Costco FY 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Strong comps/sales growth

“In terms of sales for the fourth quarter, total sales were up 9%, comp sales were up 6% on a reported basis, and excluding gas and FX impacts were up 7%. For the quarter, gas prices year-over-year were essentially flat, so no impact on the 6% U.S. comp figure.”

FX had 2% drag on international

“However, foreign currencies overall weakened relative to the U.S. dollar year-over-year in the fourth quarter with biggest impact in Canada. Such that our reported 6% international comp figure assuming flat year-over-year FX rates would have been up 8%.”

FX hit earnings by ~1.25%

“FX, in the fourth quarter year-over-year currencies in the foreign countries where we operate on an overall basis weakened versus the U.S. dollar, resulting in our reported foreign earnings in Q4, when converted into U.S. dollars being lower by about $14 million pretax or $0.02 a share than these earnings would have been had FX exchange rates been flat year-over-year.”

Grow location count by ~5% next year

“We ended fiscal ‘14 with 663 locations operating worldwide. For the current fiscal year fiscal ’15, our plans are to open 31 new warehouses and also relocate four existing locations, 19 of the planned 31 new locations will be in the United States, with remaining in international markets.’

Inevitably there will be delays

“Inevitably, up to a few of these will get delayed. So I’d estimate that the number of new units in fiscal ‘15 will most likely be either in a very high 20s or up to 30, plus the four relos.”

Organic beef supply is up dramatically

“As I mentioned earlier, what we are finding with all of these items is that it’s incremental sales because it was loyal members that didn’t buy ground beef from us before, now they are. This year, organic ground beef sales were up dramatically because the supply is up dramatically.”

growing the international business is great for margins

“increased penetration in some of our overseas markets actually helps quite a bit, because of various things. The healthcare expenses as a percent of sales are much lower in virtually every other country than United States. Labor costs are different and generally lower in other countries as a percent of sales. So I think those things will probably help us.”

We’re not going to do anything radical, but healthcare costs do keep rising

“again as I mentioned, I think to the extent that the healthcare continues to be the inflationary aspects of healthcare in the US. And as you know, we haven’t done — aren’t going to make major changes, like sending a bunch of people out of it. That’s an expensive cost to us and we’re probably be able do that. ”

Still room to grow, but it’s an increasingly difficult effort to find good real estate in the US

“Certainly, we also get some calls as you might expect from developers, but it’s probably an increasingly difficult effort and that’s why we’ve added more infrastructure to pursue that.”

Partnership with Google express

“Generally speaking, ultimately, we always asked about all the concerns with delivery and e-commerce and all that stuff. And we recognize, we’re not going to be the guy that drops off Fruity Pebbles cereal and a quarter milk before your kid wakes up in the morning for breakfast, if you ordered it before 10 p.m. a night before. But we started our business being a wholesale supplier. In this case, it’s kind of hopefully a win-win, not only for Google Shopping Express but for us.

We are seeing incremental business from it but there is — again there is a lot of nuances to it, so far so good. But again, the biggest test it’s been around for seven — eight or nine months I guess, since January in the Bay Area and a lot fewer months in L.A. and New York. We like it because it’s our member and there is net positive aspect of it. You can’t get Costco items through Google Express unless you are a Costco member. And we have seen incremental signups because of that.”