Costco FY 3Q16 Earnings Call Notes

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Richard Galanti

Customers are pretty healthy

“Okay. Well, in terms of the customer, so far so good. We don’t see any dramatic change. Many of you have asked questions or have had some concern about traffic coming down from this 4% plus number over seven years. We feel pretty good about where our numbers are. We don’t really see a lot of different changes.

Interestingly, when you look at nondiscretionary items like food and sundries versus discretionary items across the nonfoods categories, including big-ticket items like furniture, electronics and the like, we’ve actually had, relatively speaking, a little more strength in some of those nonfood categories. So that I think allays some of any concerns that some people have had.

But generally speaking, I’d have to say our customers are still pretty healthy and we are still getting good renewal rates notwithstanding a very small impact from some of the credit card transitions and so we feel pretty good at this point about that.”

Any weakness more deflation than dot com

“By the way, one of the other data points I’ve been asked several times in the last few weeks each time we’ve reported sales in the last couple of months is is it deflation, is it weakness, is it dotcom, whatever.

The fact of the matter is, if you like at during the 12-week quarter on a year-over-year basis, if we just take the average items per unit in the basket going through the front end, US only, so US only, it was up 1.4%. So we are getting people to buy more items, if you will.

The average basket value is up 0.4%. The simple implication there is you’ve got deflation presumably — deflationary pressures of about 1%. Now that’s a good educated guess. There could be other impacts of sizes, but typically we go into bigger sizes, not smaller sizes and bigger pack sizes.

So I think overall there’s probably still a little bit more deflation that we’ve seen over the last couple of quarters spread to other items in the nonfood category as well as we’ve seen.”

There’s no giant surprises either way in May

“Well, we really can’t talk to anything about May yet. There’s no giant surprises in either direction. But, at the end of the day — and again, the comfort level — I think I was — earlier in the call, I was responding to many calls that I received from both institutional investors and analysts out there about the concern.”