Costco Wholesale Corporation Jul 2011 Sales/Trading Statement Call

Aug. 4.11 | About: Costco Wholesale (COST)

Costco Wholesale Corporation (NASDAQ:COST)

August 04, 2011 8:30 am ET

Executives

David Sherwood -

David Sherwood

Good morning, and thank you for calling Costco Wholesale Corporation. I'm David Sherwood, Director of Finance and Investor Relations. And this morning, I will review with you our sales results for the 4-week retail month of July, which started on Monday, July 4, and ended on Sunday, July 31.

For comparable sales results, this 4-week period is compared to the same 4-week period of last year specifically Monday, July 5 through Sunday, August 1, 2010. This year's July retail month included 27 selling days in the U.S., U.S. warehouses were closed for Independence Day, versus 28 selling days last year, so one lost sales day.

Before I begin, let me start by stating that the following discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the company expects or anticipates may occur in the future. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions including exchange rates, the effects of competition and regulation, uncertainties in the financial markets, consumer and small business spending patterns and debt levels, conditions affecting the acquisition, development, ownership or the use of real estate, actions of vendors, rising costs associated with employees, including healthcare costs, energy and certain commodities, geopolitical conditions and other risks identified from time to time in the company's public statements and reports filed with the Securities and Exchange Commission. The company does not undertake any obligation to update these discussions due to subsequent events or circumstances.

Now with regards to sales. As reported in today's press release, net sales came in at $6.74 billion for the 4 weeks ended July 31, 2011, up 15% from the $5.86 billion reported for the same 4-week period of the prior year. This year's 4-week period included 27 selling days in the U.S., the U.S. was closed for Independence Day again, versus 28 days last year. Independence Day in June -- was in the June reporting period last year.

The calendar shift negatively impacted this year's total and comparable sales by approximately 3%, 3.5% in the U.S. Also this year's 4-week period includes sales from the company's Mexico joint venture as the company began consolidating its Mexico operations on a prospective basis beginning with its 2011 fiscal year, August 30, 2010.

Total sales increase for the 4-week period excluding Mexico sales would have been 12%. For the first 48 weeks of its reporting period ended July 31, 2011, the company reported net sales of $80.18 billion, an increase of 14% from the $70.37 billion during the same period last year. Total sales excluding Mexico reflected an 11% increase over the similar period of the prior year.

Comparable sales results for the 4- and 48-week periods ended July 31, 2011, including sales from Mexico operations in both years, were as follows: in the U.S., the 4 weeks was a plus 6%; 48 weeks plus 7%; international, 4 weeks, plus 22%; 48 weeks, plus 16%; total company, 4 weeks, plus 10%; 48 weeks, plus 10%.

Inflation and gasoline prices and strengthening foreign currencies year-over-year relative to the U.S. dollar continue to have positive impacts on reported comparable sales. Excluding these effects, comparable sales for the 4-week and 48-week periods, including Mexico operations in both years, were as follows: in the U.S., the 4 weeks was a plus 3%; 48 weeks, plus 5%; international, 4 weeks, plus 12%; 48 weeks, plus 10%; total company, 4 weeks, plus 5%; 48 weeks, plus 6%.

Again, this month included one fewer selling day relative to the last year due to the timing of the Independence Day holiday in the U.S. The total company comp was negatively impacted by approximately minus 3%, while the U.S. comp was negatively impacted by approximately minus 3.5%.

In terms of regional and merchandising categories, the general highlights are as follows: on a regional and country basis, the U.S. regions with the strongest results were the Midwest, Texas and the Southeast. On an international basis in local currencies, we saw strong results in Australia, Korea and Japan.

Moving to our merchandise highlights. The following comparable sales results by category exclude the effects or the benefit of foreign exchange. Food and Sundries comparable sales were in the high single-digit range. Within Food and Sundries, the specific departments of strength were cooler, deli foods and candy. Food and Sundries remained inflationary, up in the low- to mid-single-digit range year-over-year.

Hardlines comps were flat for the month relative to last year. Better performing departments were garden, tire, automotive and HABA. Majors, our electronics business, experienced negative comps for the month in the mid-single-digit range. TV units sold were up mid-single digits, but comp sales dollars were up only slightly. Thus, we continue to experience price deflation within the category.

Computers and audio were down for the month, while camera and cellular were up.

Softlines experienced positive comp sales results for July, up a little better than mid-single-digit range. Better performing departments within the Softlines include jewelry, small appliances and women's apparel.

Fresh Foods experienced positive comp results in the high single-digit range supported by all subdepartments within the category. All Fresh Foods departments are experiencing inflation. Overall, Fresh Foods inflation is in the mid-single-digit range.

Within the ancillary businesses, gasoline, hearing aid and optical showed the best sales results. Comparable sales for the Gasoline business continued strong, up 37%. The average selling price per gallon was $3.56 this year compared to $2.79 last year, up 28%. Hence, gasoline inflation positively impacted total company reported comp sales by approximately 2.5% and positively impacted U.S. reported comp sales by approximately 3.25%. We continue to see a benefit from gallonage comps as well, as more members frequent Costco to buy gas.

Strengthening foreign currencies year-over-year relative to the U.S. dollar resulted in an overall benefit in our reported comp, July comp sales of approximately 2.6%. Total international comps for the 4-week period came in at plus 12% local currencies including Mexico but resulted in a reported comp of plus 22% when converted to the U.S. dollar.

The average transaction in July was up 8.5%, including the lift from FX and gasoline of approximately 5.25%, while traffic frequency was up approximately 2% year-over-year, which includes the negative impact of approximately minus 3% due to the lost sales day. So combining the 9-week June-July period to eliminate the effect of the holiday shift, traffic was up 3.5% and ticket was up 7.75%.

Due to the Independence Day holiday, moving from June reporting month to July this year relative to last year, I thought it might be helpful to look at the key data points for the 2 months combined. Total comp sales for the 2 months combined was plus 12%. Comparable sales results for the 9 weeks combined, including sales from Mexico operations in both years, were as follows: in the U.S., the 9 weeks were up plus 10%; and without gas and FX, plus 6%; international, 9 weeks, plus 20%; without gas and FX, plus 10%; and the total company, 9 weeks, plus 12%; without gas and FX, plus 7%.

In addition, gasoline inflation benefited the 9 weeks by a little under 3%, the U.S. by 3.75%. Foreign exchange benefited the comp by approximately 2.5%.

Looking ahead to August sales. A 4-week reporting month will include 28 selling days this year versus 28 selling days last year. The reporting period will end Sunday, August 28 versus Sunday, August 29 last year and will be reported on Thursday, September 1.

Costco currently operates 587 warehouses worldwide including 428 in the U.S. and Puerto Rico, 81 in Canada, 32 in Mexico, 22 in the U.K., 7 in Korea, 8 in Japan, reflecting the temporary closing of the Tamasakai due to the earthquake, 6 in Taiwan and 3 in Australia.

If you have any questions regarding our July sales results or any other Investor Relations questions, please do not hesitate to call Richard Galanti at (425) 313-8203; Bob Nelson at (425) 313-8255; Jeff Elliott at (425) 313-8264; or call me, David Sherwood, at (425) 313-8239.

This recording will be available until 5:00 p.m. Pacific time, Friday, August 5. Thanks for calling Costco, and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!