Costco Wholesale Corporation

Good day and thank you for standing by. Welcome to the fourth quarter earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question during that time, 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 your first speaker for today, Mr. Richard Galanti, CFO. Thank you. Please go ahead.

Thank you, Ann, and good afternoon to everyone. I'll 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 of fiscal 2021. The 16 weeks ended August 29th. Reported net income for the quarter came in at $1.67 billion or $3.76 per share. Last year's fourth quarter net income came in at $1.389 billion or $3.13 per diluted share. This year's fourth quarter included an $84 million pre-tax or 14 cents a share charge for the write-off of certain IT assets. Last year's fourth quarter included $281 million pre-tax charge or 47 cents a share of COVID-related costs. As well, it included a $36 million or $0.06 a share pre-tax charge related to the prepayment of $1.5 billion of debt, partially offset by an $84 million or $0.15 per share benefit for the partial reversal of a reserve related to a product tax assessment taken in the fiscal year 2019. Net sales for the quarter increased 17.5% to $61.44 billion in up from $52.28 billion a year earlier in the fourth quarter. Comparable sales for the fourth quarter, as reported an hour ago, for the 16 weeks on a reported basis, the U.S. was 14.9%. Excluding gas inflation and FX, the 14.9% would be 10.3% positive. Canada reported 19.5% plus. Ex-gas inflation and FX, 6.7%. Other international reported 15%, without gas inflation and FX, 7.3%. Total company, 15.5% reported, 9.4% ex-gas inflation and FX. E-commerce, by the way, reported was 11.2% positive, ex-gas inflation and FX, 8.9%. In terms of Q4 comp sales metrics, traffic or shopping frequency increased 9.2% worldwide, and 8.8% in the U.S. Our average transaction or basket was up 5.8% worldwide and 5.6% in the U.S. during the fourth quarter, those numbers including the positive impact from gas inflation and FX. Foreign currencies relative to the U.S. dollar positively impact sales by approximately 230 basis points, whereas gasoline price inflation positively impacted sales by approximately 385 basis points. Moving down the income statement to the membership line, membership fee income for the fourth quarter came in at $1.234 billion in the fourth quarter of 2021. That's up $128 million from the prior year's fourth quarter membership fee income of $1.106 billion. The $128 million represents an 11.7% increase year over year. Excluding the benefit from positive FX, The $128 million positive number would have been $107 million positive or a 9.7% effective increase. In terms of renewal rates, at the fourth quarter end, our U.S. and Canada renewal rate was 91.3%, up three-tenths of a percentage point from 16-week earlier number at Q3 end. And worldwide rate came in, renewal rate came in at 88.7%, also up three-tenths of a percentage point from Q3 end 16 weeks earlier. Renewal rates are benefiting, we believe, from more members auto-renewing as well as increased penetration of executive members who, on average, renew at a higher rate than non-executive members. Our first-year renewal rates have also improved as well during this time. In terms of number of members at Q4 end, member households and total cardholders, At Q4, the fiscal year end a few weeks ago, total paid households were 61.7 million. That's up 1.1 million from the $60.6 million figure we shared with you 16 weeks earlier. Total cardholders came in at 111.6 million, or 1.8 million higher than the 109.8 we had as of Q3 end. At Q4 end, paid executive members came in at 25.6 million. an increase of a little over a million new executive members, and that's during the 16-week period as well. Moving down to the gross margin line, our reported gross margin in the fourth quarter was lower year over year by 32 basis points, and actually excluding gas deflation, it was higher by five basis points. As I usually do, I ask you to jot down two columns of numbers, a little gross margin matrix, if you will. The line items will be core merchandise, Ancillary, second line item would be ancillary and other businesses. Third line item would be 2% reward. Fourth line item would be LIFO. And last line item would be other. And then finally, the last line item would be total. Two columns, the first one being reported year over year in the fourth quarter, and the second column excluding gas inflation. So core merchandise on a reported basis was lower year-over-year by 90 basis points. Ex-gas inflation, it was lower, minus 57 basis points. Ancillary and other businesses, plus 44 on a reported basis and plus 53 ex-gas inflation.

2% reward, plus 1 basis point and minus 3 year-over-year on ex-gas inflation. LIFO, minus 5 and minus 5 basis points. And other, plus 18 and plus 17.