Costco Wholesale Corporation

during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the conference over to Richard Galanti, CFO. Please go ahead.

Thank you, Demi, 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 a company does not undertake to update these statements except as required by law. Comparable sales and comparable sales excluding a 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. In today's press release, we reported operating results for the second quarter of fiscal 24. The 12 weeks ended February 18th, as well as February retail sales for the four weeks ended this past Sunday, March 3rd. Reported net income for the 12-week second quarter came in at $1.743 billion. or $3.92 per diluted share, up from $1.466 billion, or $3.30 per diluted share, in the 12-week second quarter last year. This year's results included a tax benefit of $94 million, or 21 cents per diluted share, due to the deductibility of the $15 per share special dividend to the extent received by our employee 401 plan participants. Net sales for the second quarter were $57.33 billion, an increase of 5.7% from the $54.24 billion in the second quarter last year. Net sales were negatively impacted by approximately 1.5% in the U.S. and worldwide from the shift of the fiscal calendar as a result of the 53-week 2023 fiscal year. The following comparable sales reflect comparable locations year-over-year and comparable retail REICs. In the U.S., we reported a 4.3% comparable, excluding gas, deflation, and FX. The 4.3 would have been a 4.8. Canada reported comp for the quarter 9.2%, 9.0x gas and FX. Other international, 8.6 and 8.2x gas and FX. Total company, a 5.6 reported for the quarter and a 5.8% excluding gas, deflation, and FX. E-commerce was an 18.4% reported and an 18.2% excluding FX. In terms of second quarter comp sales metrics, our traffic or shopping frequency increased by 5.3% worldwide and 4.3% in the U.S. Our average transaction or ticket was up 0.3% worldwide and up 0.1% in the U.S., And foreign currencies relative to the U.S. dollar positively impact sales by approximately two-tenths of a percent, while gasoline price deflation negatively impacted sales by approximately four-tenths of a percent minus. Moving down the income statement to membership fee income, we reported membership fee income of $1,111,000,000, up $84,000,000, or up 8.2% year over year in the quarter. In terms of renewal rates at second quarter end, Our U.S. and Canada renewal rate came in at 92.9%, which is up one-tenth of a percent from Q1N 12 weeks earlier. And the worldwide rate came in at 90.5%, similar to the last quarter. Membership growth continues. We ended the second quarter with 73.4 million paid household members, up 7.8% versus last year, and 132.0 million cardholders, up 7.3%. with continuing growth throughout the quarters. At Q2 end, we had 33.9 million paid executive members, an increase of 646,000 during the 12-week second quarter. Executive members represent a little over 46% of paid members and a little over 73% of worldwide sales. Moving down the income statement line next to the gross margin, our reported gross margin in the second quarter was higher year over year by eight basis points, coming in at a 10.80%. compared to 10.72% last year in the quarter, and at four basis points, excluding gas deflation. Writing down the little matrix that we usually do with two columns, both reported and excluding gas deflation, first line item is core merchandise, plus five basis points year over year on a reported basis, and plus two exit deflation, gas deflation. Ancillary and other, plus seven and plus six, 2% reward, minus 7 and minus 7. LIFO, plus 3 and plus 3. And all told, total reported, again, gross margin year-over-year up 8 basis points and up 4, excluding gas deflation. In terms of the core margin on their own sales, again, while the number I just read you was a plus 5 basis points and plus 2 gas deflation, in terms of core margin on their own sales, our core and core margins were up 25 basis points year-over-year, with food and sundries and non-foods being positive year-over-year and fresh being negative. Ancillary and other businesses' gross margin were higher by 7 basis points and higher by 6 S gas. The increase year-over-year was driven largely by e-com and partially offset by gas. 2% reward, again, higher 7 basis points, lower 7 by 7 basis points, both with and without gas deflation. with higher sales penetration coming from our executive members. LIFO plus three basis points. We had a $14 million LIFO credit in the second quarter this year compared to no LIFO charge or credit in the second quarter of last year. Moving to SG&A, our reported SG&A in the second quarter was higher year over year by three basis points, or a minus three would be higher, coming in this year at 9.14% compared to last year's 9.11%. And the higher... would have been lower by one basis point excluding gas deflation. In terms of Q2 year-over-year, the operations component of SG&A doing the matrix was 11 basis points higher or minus 11, X gas deflation minus 8, so 8 basis points higher, central plus 4 and plus 5 basis points, stock compensation plus 4 and plus 4, and total would be three basis points higher year over year and plus one basis point or one basis point lower year over year or better. And with regard to the operations component being higher by 11 reported and eight excluding deflation, as compared to a year ago, during the past year, we included two last March's extra top of scale increase in wages. which was about a two basis point hit to the SG&A line. As well, in the first quarter of this year, we raised the starting wage in the US and Canada. We estimate the impact of that new wage also was a roughly two basis points. So about four basis points of that eight or four basis points of that 11 were related to those two wage increases, more than normal. Below the operating income line, central I mentioned was better by four and five basis points and the rest was pretty much straightforward. Below the operating income line, interest expense was $41 million this year versus $34 million last year, and interest income and other for the quarter was higher by $102 million year over year. This was driven by an increase in interest income due to higher interest rates and higher average cash balances, as well as FX, which was favorable versus last year. We'll see less benefit from interest income going forward following the January payment of the $6.7 billion special dividend.

In terms of income taxes,