Costco Wholesale Corporation (COST)
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Monthly Sales Update December 2018

Jan 9, 2019

David Sherwood
AVP of Finance and Investor Relations, Costco Wholesale Corporation

Hello, thank you for calling Costco Wholesale Corporation. I'm David Sherwood, AVP of Finance and Investor Relations, and I will review our sales results for the five-week retail month of December, which started on Monday, December 3rd, and ended on Sunday, January 6th. This period is compared to the five weeks beginning on Monday, December 4th, and ending on Sunday, January 7th, 2018. This call 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, the company does not undertake to update these statements except as required by law. With regards to sales. As reported in our release, net sales for the five-week month of December came in at $15.42 billion, an increase of 7.8% from the $14.30 billion last year. For the 18 weeks ended January 6th, net sales came in at $52.99 billion, an increase of 9.5% from $48.39 billion last year. Comparable sales were as follows. On a reported basis, in the U.S., the five weeks was a 7.5%. For the 18 weeks, 10.0%. In Canada, the five weeks was a 2.0%, the 18 weeks, 2.1%. Other international, the five weeks was a 2.8%, 18 weeks, 3.3%. Total company, five weeks, 6.1%, 18 weeks, 7.9%. E-commerce for the five weeks was 13.6%, the 18 weeks, 27.9%.

As discussed in previous months, the company adopted a revenue recognition standard, ASC 606, for our fiscal 2019. The impact on the total company in December was a benefit of approximately 40 basis points for both U.S. and the total company. For e-com, the impact resulted in a detriment of approximately 9%, the inverse of which occurred in November, as mentioned on the call last month. Comparable sales excluding the impacts from changes in gasoline prices, foreign exchange, and revenue recognition were as follows. In the U.S., the five weeks was a 7.1%, 18 weeks, 8.0%. In Canada, the five weeks was 8.1%, 18 weeks, 6.0%. Other international, the five weeks was a 5.7%, 18 weeks, 5.5%. Total company, the five weeks was a 7.0%, 18 weeks was a 7.3%. For E-commerce, the five weeks was a 23.9%, the 18 weeks was a 27.0%.

In terms of regional merchandising categories, the general highlights for the month were as follows. The U.S. regions with the strongest results were the Midwest, San Diego, and the Northwest. Internationally, in local currencies, we saw the strongest results in Spain, Mexico, and Japan. Foreign currencies year-over-year relative to the U.S. dollar hurt December Comparable sales as follows. Canada by approximately 580 basis points, other international by approximately 350 basis points, total company by approximately 130 basis points. The negative impact of cannibalization was approximately 50 basis points in the U.S., 65 basis points in Canada, 115 basis points in other international, 65 basis points for the total company. Moving to our merchandise highlights, the following Comparable sales results by category for December exclude the impact of foreign exchange. Foods and sundries were positive mid to high single digits.

Departments with the strongest results were candy, tobacco, and sundries. Hard lines were positive in the mid-single digits. Better performing departments were toys and seasonal, sporting goods, and majors. Soft lines were up mid to high single digits. Better performing departments included special order kiosks, apparel, and housewares. Fresh foods were up mid to high single digits. Better performing departments included meat and service deli. Within the ancillary businesses, Gasoline, Food court, and Optical had the best Comparable sales increases. Gasoline price was unchanged year-over-year, with an average selling price of $2.59 both years. Our comp traffic or frequency for December was up 5.6% both worldwide and in the U.S. The average transaction was up 0.5% for the month, which includes the negative impact from foreign exchange and positive impact from revenue recognition.

Looking ahead, the January reporting period will include the four weeks beginning January 7th and ending February 3rd, compared to the four weeks beginning January 8th, ending February 4th, 2018. Sales will be announced Wednesday, February 6th, after market close at 1:15 P.M. Pacific Time. Costco currently operates 768 warehouses, including 533 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, and one each in Iceland and France. Costco also operates e-commerce websites in the United States, Canada, U.K., Mexico, Korea, and Taiwan. If you have any questions regarding our December sales results or any other investor relations questions, please do not hesitate to call Bob Nelson at [425] 313-8255, Josh Dahmen at [425] 313-8254, or myself, David Sherwood, at [425] 313-8239.

This recording will be available until 5:00 P.M. Pacific Time, Wednesday, January 16th. Thanks for calling Costco and have a great day.