Costco Wholesale Corporation (COST)
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Monthly Sales Update September 2018

Oct 10, 2018

Speaker 1

Hello and 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 5 week retail month of September, which started on Monday, September 3 and ended on Sunday, October 7. This period is compared to the 5 weeks beginning on Monday, September 4 and ending on Sunday, October 8, 2017. 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, and the company does not undertake to update these statements except as required by law. Now with regards to the sales. As reported in our release, net sales for the 5 week month of September came in at 13,640,000,000 an increase of 10.3 percent from $12,370,000,000 last year. Beginning in fiscal year 2019, the company adopted revenue recognition standard ASC 606 for all of fiscal year 2019.

We estimate the new standard will benefit net and comparable sales by approximately 1%. Comparable sales were as follows. On a reported basis for 5 weeks, the U. S. Comp was at 10.4%.

Canada was at 2.9%. Other international was at 4.3 percent and our total company was at 8.4%. E Commerce, 28.6%. Comparable sales, excluding the impacts from changes in gasoline prices, foreign exchange and ASC 606 were as follows. So without gas, FX and rev rec, the 5 weeks were in the U.

S, 7.7 percent Canada, 6.4 percent other international, 6.2 percent total company, 7.3% and e commerce, 25.7%. In terms of regional and merchandising categories, the general highlights for the month of September were as follows: U. S. Region with the strongest results were the Midwest, Southeast and San Diego. Internationally, in local currency, we saw the strongest results in Spain, Mexico, Japan and Taiwan.

Foreign currencies year over year relative to the U. S. Dollar impacted September comp sales as follows: total company was hurt by approximately minus 120 basis points Canada was hurt by a little more than 5 50 basis points while other international was hurt by a little more than 2 50 basis points. Revenue recognition benefited sales by approximately 90 basis points in the U. S.

And approximately 70 basis points for the total company. The negative impact of cannibalization was a little less than 50 basis points in the U. S, a little less than 60 basis points in Canada, a little less than 90 basis points in other international and approximately 60 basis points for the whole company. Moving to merchandise highlights. The following comparable sales results by category for September exclude the impact of foreign exchange.

Food and sundries were positive mid to high single digits. Departments with the strongest results were tobacco, candy and sundries. Hardlines were positive high single digits. Their performing departments were majors, toys and seasonal and automotive and tires. Softlines were up low double digits.

Best performing departments include home furnishing, local, apparel and kiosks. Fresh foods were up mid single digits. The better performing departments were produce and meat. Within the ancillary businesses, gasoline, hearing aids and optical had the best comp sales increases in September. Gasoline price inflation added a little more than 100 60 basis points to total reported comp sales.

Average selling price was up 14% at $3.06 this year compared to 2 point $6.8 last year. Com traffic or frequency for September was up 4.6% both worldwide and in the U. S. The average transaction was up 3.6% for the month, which includes the negative impact from foreign exchange and positive impact from both gasoline price inflation and revenue recognition. Looking ahead, the October reporting period will include the 4 weeks beginning October 8 and ending Sunday, November 4 compared to the 4 weeks beginning October 9 ending Sunday, November 5, 2017.

Sales will be announced Wednesday, November 7, after market close at 1:15 Pacific Time. Costco currently operates 763 warehouses, including 528 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 19 in Taiwan, 10 in Australia, 2 in Spain, 1 in Iceland and 1 in France. Costco also operates e commerce websites in the U. S, Canada, U. K, Mexico, Korea and Taiwan.

If you have any questions regarding our September sales results or any other Investor Relations questions, please do not hesitate to call Bob Nelson at 425-313-8255 Josh Damon at 425-313-8254 or myself, David Sherwood at 425-313-8239. This recording will be available until 5 P. M.

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