Costco Wholesale Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Costco Q4 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Richard Galante. Please go ahead.

Thank you, Lori, and good afternoon to everyone. I will start by stating 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. In today's press release, we reported operating results for the fourth quarter and fiscal year 2020. The 16 and 52 weeks ended August 30th.

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Reported net income for the fourth quarter came in at $1.389 billion, or $3.13 per diluted share, compared to $1.097 billion, or $2.47 per diluted share, last year in the fourth quarter. This year's fourth quarter was negatively impacted by incremental expense related to COVID-19 premium wages and sanitation costs, totaling $281 million pre-tax, or $0.47 a share. as well as a $36 million pre-tax charge, or 6 cents per share, related to early payment of $1.5 billion of debt. These items were partially offset by an $84 million pre-tax benefit, or 15 cents a share, for the partial reversal of a reserve of $123 million pre-tax, 22 cents per diluted share, related to a product tax assessment taken in the fourth quarter of last year. Net sales for the quarter increased 12.5% to $52.28 billion, up from $46.45 billion in the fourth quarter a year earlier. For the fiscal year in its entirety, fiscal 2020 came in at $163.22 billion, a 9.3% increase over the $149.35 billion in fiscal 2019. Comparable sales for the fourth quarter of fiscal 2020 were as follows. On a reported basis for the 16 weeks, U.S. was 11%. Excluding gas deflation and FX, U.S. was 13.6%. Canada reported 9.1% up. Again, ex-gas deflation and FX, 12.6% up. Other international reported 16.1%. Ex-gas deflation and FX, 18.8%. Bringing the total company to a reported number of 11.4% comp. And again, X gas deflation and FX up 14.1%. For the company, e-commerce reported was 90.6% up. And X gas and FX were 91.3% up. In terms of the fourth quarter comp sales metrics, Foreign currencies relative to the US dollar negatively impact sales by about 50 basis points and gasoline price deflation negatively impacted sales by approximately 220 basis points. Traffic or shopping frequency on a worldwide basis was down 1.2% during the fourth quarter and showed an increase of 1.2% in the US. Our average transaction or average basket size was up 12.7% during the fourth quarter notwithstanding the negative impacts from gas deflation and FX, which are 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, hard lines, soft lines, and fresh, as well as pharmacy, have all been strong. while sales in our ancillary, other ancillary, and travel businesses, though now open, have been soft. Next, moving down the income statement, membership fee income. We reported a fourth quarter membership fee income of $1.106 billion, up $56 million from $1.05 billion in the fourth quarter of 2019. The $56 million increase, XFX 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 U.S. 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 came in at $58.1 million, and cardholders $105.5 million. In the fourth quarter, we standardized the membership count methodology globally, which we had apparently done differently in different markets, 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 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.

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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, came in what would have been minus four basis points, and excluding a portion of the direct COVID expenses, it would have been up eight. And I'll show you that in the numbers that I asked 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. X gas deflation up 82 basis points, so plus 101 and plus 82 in the first line item. Ancillary businesses being the second line item reported minus 66 basis points and without gas deflation minus 71. Two percent reward minus four and minus two basis points. Other minus 13 and minus 13 basis points. And that would give you totals on a reported basis of plus 18 basis points, which I mentioned, and X gas deflation to minus 4. Now, the core merchandise component of gross margin, again, was higher by 101 basis points year over year and 82 basis points higher X gas deflation. Similar to last quarter and even more dramatic of an impact during this quarter, we had a significant sales shift from ancillary and other businesses to the core. This resulted in a higher contribution of our total gross margin dollars coming from the core operations versus last year. Looking at the core merchandise categories in relation to only their own sales, so core on core, if you will, margins year over year were up by 70 basis points. Fresh foods was the biggest driver here. With the strong sales in fresh, we benefited from efficiency gains in both labor productivity and significantly lower what we call D&D, or damage and destroyed, or product spoilage. Food and sundries, soft lines, hard lines, as well as, as I mentioned, fresh foods already, but in addition, food and sundries, soft lines and hard lines all had higher margins year over year in the quarter as well. Ancillary and other businesses' gross margin, again, was lower by 66 basis points and 71 basis points ex-gas deflation. Most of our ancillary businesses were lower year-over-year, with the most significant negative impact coming from gasoline and travel, which accounted for about three-quarters of the decline. Costco Logistics, which was primarily our acquisition this past March of the Bic and Bulk year last mile carrier called Innovel. That was our newly acquired business. That impacted ancillary margins by minus eight basis points. Again, we acquired this this past March, and we anticipated losses in this business as it ramps up. Note that these losses do not take into account any added sales for expanded product offerings, lower delivered prices, and improved member satisfaction.

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Next, 2% reward, nothing really to say there, minus two basis points, X gas deflation. And other, the minus 13 basis points, nearly all of this is attributable to the cost from COVID, 64 million of the $281 million previously mentioned. These are direct costs for incremental wages and sanitation allocated to our cost departments and to our merchandise fulfillment operations, so it impacts cost of sales. Moving to SG&A, a reported SG&A percentage Year-over-year was lower or better by 47 basis points, coming in at 9.62% of sales this year in the fourth quarter versus 10.09% last year in the fourth quarter. Ex-gas deflation, SG&A was lower or better by 66 basis points. Again, if you jot down the following two columns of numbers, first column is reported year-over-year SG&A change, and the second column would be ex-gas deflation. Core operations. as reported were better or lower by 42 basis points, and ex-gas deflation lower or better by 57 basis points, so plus 42 and plus 57. Central, plus 1 and plus 3. Stock compensation, plus 3 and plus 4. Other, plus 1 and plus 2, and that gives you the total on a reported basis, SG&A being better by 47 basis points. and X gas deflation being better by 66. SG&A in the core, excluding COVID-related expenses, which I'll discuss in a moment, was significantly leveraged, of course, with a strong core of merchandise sales increases. As I mentioned, central stock compensation showing small improvements year over year as a percent of sales. And now the other plus one basis point reported in a plus two X gas deflation As I discussed earlier in the call, the quarter was positively impacted by an $84 million reversal of last year's fourth quarter $123 million pre-tax reserve related to a product tax assessment taken a year ago in the fourth quarter. The net impact from this item was plus 43 basis points. That plus 43 basis points is in this plus one and plus two basis point number. Also included in other are the incremental COVID costs, or $217 million of the $281 million total amount. That equates to 42 or 41 basis points without gas deflation, offsetting it the other way. So that's why you have that very small number on that line. Again, these are the costs for incremental wages and safety and sanitation. Next on the income statement, pre-opening expense. Pre-opening expense last year in the fourth quarter was $41 million. This year in the fourth quarter, it was $15 million less, coming in at $26 million. Last year in the fourth quarter, we had 12 gross openings, 10 net, and two reloads. And that compares to 10 openings gross or eight net in the fourth quarter this year. The big difference in those two numbers This year's fourth quarter relates primarily to warehouses open during the quarter as well as warehouses scheduled to open in the first quarter. Last year's pre-opening included $12 million in pre-opening expenses related to our then-new poultry complex. All told, reported operating income in Q4 increased 32%, coming in at $1,929,000,000 this year compared to $1,463,000,000 last year, and it would be a slightly higher percent increase if you excluded the items that I had mentioned earlier. Below the operating income line, interest expense was higher year-over-year by $6 million, coming in at $51 million this year compared to $45 million last year. Interest income and other for the quarter was lower by $83 million year-over-year. As discussed earlier, following the completion of the debt offering, we prepaid $1.5 billion of debt during the quarter. There was a pre-tax expense of what's known as a make-all payment of $36 million related to the early retirement of that debt. that's in this interest income and other line. Actual interest income was lower by $28 million year-over-year in the quarter, due principally to lower interest rates being realized. And lastly, FX and other was lower by $19 million. Overall reported pre-tax income in the fourth quarter came in higher by 25%, coming in at $1.869 billion this year compared to $1.492 billion last year. Again, these exclude those items I point – that's including those items I pointed out earlier. In terms of the income tax rate, our tax rate in Q4 of 20 was 24.9%, a little lower than a year ago when it was at 25.7% in the fourth quarter a year ago, so a little benefit there. A few other items of note in terms of warehouse expansion. With COVID, we had some delays in some of the planned openings for the fiscal year that just ended this past August 30th, and a few of those have been pushed into this year that we're in now. For the year, we opened 16 total units, including three reloads. So last year, we opened a net increase of 13 locations. Our plans for this year is to open about 20 net, 23 including three reloads. That's our best guess and plan at this point. And as of Q4N, our total warehouse square footage stood at 116 million square feet. In terms of capital expenditures, for the 16-week fourth quarter, we spent approximately $852 million. And the full year, we spent $2.8 billion. Our estimated capex for all of fiscal 21 is in the $3 to $3.2 billion range. E-commerce. Overall, our e-commerce sales, as you've seen each month, have increased nicely. For the fourth quarter, on a reported basis, up 90.6%, and FX, 91.3% increase during the fourth quarter. A few of the stronger departments, and there are several, health and beauty aids, food and sundries, appliances, TVs, computers and tablets, housewares, and small electrics. Total online grocery grew at a very strong rate in Q4, several hundred percent. This e-commerce comp, if you will, the e-commerce numbers I just mentioned above follow our usual convention, which we exclude the third-party same-day grocery program. If we included that third-party same-day, our e-commerce comp's result would have been approximately 120% up during the quarter. Overall, our sites were relatively smoothly during the quarter, despite the dramatic volume increases, and we were able to improve our delivery times throughout delivery times throughout the quarter as we adjusted to the ramped up order volumes. Now, quickly turning to the COVID and the Corona virus, and some of the issues and impacts surrounding it from a sales perspective, as indicated by our past 3 monthly sales releases. We've enjoyed strong sales results during the June, July, and August timeframe. Certainly, the sales strength starts with our being deemed essential, resulting in strong sales of fresh foods and foods and sundries and health and beauty aids and the like. We've also benefited from the much improved sales in products and items for the home outside of the food area. As people are spending less on travel, air and hotel, and dining out, they seem to have redirected at least some of those dollars to categories like lawn and garden, furniture and mattresses, exercise equipment, bicycles, housewares, cookware, domestics, and the like. And lastly, a few of our ancillary businesses, notably our optical and hearing aid operations, were closed for 12 to 16 weeks and reopened during the midsummer. From a supply chain perspective, kind of a 40,000-foot view, In terms of China, at least judging by the shipments to us, most of the factories are up and running. There are still some production challenges due to certain components downstream in the supply chain in areas like electronics, computer, and certain white goods. It is getting better and improving each week. And like us, we feel that our suppliers' factories have gotten a bit better over the last several months of instituting safety protocols. That's our best guess. India, in terms of getting back to normal, each week is showing improvement and catching up. Still a little behind. Food sundries, some limits on paper goods, but getting better. Toughest area overall is still sanitizing wipes as well as latex gloves. In terms of other PPE, we're in pretty good shape, selling quite a bit of masks and the like. Milk and butter, things like that are generally okay. In terms of fresh foods, proteins are currently all pretty good. There had been some slowdowns over the past few months and some allocations and some limits that we had to put on some sales of those items, but that's gotten back to normal at this point. Seafood and produce, all good as it has generally been throughout. In terms of holiday merchandise planning, Halloween – A small reduction in the amount of costumes, some more basic candy items, as well as for Christmas going a little more basic in some areas, as well as looking at things and needs and uses for the house, but viewing it given our strength of late relatively optimistically. And Costco travel has shown some very modest improvement, but still significantly impacted during the quarter due to reduced demand. We do see our members starting to book travel again, although generally further out than we have historically seen. Our warehouses overall have remained open and are back to regular hours with an additional hour on certain weekday mornings in many markets for seniors and persons with disabilities. The warehouses are still, of course, following the social distancing and sanitization guidelines. And since May 4th, as you know, we've required all members and employees in the warehouse to wear masks. Finally, in terms of upcoming releases, we will announce our September sales results, which is for the five weeks ending Sunday, October 4th, on that following Wednesday, October 7th, after market close. With that, I will open it up to Q&A and give it back to Lori. Thank you.

And, yes, ladies and gentlemen, as a reminder to ask a question, please press star 1 on your telephone keypad.

again in order to ask a question please press star one and your first question is from simeon gutman from morgan stanley your line is open hi everyone um hey richard my first question is how should we think about or how are you planning covet costs for q1 of the next fiscal year and if i'm not mistaken i thought that for this fourth quarter There was a range. I don't know if there was a range, but we were expecting them to be lower sequentially, and I think they were pretty similar. So you mentioned the basics, what it constituted, but can you talk about why?

Sure. As you may recall, on our third quarter conference call, we indicated that such types of costs in the Q4 would be at least $100 million or over $100 million. And, of course, $281 is over $100, but quite a bit larger cost. But the reality is the biggest factor is we chose to continue, at least for the time being, the $2 an hour premium. that represents about $14 million a week. To date, we're doing that, and we've committed to doing that at least through, I believe, the first eight weeks of this fiscal quarter. And again, we'll take that time and again. Our numbers have been very good. Our employees are on the front line. And so that, mind you, the fourth quarter was a 16-week quarter versus Q3, which is a 12-week quarter. So on a per-week basis, it's come down. There's other things that won't be repeated in the first quarter, at least. If you go back to the very beginning of time, for the first four to five weeks, when we stopped doing food samples, we employed those third-party employees ourselves. We paid our third party to have them help us in the warehouse. That was during those three to four weeks of craziness in late February through mid to late March. when people were coming in and hoarding and what have you. And, uh, and that, that, that helped quite a bit. So there's, there's some costs that have, that I don't expect to be continued. The biggest component of course, would be the $2 premium. And we'll see at this juncture, we've committed to it, uh, to our employees for the first eight weeks of this, uh, this quarter.

Okay. Thanks for that. Um, my followup is you mentioned the holiday and I think you, you said you're looking at it optimistically or favorable for now. Can you talk about maybe a little more detail why? It seems like the results speak for themselves for now, but there could be a lot of change over the next couple of months. Has your customer diversified their basket with you, and you think you'll be able to retain them across more categories and keep trips as more retail gets their traffic back? Thanks.

Sure. Sure. Well, look, I mean, the main data points that we look at is how strong things have been in the last three and a half, four months. You know, June, July, and August sales results, which we've all shared with you guys, the trend in traffic has improved. So it's been positive the last couple of months instead of slightly or even more than slightly negative going back to April and May. while the average ticket or average basket size has continued to be relatively strong. And probably if you ask what are some of the biggest surprises that we had looking at the last three months of sales results compared to what we had expected a few months before that, I mean, the big surprise is we expected fresh and food and sundries and paper goods and the like and health and beauty aids to be strong, particularly food, because of the weakness of people dining out. But I think we were a little surprised by the strength in many of these discretionary non-food categories, things for the house, and big-ticket items. Again, not only furniture for inside the house, but patio furniture, live goods were particularly strong. In some instances, we had tried to cut back a few orders back in March and April for seasonal summer goods like patio furniture. Very quickly, we were having to scramble for more of those. And so, so far so good. We recognize that people are coming into Costco. We believe they feel safe given the safety protocols and the mask requirements, the sheer size of the building itself and the width of the aisles. So all those things have helped us in that regard. We're also back to After a couple of months of not having our traditional multi-vendor mailer coupon type of offerings because several key items were limited or on allocation, we've gotten back to that. And so, you know, I think at least our most recent three-plus-month history has given us some comfort at this point. Now, as soon as I say that, things may change, but at this juncture, we feel very good about what it looks like going forward. Recognizing, looking at some of these things with a more basic in terms of Halloween and Christmas and the like.

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Your next question is from Chris Harvers from JPMorgan. Your line is open.

Thanks. Good evening, guys. So my first question is, what's driving that strong core-on-core margin outside of the fresh category, which clearly would benefit from a shrink perspective? Is it sell-through and low clearance? Is it mixed within the categories? Or is it something else?

Well, on Fresh, it's all of the above. I mean, it's strong sales on a relatively higher initial margin business within our small confines of margin range. But then two components of cost of sales in Fresh is labor productivity and spoilage. We don't have spoilage. We sell out not literally, but almost literally to the piece on these end things. And so you're not throwing stuff away. It's a great business from a gross margin dollar perspective given the sales strength in it. So that's clearly the biggest thing. But, again, if you look at the other three core areas, core food and sundries, hard lines and soft lines, they're all up a nice amount but nothing like fresh foods. So that's helped. Now, mind you, other things have offset that. And the sum of all those things is still a positive. The things that have offset it would be things like the fact that certain ancillary businesses, which are higher margin businesses, were closed for a 12 to 16-week period. Our food court, of course, has been limited of what we do there. We took out all the tables. We've limited the product offerings. Travel, which is, you know, while a small business is an extreme example of high margin business, Many items in travel is just a brokerage fee. It's almost sales minus no cost of sales equal gross margin, if you will. It's the markup or the commission on some of that stuff, a portion of that. So, you know, those things have gone down, but the sum of all those negatives are outweighed by the overall strength and core merchandise sales and pharmacy. Pharmacy has been relatively strong too. And within that, Fresh has been the biggest driver of it.

Got it. So a final question that you were surprised by the negative gas impact and ancillary. I mean, your peers will not the same quarter sort of tailwinds for the periods that crossed over. And so can you talk about how much of that 66 basis points is specifically gas versus the other businesses? And as you look forward, you know, considering that, opticals open and food courts, at least with a smaller menu, open and starting to see some traction around travel and gas prices being stable. Do you expect that at this point that ancillary headwind could abate?

I think it'll be less negative, but I think it's going to be around for a while. I mean, if you look at gas, gas is more profitable more profitable per gallon of sales than it was a couple of years ago because I think if prices have come down, traditional retail has not been as competitive, which allows us to be more competitive but still make a little more. At our trough, at the lowest point, I'm guessing back in April or May, there was a week where our gallons were down close to half. Today they're down – closer to maybe down 10%, you know, maybe, you know, five to 15, depending on the day or the week. But, uh, you know, in normal times for the last few years, pre COVID when the U S gasoline industry had comps in the very low single digits, we'd be in the very, very high single digits are close to 10 or 11, even sometimes. So we've, uh, so things have changed there. It's still a profitable business. And, uh, but you know, when your sales, uh, When your price per gallon goes down 20%, 30%, and your gallons are down even some small amount, and it's a 10-plus percent of sales of our business, it has that effect on it. At the end of the day, the sum of all this has still been quite good for us. And could you break out the 66 that's specifically related to gas? No. Well, we said three-quarters of it was gas and travel. That's as good as we get here. I don't have the detail in front of me. My guess is gas is more of it than travel, but they're both impactful.

Your guess is better than mine. Thanks very much.

And your next question is from Chuck from Gordon Haskett. Your line is open.

Hey, good afternoon. I'm curious, Richard, how you're thinking about the recovery of your gasoline business, particularly from a gallons perspective, and I guess how this interplay is holding back traffic into your storage, clearly getting better, but being impacted a little bit by the gas business.

Well, you know, I don't know exactly. I haven't seen numbers in the last week or two, but I believe our, call it 10% negative gallon comp is still way better than the U.S. as a whole, the U.S. gasoline industry as a whole. But, you know, we'd rather have plus 10 than minus 10. The fact is that people are coming in less, but they're buying more each time. And some of those two things, as we've shown, you know, we used to enjoy 5% to 8% comps pre-COVID on a regular basis, and the last three months we've enjoyed 14%. if you will. And so overall, we'll take that. But it's got to be a small impact still.

Okay. And then just, it's been a while since I asked this, but the crossover between customers that purchase gas and then shop in the store on like-kind hours, do you have that number handy?

I haven't seen it lately, but historically it had been during the hours that the warehouse itself is open, because the gas station is open a couple hours before perhaps on either side of that. It's in the low 50s.

Low 50s. Okay, great. And then just switching gears a little bit on capital allocation, you ended the year with over $30 per share in cash and cash equivalents, and you obviously remain significantly under levered. Curious how you and the board are approaching this high-cost problem.

Well, we have our regular quarterly board meeting in a couple of weeks. We'll see. But at the end of the day, we talk about it at every board meeting, all the different alternatives. Certainly, when we went out to borrow the $4 billion, which was really a net increase of $2.5 billion because we used $1.5 billion to pay off existing debt, the fact was is that we were planning for a worst-case scenario where there would be a slew of seasonal summer merchandise that we might have to hold for a year, as well as there would be a lower inventory turn, particularly on discretionary non-food categories. Up until then, June, when we've seen the numbers really go in the northern way, you know, June, July, and August, much of that need has not occurred. So, yes, we are in a good position right now. We'll continue to look at it. But you'll know us after we know. Got it. Next slide.

Your next question is from Karen Short of Barclays. Your line is open.

Hi. Thanks very much. I guess this question, just on the $2 premium, I guess the real question is, I mean, I know you called out the eight weeks, but would it be more prudent as we kind of model this to just kind of think that that's more or less the new norm, meaning $14 million a week is kind of what we should add on on an ongoing basis? It just seems that it's hard to take something like that away once you've offered it. So just thoughts on that.

I don't think it's completely hard to take away. We communicate via our CEO and our head of HR to our employees. We've done that and we've continued to extend it, but saying this will be it and we've added a little more. Well, I think we'll see. I think it may be hard but not impossible, and we want to make sure we communicate to our employees of why we're doing it, and we'll just have to wait and see, Karen.

Okay.

And then I wanted to just... I wouldn't necessarily budget it in for the full fiscal year, but we don't know at this point. Okay. We know it's at least eight of the 12 weeks in queue Two on it, maybe more.

Okay. And then just back to traffic for a second. So within your reported traffic numbers is obviously e-comm, right? So I wanted to just ask a little about what your physical in-store traffic looks like. And then I think on the last call you were asked on color on traffic with your more loyal executive members versus, you know, the lower level members. Do you have any color on both of those?

I'm looking real quick. I don't have color in terms of generally, I mean, executive members do everything, spend more, come in more frequently, buy more each time, and renew at a higher rate. I'm looking real quick here. Hold on. I don't have traffic. Comps, within our comp number, e-commerce, benefits it by a little over 3% of the comp. Yeah, not the traffic number.

Okay.

And the average ring has more than doubled.

Oh, I'm sorry.

The average ring on e-comm versus the warehouse is about twice. And that's because you still, even though we've expanded on food and sundries and apparel, you still have got big ticket items like electronics and furniture, exercise equipment and the like. Bob here is saying he's guessing that the traffic impact would be one to two, but we don't have that spoken out.

And your next question is from my co-answer from UBS. Your line is open.

Thanks a lot for taking my question. So Richard, now that we're six months into the pandemic, does Costco come out of this situation in better position to experience incremental margin expansion over time? And is there any factors that you've learned that would allow the company to generate more margin expansion than it would otherwise?

Well, the more margin we we can generate, the more likely we're going to give some of it back. In this case, arguably, given our strength, we've certainly given it back. We remain very competitive, but we've also maintained that $2 premium to our employees, which we appreciate. I think the first part of your question, when you started asking it about how do we feel we're going to come out of the pandemic and as things change, I mean, look, there's factors as people eat out more and go out more. or travel more, there's less for the home. That's on a macro basis. We have to believe here, and we do believe, that we have picked up new members. We've picked up sales from existing members from categories that they are buying more at Costco now, relatively speaking, in part because certain other venues or traditional venues are either closed or not frequently, not frequent as often. So again, you know, we've been blessed in that regard. I think the other thing that I've witnessed over the last several months is our merchants ability to pivot and to add items for the house, houseware items, additional items. And so I think net of all those things, I still think on a macro basis, When people start eating out more and start flying more and attending, you know, going on vacations, some of these monies that are now being used for purchasing things for the home is going to move that way. That being said, I think there's several areas where we're retaining more of their dollars, and some portion of that we'll continue to retain when it gets back to normal. Okay.

And on an unrelated note, Luke? commerce growth, what percentage of your membership is currently buying from you online? What's the profile of the member who's driving the growth? And presumably a lot of the spend is, is incremental because the spend of those members is going up. So does that change how you are thinking about emphasizing or investing behind your e-commerce business?

Yeah, I don't have all those specifics. What I know is what was happening even before COVID and has been exacerbated in a positive way since COVID is some members have signed up to utilize those services. More members are utilizing those services and spending more on it. If you think about the one-day fresh, it is up several hundred percent fold, recognizing it was a smaller base. Even as it's gone down from its peak a couple or three months ago, it's still a lot higher than it was before. And my guess is even as people get used to wanting to go out, there's some people right now that aren't going to the supermarket or aren't going out to Costco to shop. They love this service. There's some people that are going to – there's going to be some group of people that are going to like that. And given our quality and value, you know, We in a supermarket are not mutually exclusive of one another, and we think we'll keep some of that. So we are certainly doing more to market to members, not only in-store promotions, but online promotions as well. Yeah. I feel better about our offerings today certainly than a year ago or than two years ago, recognizing there's a lot of low-hanging fruit because of some of the things we hadn't done historically. We know that on the – I hate to use the phrase again, but on the big and bulky side, a lot of those things – for four years we had talked, which is pre-COVID, we had talked about going from $50 million in white goods sales in-store in the U.S. with a limited sales penetration, if you will, to fiscal 2019. doing almost 700 million, I think just under 700 million. That business has increased at a more rapid pace in the last year for two reasons, COVID and people buying things for the home, as well as in our view, uh, the, the original things we're seeing trends wise in terms of how to utilize better utilize, uh, our big and bulky, uh, interval acquisition, what we call now, what we now call Costco logistics for big ticket furniture items, uh, lawn and garden items, exercise equipment and the like. Okay, thank you very much and good luck. Thanks.

And again, to ask a question, please press star 1 on your telephone keypad. Your next question is from Paul Lee-Wes of Citi. Your line is open.

Hey, guys, Paul Leshway. Richard, can you maybe talk about what you're seeing in terms of spending by new customers relative to existing customers, but also relative to what you would typically see from a new customer? And then second, I guess I'm curious if you have looked at club usage by members at all. You know, what percent of your members use the club this quarter versus last quarter anyway to frame that? Thanks.

I don't know if I can answer all those specifically, but keep in mind, some of our new members signed up simply for same day fresh or two day dry. Same day fresh, you have to be within a market, you know, a trade area where there's a Costco. Two day dry, you can be anywhere, I think almost anywhere in the United States. And with Instacart, it's both the United States and a good part of Canada now. And so we have some members signed If they weren't a member but they're signing up just to get two-day dry and they're not near a Costco, needless to say, they're just buying those types of basic dry grocery items and that's it. Generally speaking, what we've seen in a given member, whatever type of member, they buy more each year over the first few years of their membership. And then there's the age thing as well. The sweet spot for us is still 40 to 55-year-olds as they've grown economically, grown family-wise, and are not on the downside of that curve in terms of empty nesting and what have you. But I don't have any specifics beyond that to give you. How about club usage?

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Hey, Tex, can someone else get a turn?

Club usage? Uh, same thing again, I can tell you, I don't have anything specific, right? Uh, you know, the last few months, but club, other than traffic has improved greatly from its trough five months ago, uh, not back to where it was, you know, pre COVID. But one of the things that we see is, is that the typical member, uh, over the first three to five years is growing their total purchases, which is a combination of their basket and their frequency. And clearly, when we can convert somebody to an executive member, they are buying more and shopping more frequently than that.

Got it. Thank you. Good luck.

Your next question is from Oliver Chen of Colleen. Your line is open.

Hi, thank you. Richard, on the e-commerce frontier, it's been really impressive what you've done. What is some of the lower-hanging fruit that you see ahead there, and also if you could brief us on the penetration now and how you might see that step change and where that will head in the future.

Well, I mean, the main lower penetration things are if you go back three or four years ago, I don't think we had good email addresses for much more than a third of our member base, and we didn't focus on that kind of stuff. Today we have well over 60% and growing. We now require you when you sign up, and more members are signing up online than in store in general anyway, when you sign up, you sign up with an email address. So we're doing a lot more to collect and gather those email addresses and then communicating with them more often. So that's probably the single biggest low-hanging fruit. The other thing is we feel that we've been able to use emails, if you will, not only to drive e-commerce growth, special promotions, but also in-store special promotions. As well, the COVID, you know, we were pleasantly surprised by just the sheer increase in people using, you know, same day fresh. You know, anecdotally, I can't tell you how many people have mentioned to me how they love it. And, you know, they may very well be shopping same day fresh or same day whatever from their local supermarket as well. But we've got a lot of great items on there, and it's hitting a chord.

And, Richard, as we look to this holiday season, which is definitely like no other, what factors would you prioritize as how you're planning it as best you can differently this year versus others? And is the multi-vendor mailer in good shape, and are you going to leverage that a lot for holiday as well? We'd love thoughts around dynamics of supply chain and marketing for holiday.

Well, the multi-vendor mailer is back, and there may be a few items that we don't have because of certain supply limitations, but for the most part, it's completely back after, I think, two or three of those, so six or nine weeks of multi-vendor mailers, if you will, that we didn't do. I think the biggest difference is, again, for the Christmas holidays is getting back to basics. But you're still going to see some hot, exciting items at Costco. Again, as I mentioned, even on Halloween, we still have costumes. I think we brought in something like 80% of what we would have normally brought in, 80% or 90%. And we're actually selling them. So we... We added some vendors over the last several months, given certain shortages. You know, one of the challenges is right now we've had great numbers in electronics and white goods, notwithstanding the fact that the numbers would be better if there was greater supply. We all read about there are certain supply issues on laptops and computers and things like that, on some of the gaming things. On some of the white goods, you know, where there might be downstream shortage or at least some allocation of compressors. So we're doing very well on that. We've added some different vendors in some cases. And I think the fact that we did so well this summer relative to what we had anticipated has given us the confidence to be still pretty aggressive going into the fall.

Our last question on same-day fresh in the momentum there. What are the margins like and what are your thoughts about that margin and the take rate and also taking some of those capabilities in-house versus using the white label?

Well, at this juncture, we have a very good relationship with other competitors. I'm sure having a good relationship also with Instacart. There's a few other smaller ones that we're using. We're not necessarily looking to take that in-house at this juncture, but we are always looking at various third parties, and we have good existing relationships, and we want to keep growing those as well.

Thank you. Best regards.

Thanks.

Your next question is from John Heinbuckle of Guggenheim Partners. Your line is open.

Hey, Richard. So a couple of things on gross. Even if you take out fresh food, right, it looks like the other three were up quite a bit. Maybe dive into a little bit similarities driving those three big categories versus what might be unique to each. And then how sustainable is that, right? Because this obviously is one of the better core-on-cores we've seen in a while.

Sure. Well, look, first and foremost, there's – well, I guess two things. There's a little bit less promotional activity going on. You think about TVs and electronics. Those have been such a strong category, not just for Costco, but in general. The manufacturers haven't been doing as many promotional things. And the other thing is, given just the sheer sales strength, when you're comping, if we comped at whatever it was in August 14, I don't have it in front of me, whatever, but in some of these categories that we talked about what was stronger, you're talking comps in the low to high 20s. When you've got that kind of sales strength, you have very little – on a much smaller scale, you have less markdowns. So, you know, you've got to – whatever your regular margin is on those categories, less, a little bit less, you know, without a little bit of an offset from, you know, end of cycle. And some of those cycles are 60 and 90 days, by the way, on some of those SKUs. So that's helped you a little bit.

And then on ancillary rights, you said 75% was gas and travel. Was gas the bulk of that? And if so, was gas more the compare last year versus any decision you made, right, to take less margin? And I imagine it's not that, to take less margin and try to drive traffic. The market's just not there, right?

You know, I think in terms of less margin, that's more – of our DNA, you know, when things are really good, we're going to drive sales even further and do that. Or when things are good, we're going to, you know, we feel a little more comfortable doing the $2 an hour for another month, whatever it might be. But at the end of the day, there's probably less price competition out there today than there was a year ago. And so we're able to maintain our fair margins.

All right, and then lastly, what's the current thought process on two things, expanded BOPIS, right, which you haven't wanted to do for cost reasons, and a third tier of membership? I don't know if it would be a higher tier or a middle tier, but sort of segmenting that a little more.

Yeah, well, on buy online and pick up in store, we continue to look at what others do. We continue to scratch our head a little bit. It's not that we'll never do it, but it's not on the agenda for this week. And as it relates to an additional tier of membership, again, I don't think that's on the top of the priority plate at this juncture, given everything else that's going on. Okay, thanks.

Your next question is from Scott Mushkin of R5 Capital. Your line is open.

hey guys thanks for taking my question um so i guess i want to get back to richard uh to the the e-commerce the traffic mix and the comments that you've made prior um about really wanting to get people into the club if the pandemic you know shifts that where you're going to see permanently uh traffic being an issue there you know how are we supposed to how are we thinking about like impulse purchases and just the Costco model once we exit the pandemic, if this kind of sticks with Omnichannel just being a much bigger piece of the pie overall?

Well, first of all, keep in mind, if our online business was 5-ish percent a year ago and now it's 8-ish percent, that's a big delta in one year, and it'll continue – It will probably continue to increase as a percentage from there. And that excludes the third-party Instacart-type business, you know, the one-day grocery. And so, you know, look, we've been pretty good at pivoting along the way. And we recognize there's lots of attributes to value. The first and foremost is the lowest price on the greatest quality or quantity of goods. services, and the trust that we've endeared with our members. I think that we'll figure that out as we go along. We may be occasionally stubborn on something, but we're not completely intransigent if we see that we need to do something. We've figured out how to do things in a little different way than others, and we'll continue to do that.

And as far as the pickup, I know I think you were quoted in a recent article on this, I mean, how are you thinking about pickup over time, and is there a way to bring that arrow into what you guys are doing at Better Economics? I know you've always been cautious about those economics.

Well, keep in mind, when third parties do it, their costs for picking – We believe, we don't know exactly what they are, but we believe based on our wages and benefits is less. And they've created a model that works with their density and everything else. They're not just buying and delivering from Costco. They're buying and delivering to others. So there's some economics in that model that makes sense. Our view also is there's some retailers that are doing it because they feel they have to. You know, one of the things, the article you're talking about is the article today. The one, in my view, thing I would disagree in the article is that we should be concerned because our sales have started slowing, which is the contrary. They're stronger than they've ever been the last three months. So, you know, we don't have our head in the sand on it. We look at it. We have people here that study it. And maybe we'll surprise you. But at this juncture, we're not prepared to do that.

All right. Hey, thanks for taking my questions. Appreciate it.

Your next question is from Rupesh Parikh of Oppenheimer. Your line is open.

Good evening. Thanks. Thanks for taking my question. I guess just two related questions on real estate. So as you look at your store growth for this year, what's the split between international and domestic? And also, just given some of the challenges of brick and mortar, I'm also just curious if you're starting to see more opportunities on the real estate front.

Yeah, I mean, I think our general view is, is that we still feel that we want to open looking at this year and the next five years open somewhere between 20 and 25 a year net new units. About half of those, a little more than half, will start by coming in the United States, and that'll trend over the five years to maybe being slightly over 50-50 in the U.S. to slightly under 50-50 in the U.S. We still think we have plenty of opportunities in the U.S. It does take longer in certain other countries. I think we're just about ready to do a second unit in France. Um, we had just opened our third unit in, uh, in Spain after having opened our first unit in Spain, gosh, five years ago. Um, we have one unit in China with two planned for fiscal 22. We're now in fiscal 21. Uh, and, uh, so some of these countries do take longer, but we are also putting a little bit more emphasis on that, uh, where we've been successful and we think we can be successful. And, uh, but I, I think, uh, you know, again, at the 40,000 foot level, if, if, We did 20 to 25, a little more than half in the first couple of years is U.S. And by year four or five or six, it'll probably be, you know, instead of 60, 40 or 55, 45 U.S., it'll turn to be just the opposite.

Great. Thank you.

Your next question is from Scott Ciccarelli of RBC Capitals. Your line is open.

Thank you. Hi, guys. Actually, another store growth question. What is the limiting factor for you in terms of accelerating your store growth further? You've got a grand total of one in France and a grand total of one in Spain, and you've been there for five years. It just seems to me like there could be a lot more store expansion if you really wanted to push it. I guess what I'm wondering is what keeps you from accelerating that further?

I think there are a couple of things. First of all, I've always said that we're a very hands-on company. And one of the things we've learned when we've gone a little too fast, not to suggest one in five years is too fast, but I remember in Japan we got to 10 or 12 locations, and then in about an 18-month period we opened eight or nine, and we had a little bit of operating indigestion. As it relates to France, it took us close to 10 years to get our first open. The level of people and entities that can appeal that process and fight you to keep you out, is unbelievable. And again, in Spain, we actually have three in the fourth this year. Generally speaking, if I had to look at various countries, we'd open five in the first five years. That would be relatively fast for us. But again, it gets back, I think, to getting that hands-on and make sure that we feel comfortable how the market is doing. we're probably a little slower than we could be, but we feel good about it. It's worked for us and we'll, I think, continue to do that.

But Richard, that's on the international front. That makes sense. You've got to get comfortable with the market and supply chain, of course. But what about just in the U.S.? Like, you're obviously comfortable with all the, you know, how to navigate kind of, you know, store openings and, you know, what kind of restrictions you might have. You know, it just seems to me like if you've got a decent amount of white space.

Fair enough. Well, I think some of the white space gets better each year. If I look at even the Seattle market, there was a multi-year period where we didn't open any additional units, and then we opened on the east side here Redmond and a couple of others. And part of it is cannibalizing nearby units. But, no, we try to be – relatively methodical and disciplined of kind of the returns that a new unit can generate net of cannibalization. And could we open 20 instead of 12 or 13 in the U.S.? Absolutely. But it's how fast the real estate people and the regional operations people get with our CEO to go through that process and finding the right properties, yeah. Got it. Okay, thanks a lot, guys.

Your next question is from Mike Baker of DA Davidson. Your line is open.

Hi, thanks, guys. And it's getting late, so I'll be quick. But I wanted to ask you about the membership fee income up about five and change, I think, this quarter, which has been pretty consistent throughout the year. But I guess how much of that you think is from new members that you're picking up because of the pandemic? Some of your competitors are seeing big increases in new members from the pandemic. It's hard to tease that out from your numbers. I mean, we can compare it to past MFI members, but it's a little lumpy because of the fee increases. So any idea of what you're picking up in terms of new members because of the pandemic?

We don't disclose that. It's still a smaller percentage of the total. It's not a majority of the total.

And does it surprise you that those membership numbers aren't accelerating more, as you might see from some of your competitors?

You know, our view when we've looked at some of our competitors' numbers is partly because they have a much lower number of members per location than we do. and that's our view. But the fact is when we look at how penetrated we are in so many of our markets, I mean, we are even in California where we have 120, 130 units. I forget how many units we have there. I believe we're slightly north of 60% household market share. In states like Oregon and Washington, we're well in excess of that. So I think that's part of the issue in our view. We've got a lot of people already.

Right, yeah, yeah, makes sense. All right, if I could ask one follow-up on gas gallons sold. You said you're at 10% today. That's not 10% for the quarter, down 10%, that is, I believe, right? That's sort of a point in time. Did you mention how your gas gallons sold were as we go through the whole quarter?

We did not. That is a more recent number in the last month, let's say. I mentioned that it may have been even in the end of Q3, which ended like May 10th or May whatever around then, where we were like a minus 50. But my guess is we're somewhere in the low to mid teens for the last month.

For the last quarter or for the last month?

The last month of low teens.

Okay. And so the total quarter is somewhere in between those two numbers, presumably.

Yes. Yes.

Got it. Great. Got it. Understood. Thank you.

Your next question is from Peter Benedict of Baird. Your line is open. Two more questions.

Yeah. Hey, Richard. Just a question on how, you know, the product shortages, issues that you guys have seen around COVID might be influencing your view on where you might go next in terms of vertical sourcing. I mean, I don't assume there's anything electronics or white goods, but has the experience the last four or five months maybe bent the curve in terms of when certain initiatives might be pulled forward?

Well, in terms of vertical initiatives, The last two or three years have been quite a bit, not only a bakery commissary that serves U.S. and Canada just across the Canadian border, not only a second meat plant in Illinois versus the one we've had for many years in California, not only the poultry complex, and not only a couple of smaller produce initiatives we've got going on right now. And last, not even expected, but the acquisition of Innovel, or what we now call Costco Logistics. So we've got our hands full with a lot of things right now. I don't necessarily see, I think one of the things that we've learned from COVID, we have great relationships with large companies, both consumer product name companies and private label name companies doing literally multi hundreds of millions of dollars of one item. When there has been some shortage of supply, we've had to expand that vendor network a little bit. There are some instances where given our sheer volume in Asia now, can we find a comparable manufacturer or an existing supplier that wants to do something over there? So I think there'll be some ways to continue to reduce costs on key items. But in terms of what's the next big vertical, I don't know if we know at this point.

Okay. Well, that's fair. And then just thoughts on the travel bookings you had mentioned that you were starting to see a pickup there, but it's further out than normal. Can you frame maybe what's normal and what you're kind of seeing right now? I thought that was interesting.

This is my definition of what I have understood previously at normal is if you go back pre-COVID, you know, The majority of your bookings each day related to stuff in the next few months. Maybe a little further out for, you know, five months before Christmas or five months before the beginning of summer. Today, you've got people booking things out five and nine months in some cases. Now, there's two reasons. One, there's some great deals out there. And two, in many instances, there's no cancellation charges. Uh, and so, uh, we'll have to wait and see, and part of that will be dictated by, uh, you know, we've actually actually sold and have had some members go on some cruises of late, still a very small number. The car rental business has picked up a little bit better than the other, but still down relative to what it had been pre COVID overall. Yeah. Overall. And mind you, if we book something out in nine months, we don't take it into revenue until it's the trip has taken. So even though business has improved, in terms of what we show in our numbers, there's very little, but it's just starting to, it's not, first of all, it's not negative right now. You know, there are a few months there in April, May, June, or April, May, certainly, where cancellation costs were greater than trips being taken.

Yeah, that makes sense. All right. Thanks, Richard.

Your next question is from Kelly Bania of BMO Capital. Your line is open.

Hi, Richard. Thanks for taking our question. Just wanted to ask maybe a two-part question here. More and more retailers are talking a little bit about advertising maybe as a way to offset their lower margin e-commerce business. And so I was curious, one, if you could talk about where are e-com margins just with all the acceleration and maybe just also remind us what bucket that is in your table. But then also just philosophically, how do you think about that, maybe taking on any more ad revenue to your dot-com business? Thank you.

Well, we're taking on more ad revenue, and we keep learning more about that as well as we drive that business. But overall, the margins, it's lower gross margins. Part of that is category-specific, you know, Electronics, which is by far the largest single component of e-commerce, is a high single-digit margin. If you think about it, in the Costco warehouse, you've got fresh that's in the low double digits, sometimes a preteen or an early teen. And you've got, again, conversely, electronics, which is you know, mid to high. Uh, you also, as we try to drive the business in certain new categories like apparel, uh, where you, you know, buy two items and get $5 off or whatever the marketing or, or, or, uh, promotional item is, there's a lower realized margin on a given category. And some of those categories versus online versus in store. So overall, you also have less SG&A and, uh, I get back to what Costco has always been a top-line company. We're looking to grow it top-line. Certainly, the profitability of e-commerce has improved dramatically in the last year with these strong sales, but it's part of the ecosystem. Oh, where is it in the matrix? It's an ancillary.

It is an ancillary. Okay.

Yeah.

Thank you.

Okay. Your next question is from Laura of Loop Capital. Your line is open.

Just a quick one, Richard. You've managed to improve inventory turns or grow inventories slower than sales since the onset of COVID. I know that some of this has been supply chain issues or issues with certain skew sourcing, but that seems to be clearing up. How long can you keep improving inventory turns at this pace?

Well, if we keep doing 14% sales for a while, but I say that tongue-in-cheek because if you go back to April and May, the inventory turned to come down, and one of the reasons we were planning for additional capital, working capital needs. Look, I think we've gotten to a point – you know, when we've enjoyed a turn based on how you calculated in the 12 to 13 range, when you get up to that range, it's, it's difficult to some extent as well. You know, gas helps it because we turn gas every day. Fresh foods helps it because we turn fresh foods every week or less. I think about every week, maybe a little better than that. Um, and the fact that we didn't have a big denigration on non-food items, which we had thought would be an offset to that. So it's helped a little bit right now, but, um, If you ask me if I could just keep where we are right now, I'd say, sure. Got it. Thank you.

Your next question is from Christopher Mandeville of Jefferies. Your line is open.

Hi, this is Blake on for Chris. Thanks for giving us in here. I was wondering if you'd comment at all on the extent to, you know, how much have existing customers you had before the pandemic that historically didn't buy general merchandise? that are now shopping that category. How much of that example have you seen?

Yeah, I don't know off the top of my head that, sorry.

Okay. Just lastly, can you talk about renewal rates and your expectations on those? Should we expect them to maybe creep higher given all the comp strength you're seeing now?

Yeah, sorry, you're 0 for 2. We don't guide. No, we don't guide. They're There are things that help the renewal rate, getting people to executive, getting people to do our credit card. Some of the things we do now when you sign up online, auto bill. And so those are things that help push it upward a little bit. Yeah, the fact to the extent, but conversely, if we ramped up internationally, and not that we're going to do that overnight, but if we ramped up internationally, you start in any new market or new future, The first few warehouses in a new country, you work on a much lower renewal rate to start with, but a much higher number of initial sign-ups because there's a lot of looky-loos. And so all those things weigh in. We feel so far that, you know, I know as soon as we show a minus tenth of a percent in a quarter, which knock on wood we haven't of late, people will worry what's going on. But our view is that we're hanging on to our members. We're getting them to, in most countries, even in new countries, we've seen the trend to more often improve than not. And so I think we feel pretty good about that.

Got it. Thanks so much.

Why don't we take two more questions?

Yes, your next question is from Greg Millick of Evercore ISI. Your line is open.

Hi, thanks. Richard, just one clarification and one question. Did you say e-commerce was 8% and then over 10% including Instacart? Was that for the year or the quarter?

Quarter.

Quarter.

Roughly.

Quarter and roughly. Eight-ish and ten-ish. Got it. And then. Yes-ish. Ish. So on traffic, I guess that was my follow-up. You talked a lot about, and it's nice to see the U.S. traffic come back through the quarter. Could you help us understand, you know, why international traffic, you know, remains negative? And if there's any outlier countries driving that, or is really the U.S. the outlier with traffic coming back? And if you're concerned that that could influence the renewal rates in those international markets. Thanks.

Well, no, Canada is the outlier internationally. You know, mind you, if, you know, U.S. is a little over 70% of our company's sales. Canada is around 10, maybe 15. I'm sorry, 15. And so you've got other international being, you know, less than. Yeah, there have been more restrictions in Canada. Australia also, there have been more lockdowns of late. But Canada, and we have no direct warehouse competition in Canada. We've seen their traffic. More negative with a basket even bigger than the U.S., So we're still kind of buying, and we've seen that improve also. That negative has been reduced. So, you know, hopefully that will continue as well. Trend-wise, the last four months have been, you know, on the up and up.

Got it. So the trend's the right direction. It's just taken longer for those country-specific reasons.

It went further down to start with, too. I mean, I think even I'm shooting from the hip here, but even several months ago, if the U.S. was a minus five traffic, Canada was a minus double digit traffic. Got it.

Great. Thanks a lot. Good luck. Thank you.

And we have Robert Moscow of Credit Suisse. Please ask your question. Your line is open.

Hi. Thanks for having me on the call. I wanted to know if you're noticing any regional differences in terms of how consumers are behaving during the pandemic. You know, infection rates are rising in certain states. You know, there's threat of more, you know, I don't know if it will fully go to lockdowns or not. But do you see any differences in terms of how they're getting ready for Halloween or worried about trick-or-treating or anything like that? And how are you responding to that?

I can't tell you specifically about Halloween. If I look back over the last several months, the only thing that we saw was when certain states unlocked more quickly, we saw a little pickup there faster earlier because people were getting out faster. Some of those states that did that. Other than that, we haven't seen anything dramatic yet.

I would say, honestly, too, that the pandemic has progressed. People are just more comfortable with just going out more.

Right. Yeah, Bob makes a good point here. I think, and we're all a little guilty of it, as the pandemic has progressed, we're all hopefully... Hello? God damn it. Hello?

Yeah, we hear you.

Oh, you can hear me now. I thought I hung up on you. Sorry.

Hello?

I think as the pandemic has continued, people have gotten a little more comfortable, hopefully still maintaining the safety protocols, but going out more often. And that's helped the numbers pick up a little bit as well. And overall, again, anecdotally, we feel that people feel more comfortable coming into a place where masks are required, where the places, the physical spaces are larger with more cubic feet of open air, if you will. So I think those things have probably helped us. But the only real difference we saw was uh, during those couple of months where some states opened up a little faster than others.

Okay. Does that mean that, that as reopenings eventually improve, that's a net positive for your business in 2021?

Well, that it's a net positive, but we don't know. Does that also mean does people eat out more frequently? They're going to buy less food, fresh food or food items at supermarkets and Costco's. There's probably some different offsets there. Um, Again, we believe that some of the things that we've picked up through this pandemic, in part because, you know, a lot of these non-food discretionary categories and big-ticket categories, some of that's going to be sticky. And once they've shopped and had a good experience at Costco at a great value, they'll hopefully continue that.

Okay.

Hey, thanks so much. Okay. Well, thank you, everyone. Have a good day and we're around. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.