 13 basis points from March 3. However, we will also lap a smaller increase from the same points in the prior year, so the net year over year basis point headwind from this wage investment is expected to be mid single digits. Below the operating income line, interest expense was $36,000,000 versus $41,000,000 last year and interest income was $109,000,000 versus $147,000,000 last year.

As indicated on last quarter's call, interest income faced headwinds due to lower cash balances subsequent to our $6,700,000,000 special dividend in January 2024 and lower interest rates. While we expect interest rates will continue to be a year over year headwind for the remainder of the fiscal year, we have now lapped the lower year over year cash balances following the special dividend. FX and other was a $33,000,000 gain in Q2 this year versus a $69,000,000 gain last year. In terms of income taxes, our tax rate in Q2 was 26.2% compared to 22.1% in Q2 last year. Recall, last year's rate benefited from a $94,000,000 discrete item related to the tax deductibility of the special dividend paid to four zero one participants.

Adjusted for this benefit, the tax rate for fiscal year twenty twenty four Q2 would have been 26.3%. Turning now to some key items of note in the quarter. Capital expenditure in Q2 was approximately $1,140,000,000 and we estimate CapEx for the full year will be approximately $5,000,000,000 Taking a deeper look into core merchandising sales, our nonfoods category led the way this quarter with comparable sales in the mid teens. Our buyers continue to bring in new and exciting items at great values. This included big ticket consumer electronics products such as 98 inches and 100 inches TVs, Stern pinball machines and gaming computers, all of which performed very well during the holiday season.

For the quarter overall, Golden Jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings and small electrics were all up double digits. Fresh in Q2 was up high single digits. This was led by double digit growth in meat, where we continue to see a shift toward lower cost proteins such as ground beef and poultry. Bakery and produce also performed well this quarter. Food and sundries had low to mid single digit comps with Cola and International Foods showing the strongest results.

We continue to look for ways to increase the value for our members, both with national brand items and our private label offerings. Our goal is always to be the first to lower prices where we see opportunities to do so and the last to increase prices in the face of rising costs. A few examples of lower prices this quarter include KS refined olive oil single three liter from 29.99 to $27.99 KS organic peanut butter from $11.49 to $9.99 and KS Tortilla Strips from $5.69 to $4.99 Another way we have been able to lower prices is by continuing to expand the local sourcing of our bulky private label items across the globe. In Q2, we introduced a KS purified water SKU for the China market that is produced in country. By moving production into the region, we were able to bring member savings of greater than 20% versus the prior branded water offering.

Our merchants also continue to drive innovation with Kirkland Signature. Most notably this quarter, we worked with a new supplier to rework our Kirkland Signature diapers. Improvements versus the prior offering include a longer and thicker absorbent layer, softer outer cover and two times more stretch in the waistband. As well as improving the quality of this item, we were able to increase the value by 11%. Other new KS offerings this quarter include KS French Fries, KS Vodka and Soda and new KS Lager.

Kirkland Signature continues to grow at a faster pace than our business as a whole. Within ancillary businesses, pharmacy and food court departments led the way. In the food court, we have introduced a new strawberry banana smoothie and are excited to announce the fan favorite Turkey Provolone sandwich is making a return in Q3. Gas comps were negative low single digits during the quarter, driven by the average price per gallon being down slightly. Now a few comments on inflation.

While there was a fair bit of variability across departments, overall inflation in the quarter was low single digits. Fresh was the most inflationary of our categories, driven by Meat and Bakery. Food and sundries inflation remained relatively low as inflation in eggs, cocoa, coffee, cheese and corn were partially offset by deflation in commodities such as sugar, butter and flour. The supply chain continues to be relatively stable, albeit shipping delivery dates are still less predictable than they were pre COVID. In non foods, our buying teams have been proactive in ordering higher levels of inventory over the past year, which has helped support our strong sales momentum and overall we are pleased with sell through rates.

Turning to digital and e commerce, we continue to make progress with our technology roadmap. The new warehouse tool in our app, which allows members to view local warehouse item availability and prices had over 43,000,000 visits. On personalization, for the first time in Q2, we sent out multiple versions of our digital MVM, differentiating the message for members based on their previous shopping behavior. We still have a lot of work to do in this area and are excited about the potential to improve the member experience through more relevant targeted messages and experiences. While strength in bullion was a meaningful tailwind to e commerce sales, home furnishings, small electrics, hardware and sporting goods were a few of the other departments that grew double digits year over year.

Costco Logistics had a record holiday season with over 500,000 deliveries as we continue to grow share in big and bulky items. And Costco Next, our curated marketplace also had record holiday sales. We are now approaching 100 vendor sites and significantly grew average order value in the quarter. Shifting gears to alternative revenue streams, we made some improvements to our co brand credit card this quarter. The card is a great way for members to increase the everyday value they receive when shopping at Costco, offering attractive cash back rates with no annual fee.

Executive members who use the card can double their cash back on the majority of purchases in warehouse and at costco.com from 2% to 4%. And last quarter, we increased the reward on gas purchases at Costco locations to 5%. On Retail Media, following our first off-site Retail Media campaign in Q1, we have entered into a number of additional similar campaigns with roughly 10 different partners live currently and many more in the pipeline. Turning now to our February sales results for the four weeks ended this past Sunday, March 2, compared to the same four retail calendar weeks last year. Net sales for the month of February came in at $19,810,000,000 an increase of 8.8% from $18,210,000,000 last year.

Comparable sales for the month were as follows: U. S. Comparable sales were up 8.6% both with and without gas deflation Canada comp sales were up 3.2% or 8.7 adjusted for gas deflation and FX. Other international comp sales were down 0.6% or up 6.5% adjusted. This resulted in total company comp sales of 6.5% or 8.3% adjusted for gas deflation and FX.

Finally, e commerce comp sales were up 19% or 20.2% adjusted for FX. Our comp traffic or frequency for February was up 5% worldwide and 5.8% in The U. S. Foreign currencies year over year relative to the U. S.

Dollar negatively impacted total and comparable sales as follows: Canada by approximately 6%, Other International by approximately 7% and Total Company by approximately 1.8%. Gasoline prices were flat year over year in the month. Worldwide, the average transaction for February was up 1.4%, including the negative impact from foreign exchange. In terms of regional highlights, U. S.

Regions with the strongest comparable sales were the Midwest, the Northeast and Los Angeles. Other international in local currencies, we saw the strongest results in Mexico, Taiwan and Korea. Moving to merchandise highlights, the following comparable sales results by category for the month exclude the negative impact of foreign exchange. Food and sundries were positive mid single digits. Cola, frozen foods and sundries were the strongest departments.

Fresh foods were up high single digits. Better performing departments included meat and produce. Non Foods were up positive low teens. Better performing departments included jewelry, gift cards and housewares. Ancillary business sales were up low single digits.

Pharmacy and Optical were the top performers and Gas was down low single digits on lower volumes. And finally, in terms of upcoming releases, we will announce our March sales results for the five weeks ended Sunday, April 6, on Wednesday, April 9, after market close. That concludes our prepared remarks and we'll now open the line up for questions.

Thank you. And we will now begin the question and answer session.

your first question comes from the line of Simon Gutman with Morgan Stanley. Your line is open.

Hi, Ron. Hey, Gary. Simeon Gutman. I will ask one question. I want to talk about sales impact and the consumer broadly.

Curious if consumers' willingness to purchase either discretionary or nondiscretionary as egg prices are booming, is the consumer cutting back at all? And then it looks like your results don't show an impact, especially in Canada, both in the quarter and in February. But curious if there's any slowing in any places from tariff backlash, etcetera? Thank you.

Yes. Thanks, Simeon. Yes. To take the first part of your question, the state of the consumer, I guess, more broadly, I think you're right in the way you described it. We're not really seeing any change in what we've seen around our members over the last really few quarters.

We believe that the member is probably as much focused now on quality, value and newness as they have been for quite some time. But they are still showing that willingness to spend, but they're being very choice for where they're spending their dollars. And we think that's likely to continue and maybe even become more choice for us, the impact of some return of inflation and the potential impact of tariffs could flow through as well. I'd say we're also seeing a continued sign of what I mentioned last quarter where there's some indication that members are spending a little bit more on food at home versus food away from home overall. So that kind of I guess the macro themes that we see.

When we talk about individual categories, I would say on non foods, again I think you characterized it well for us. Our merchants have done a great job of really focusing on those three key themes that we hear from our members around bringing in great items of great quality and great value. And while there's examples of that with newness around things like gold and some of the large electronic and gaming items I mentioned, we're really seeing it being fairly broad based across all the categories that I listed on the call earlier. So generally, we're continuing to see strong trends overall in non foods. There are a couple of categories generally that have been flatter, I would say, over recent quarters, consumer electronics and apparel.

We believe we're performing relatively well on those compared to the industry, but they are lower trends on those items than they would be in some of the other categories that I mentioned earlier. And we're seeing as I mentioned in some of the prepared remarks, we continue to see great trends on fresh products overall and it's really a bit of bifurcation there. We're still seeing really good growth on the more premium meat items, but we're seeing even faster unit growth I would say on some of the lower cost cut items like ground beef and poultry and pork. So overall, I think the trends that we've seen, we're not really calling out anything significantly different, but of course we're watching very closely and making sure we're reacting to what we see from our members. On Canada in particular, as you mentioned, really the results that we reported in February are very much in line with the results that we saw seen year to date.

They actually had the strongest overall comp sales when you adjust for FX and Gas out the three reported segments that we talk about with international, U. S. And Canada. But They had a phenomenal Q2. So they did come down a little bit from the trend that we saw in Q2, but still very strong results overall.

And your next question comes from the line of Michael Lasser with UBS. Your line is open.

Good evening. Thank you so much for taking my question. With core on core margin being down modestly this quarter, can we take that as a sign that the recent string of margin expansion that Costco has been able to achieve is coming to a conclusion or at least a pause, especially in light of what seems to like going to be a much more inflationary environment and a difficult dynamic with having to manage through the tariffs? Thank you very much.

Yes. Thanks, Michael. Thanks for the question. I wouldn't really read too much into the individual results in the quarter on the core on core margin. Overall, we were pleased with the fact that the gross margin rate was up four basis points, so a slight improvement while we're still investing in more value for the member.

And when we look at the breakdown of that core on core, it was down, as you mentioned, eight basis points. To give you a bit more color on that, food and sundry was actually up slightly, fresh was up slightly, non food was down slightly. So there was sort of a mix change in there somewhat that impacted the number as well. You may have heard me mention on the prepared remarks, but one of the things that was an increased cost during the quarter was higher supply chain costs as we had been continuing to buy more inventory, which we think will be helpful as you think about some of the unpredictability that we've seen in supply chain timing and also with the potential risk around tariffs. And really when we looked at the overall results for the quarter and saw that the core margin overall was going to be up slightly, we have that ability to be able to invest and ensure that we're continuing to take care of the member.

So we were quite deliberate on that this quarter. But again, I wouldn't read too much into the individual puts and takes. We feel good about the overall margin and our ability to keep investing in the member, while at the same time continuing to deliver the results that we delivered.

Thank you very much and good luck. Thanks.

And your next question comes from the line of Christopher Horvers with JPMorgan. Your line is open.

Thanks. Good evening. So one quick follow-up and then an additional question. Other retailers are talking about weather having a negative impact on some of their more weather sensitive businesses. So I guess turning the question upside down, do you think about the eight plus percent core comp that you saw on the February?

Did you see any weather headwinds on your discretionary businesses or was it just simply offset on the ag side? And then on the tariffs, historically foods for things that come from like Mexico that are fresh foods, historically that stuff gets passed through directly to the consumer. How do you think about Costco's stance on that? There's opportunities made with eggs where you're vertically integrated and you can absorb some of the costs. But as you think about stuff like fresh food that's more commodity based, would you just pass those price increases along?

This is Ron. As far as the weather, we experienced the same weather everybody else did the last month. And we tend to capture a lot of that back. It's just not an extended event and if it's not tied to a holiday. So, yes, we saw some hits here and there, but we recovered most of that.

And there probably was a little bit of the edge on sales taken off due to some extreme weather in the Northeast and the Midwest. So we feel pretty good about how we handled through those storms. As far as the tariffs go on the grocery items, our buyers deal with those like they would any other cost increase. And there are sometimes the margins are much tighter in those categories, but they're prepared to work closely with the suppliers and see how efficient we can bring goods to market and is there anything we can mitigate in those categories. So the tariffs are very fluid right now, so it's hard to really give any predictions on what we can do.

But we are prepared, our people are very well equipped to lower prices and defer any cost increase that come our way. So we're going to do all we can should that happen.

And your next question comes from the line of Scott Ciccarelli with Truist Securities. Your line is open.

Hey, guys. Scott Ciccarelli. With your treasure hunt structure, you guys have a lot of merchandising flexibility. So I guess if we get tariffs rolled into China, Mexico, Canada, would the strategy be more focused on, look, it is what it is, Costco still had the best value for those products relative to others? Or would there be a more aggressive effort to find goods from less tariff impacted countries?

It would be a little bit of both. I mean, you're exactly right with our flexibility of the treasure hunt. There's not many items that we can't find something to replace or something else to bring in, in that category. But, it's going to be a little bit of both of those strategies that we can. As we say, when it rains, it rains on everyone such as a tariff that we're all equal there.

And I feel like our people are very well equipped to deal with anything coming our way with our reduced SKU model. And we can we have great partnerships with our suppliers and those items are very important to them as well. So I feel like we are well equipped to deal with whatever is coming our direction. And not knowing what that's going to be, I can't really tell you what the outcome will be. But, our people are nimble and they're ready to go at it if they need to.

And your next question comes from the line of Zihan Ma with Bernstein. Your line is open.

Hi. Thank you for taking my question. So a bit of a follow-up on the international side. First of all, a short term question in terms of the February sales result. Is there any timing just between January and February that led to this sequential slowdown in the other international segment?

And longer term, can you just provide an update for us to understand how do you think about the long term international growth runway from here? Thank you.

Sure. Yes. On the first part of the question, there is some impact from particularly on the Asian markets, the Chinese New Year. We generally because it didn't roll up to be a meaningful enough number at our total company level, we didn't call that in our results. We didn't call it out in the January number specifically either.

But yes, I would say you have to kind of look at the two months and combine the two really to understand the trend because of the impact that we would see from the Chinese New Year impacting particularly Korea and Taiwan and China. And then in terms of the long term prospects for our international business, Ron mentioned in the prepared remarks, we had a tremendous second quarter. We were thrilled with the progress that we saw across those international markets overall. And as we think about new store, new warehouses and the plan there as you may recall we talked about 25 to 30 new warehouses a year. And as we look at our long term plan we would think just over half of those would likely be in The U.

S, but just under half would be in our international markets including Canada, Mexico, Asia and Europe. And we look at all four of those as strong markets for us and opportunities to continue to expand our presence because we wouldn't see any of those as being fully penetrated today and we're fortunate in that our international markets have similar or in some cases better profitability as a rate of sales than we have in our U. S. Market as well. So we still see plenty of opportunity and they remain an important part of our growth strategy.

And your next question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Hi. Thanks Ron. Gary, we had a question about general merchandise and electronics. Would love just thoughts on what you're seeing with respect to those categories and the health of the consumer. We've also thought that you've done a great job with UPTs and innovating with international products.

It would be great to hear prospects there. And then a follow-up is on the more targeted and strategic multi vendor mail as well as digital promotions and deals. What's happening there? It seems like there's some nice traction and is it driving traffic or how are you approaching the next inning of that? Thank you very much.

Sure. Thanks, Oliver. I'll just quickly rattle through. I think there were were three different components there. So on the consumer electronics, generally speaking, we believe from what we see we're growing market share, but that area would still be relatively slow.

So we're flat to slight growth there, whereas the market overall though still seems to be pretty sluggish and I think we're still looking for that next wave of new innovation to really spark extra growth in that category. We did see some really nice sales around the holidays on the larger TV screens, the 98 inches and 100 inches TV screens. I think that created some new excitement and visually was very compelling in the warehouses and our operators did a great job in merchandising those and we saw some nice lift at that time of the year. But overall relatively flat as a category especially compared to many of the other non food categories where we see double digit growth currently. On the international products, I think it was the second comment you made.

Yes, we're really excited about that opportunity. We continue to see at our monthly budget meetings when we have all of our operators come in, they're sharing examples of products that are resonating in each of the markets that we operate. And very quickly because of the ability to share those ideas across the teams, we're finding ways to bring those and bring our global buying to bear and finding even better ways to bring them to our markets, but also a better value for our members. And we've seen some great growth in those opportunities and we think that will be an important part of our continued growth in the future as well. John, anything you want to add there as well?

No. And I think Gary is 100% right. And then on the multi vendor mail and the promotions, it really is excitement in that product mix. And it's a good balance of everyday low prices that our buyers work towards on ensuring the key commodities are at an everyday price that our members can count on, but also bringing in some newness and excitement and partnering with our suppliers when they want to drive some sales and we can deliver that through the multi vendor mailer. So I think the key to the success there, it is driving traffic.

It continues to be a win for our members. And I think the newness and keeping it fresh has been the key to that success.

And your next question comes from the line of John Heinbockel with Guggenheim Securities. Your line is open.

Hey, Ron. I had a couple of holistic questions with regard to KS. When you think about new item introductions, KS versus national brands, how does that kind of compare in most years? When you think about categories where KS has a lower penetration, right, which is a lot of non foods, Where can you kind of make breakthroughs there, right, and introduce KS items that don't currently exist? And then would you think a very high percentage of the KS introductions end up being permanent fixtures in the assortment?

Okay. The greatest opportunity we have would be in non foods. And it was something as a category that we always felt brand loyalty was extremely strong, which it is. But, you know, the the motor oil was a great example of it is now our top selling motor oil in all of our warehouses across here as a Kirkland Signature where that was a very brand related item before. Golf balls was another example of when we entered into an extremely brand loyal category that we were able to break through.

So we see great success there. Our buyers continue to look at where are those opportunities that we can improve quality from the brand or meet the quality of the brand and bring a substantial value to it. So we're not in a race to develop hundreds of Kirkland items. We look at it more of a strategic item by item basis that when there's an item that with an opportunity, then that's when they'll go after that. The recent, the sandwich bags and storage bags that we did in our sundries department are a tremendous value, supreme quality and really doing very, very well.

And yes, you're right, we do have a very high success rate of Kirkland items. I mean, but there are failures out there. There are things that we always say, Claudine and myself, our Head Merchant, we can't fall in love with our own stuff. And so we hold Kirkland Signature to the same standards we would at any branded item. If the sales are not performing, our members are not resonating with that item.

It is as quick to go out as any branded item would be as well. So there's no annuities to a Kirkland item. It has to meet the same standards. But I'm very proud of the buyers that they do have a high success rate. They do their due diligence on those items and they really deliver great value to the member when we launch a Kirkland item.

And your next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Costco Wholesale (COST) Q2 2025 Earnings Call Transcript

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