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Here’s the entire text of the Q&A from Costco Wholesale’s (ticker: COST) Q1 2006 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Questions and Answers

Operator

Operator Instructions Your first question is from Deborah Weinswig.

Q - Deborah Weinswig

Good morning, Richard. In terms of, I think you said you'd assumed a little inflation this year. Can you talk about what product categories and give us any additional details there?

A - Richard Galanti

Paper goods, nuts, well certainly petroleum-based products like plastic bags and what have you. But I think it's still, if you will, a buyers' market. Relative to what's out there I would imagine the purchasing power that the Costco's and the Wal-Marts, Safeway's and the Albertsons have has helped. Clearly, our purchasing power, given that we are not necessarily always brand, multibrand needy I think we've been able to keep a lot of those costs down. Which of course, keep costs down for our members and makes us more competitive. Every day we see announcements even from our vendors about prices going up on paper goods. That being said, as you may or may not know earlier this year we, one important paper product is disposable diapers. We basically went from the two leading brands of disposable diapers to one leading brand and a private label of what we believe is a very good quality. And where the price point on it is 20% lower. Now, 20% deflation if you will, doesn't go into the pricing because it's a new item. But an item that maybe was going up a few percentage points stopped going up because it was taken out of the mix. So I again, we just to have assume we're going to see a little. I said, all we said three months ago we were feeling the same way and we saw it go the other way. Recognizing, if you had talked to us four weeks into the quarter it was certainly a different picture because of the craziness in gasoline prices. That has subsided tremendously as well.

Q - Deborah Weinswig

And then I think that you mentioned that on the ancillary businesses you saw double digits excluding gas. I would assume that was driven by pharmacy. Can you just talk about what's driving that and what your expectations are going forward as well?

A - Richard Galanti

Well, it was several of the ancillary businesses including that. But we didn't, I think in pharmacy, we get great press. And if anybody wants to see the 400 clips that we have from different news stations around the country, we'd be happy to show them to you. The prices, certainly the consumer advocate topics du Jour is gasoline and prescription drugs. And as it relates to prescription drugs, a week doesn't go by where one or two or five or six stations around the country, news stations, are talking about where's the cheapest place in town to buy your prescriptions. We're betting essentially 1,000%. And It's not just that we're beating by a little. These numbers are absolutely extreme. I think that continues to, that value proposition, if will you, continues to help us.

Q - Deborah Weinswig

Okay. And then last question on payroll, you said it improved eight basis points in the quarter. Were there any new initiatives in place or was it just better labor scheduling or can you give us any additional color there?

A - Richard Galanti

I'm sorry, on what aspect of it? Is it payroll?

Q - Deborah Weinswig

Yes.

A - Richard Galanti

Well, I think payroll, well I bet you of the 8 basis points, a few basis points of it, maybe not 5, but 3, 2 or 3 of it, is the fact that we had gas sales higher. So, the same gallonage, same labor. And arguably labor and gas business is lower on a variable rate anyway. So, that's certainly helped us. But even taking that out we showed improvement. I think we've just, we've gotten a little better at what we're doing and we're still showing good comps. That helps. If I look back over the last year we've probably done a little better job of the discipline that Jim insists on with SKU count. I've told some of you the story about; in our case, if we've got, our goal is to have roughly 4,000 active SKU's in a warehouse. As it is creeps, and it constantly does, it creeps up to 4,250 he starts to offering his assistants that if his buyers don't want to do it, he'd be happy to sit down and do it in about 15 minutes. Well, the difference between 4,000 and 4,250 even, is probably 300 items that have to share a pallet position and therefore have to be hand stacked. And we've gotten better at that. And when you get better at that, you've got less hand stacking. You've got more stuff on the floor, where you're not having to restock it during the day. Which requires in the case of moving pallets, three people, a forklift operator plus a person in front and back. We're now well over a year and probably 1.5 year anniversary from when we dramatically increased the labor at the front end. So, I think it's basic blocking and tackling. It's nothing new in terms of technology.

Q - Deborah Weinswig

Thanks so much, Richard.

Operator

Your next question is from the line of Robert Drbul.

Q - Robert Drbul

Hi, good morning, Richard. Just a couple questions. The first one is can you talk a little bit, the sales that you saw slow down in November and the expectations for the December sales? And can you just elaborate more on traffic has sort of been flattish or up slightly? Can you talk about those two things?

A - Richard Galanti

I'll talk about traffic first. If you look back over the last, whatever, 12 or 16 or 20 fiscal quarters, whether we are report ago six comp or a 10 or 11 comp, traffic was always in the %0 to 2% range. It was never big. So, and we did see in Q, in the third month of the three months it was 0, I think, close to 0, 0 to 0.5, versus 1, 1.25 in the first couple of months. I'm not terribly worried about that. The weather had a little bit to do with it. But as you'll note, I'm more responding to your questions as we try not to talk about it, but there I talked about. In terms of the difference between the three months, the 11, 10, and 6, the 11 we knew what it was. It was, in my view it was Katrina, it's what did it to gas prices. And we were on national local news every night as being the best place to buy gas in many markets. And FX, that was the other thing. FX in September, I don't have the exact number in front of me, was 100 plus basis points in terms of the impact of our reported comp. In the third month in November, it was actually -17 or -19 points. So, it's finally switched. And so there's 100 plus basis points right there. And then I kind of look at it that the, if I take out the FX, if I take out the excess gas, that arguably September, if you want to say the 6 was a 6 in November, the 11 was probably an 8. And that extra 2 was because of gas, the fact that we got so much pressure, more people in the parking lot coming in. So, I would have, if I had to look through the three numbers and again, this is a little built of Kentucky windage here, I would say the 11 was arguably an 8 excluding gas, excluding FX. But 8 was still better than a normalized 6. And the 6 was a 6. But I would have hoped the 6 would have been a 7. When I look, and I know, Bob's little audio call that he does, recording for reported sales, the comps, the trend in the four weeks was good. The first two weeks were I think in the 3 or 4 range and the third and fourth weeks were in the 6 or 7 range. In a way we're already back a little bit. And now why was it a little weaker in those first two weeks? I think in looking at it, and this is again, more looking for answers afterwards. We did have no extension of winter wallet or summer passport. But there were some additional merchandising and marketing initiatives in store a year ago that continued into the first couple of weeks. Like fence promotions and some vendor promotions that were more, there were some handouts. In fairness, that was less than 1 percentage point. But again, if I'm going to look for excuses or answers that was a little piece of it. So we're, yes, it's fun when you have 10's and 11's. And 6's aren't so bad, particularly when the 6 is a 6.

Q - Robert Drbul

And in terms of December, would you expect some, would you expect the higher end of your range or the lower end your range, from where you've seen so far and then the rest of this month?

A - Richard Galanti

Well I would say this, assuming we were sitting here the day that our last four-week reporting period ended, when we saw a 6 and a 7 in those weeks in three and four. The trend is your friend. I would expect that if the had had been the other way around, where weeks one and two were six or seven; and weeks three and four were three and four or three and five, I would have said I'd bring it down a little bit. That's giving me some encouragement. I would say the guidance, and I'm going to purposely give you some wide guidance, 5 to 7 would be a fair guess.

Q - Robert Drbul

Okay. And then Richard you didn't really mention the membership fee increase or potential membership fee increase. We've seen both of your competitors now increase their fees. Can you give us an update on that?

A - Richard Galanti

Sure. First of all, just so everybody knows what all of us charge. We currently charge for both gold star and business member $45 in the U.S. Sam's, I believe, up to now is 30 and 35. 30 for the business and 35 for the individual. And BJ's is 40 and 40. So, with regard to BJ's we're $5 higher at both. With regard to Sam's we're currently 10 and 15 higher on both. As we go through out, and not to sound arrogant, but assuming that historically we've done $5 increase from 25 successively up to 45 over the last 16 or 18 years, That at some point if we do, in fact, increase it, logic would say the 45 goes to 50 at some point. We frankly, certainly the fact that the other two have announced effective January 1, so our 45 currently will be the same as BJ's. And instead of 10 and 15 higher than Sam's, it will be 5 to 10 higher. You put that on the positive factor side of the column saying, okay, that's a little less. I can honestly say in that our previous discussions we've always assumed that they stay where they are. So, I don't think that's a big impact. And I've heard from some of you both sides of that argument in terms of trying to get information out of me but also trying to theorize here; that the by the fact that they've increased, it gives us ability to do it sooner. I would argue that by doing it, it gives us pause to say, hey, let's wait awhile. I think personally our competitors have been waiting for to us do something and got tired of waiting. Whatever reason, it doesn't matter. We are currently at 45. We at some point I'm sure will change it. It's not necessarily going to be January 1 or January 2. But it's not necessarily going to be a year later, either. We'll see. We haven't made any plans yet.

Q - Robert Drbul

Okay. Thank you, Richard.

Operator

Your next question is from Emme Kozloff. Emme, your line is open.

A - Richard Galanti

Anybody else?

Operator

Okay. Your next question is from Mark Husson.

Q - Mark Husson

Richard I just wanted to ask about gas. We saw a number of other retailers who report gas margins separately, blow out cents per gallon in the $0.09 to $0.20 range. And you're normally in that sort of $0.02 to $0.08. What did you do in the quarter?

A - Richard Galanti

I'm sorry, could you repeat that?

Q - Mark Husson

Yes, gross profit cents per gallon. Other retailers who would normally do say $0.08 to $0.12 have been reporting $0.10 to $0.20. You normally do something like $0.02 to $0.08 per gallon. What did you do in this quarter?

A - Richard Galanti

Well, actually if you got that out of us I don't know how you did. We don't really talk about cents per gallon in general. It's truly been all over the board during the quarter. It was a little better than average.

Q - Mark Husson

Okay. Can you talk about currency now and currency trends? Obviously against the pound and against the Canadian dollar and the impact that had on earnings? And what's your outlook for that?

A - Richard Galanti

Well, slightly negative against the pound and about flats with the Canadian dollar. Recognizing that's big improvement in both. My guess is as good as yours. If you look back two or three years ago, I think there was one month where FX improved our reported comps by 300 basis points. And all of last year I think it was 135 basis points, or 130 basis points. So, again, it was -15 or -20 this past month and still up slightly for the quarter. Jeff? And so if you look at that, my guess is we'll still show some slight negative trends year-over-year for a few quarters here.

Q - Mark Husson

Okay. And then the final question is on pharmacy, Medicare Part D. Obviously the people that care a lot about how much prescriptions cost are people that have to pay for it themselves, which tend to be folks who are considering enrolling in Part D. Is that going to have an effect on the amount of people using the pharmacy at Costco? First one. And do you have a moral hazard in suggesting to people that they shouldn't sign up because you're just so cheap as you are?

A - Richard Galanti

In some cases that's the case. I don't think we're going to go out of our way to show them that or to try to talk them into it, to be accused of anything here. We're happy to provide them the cost of what they buy from us and they can do their own comparison. Having helped my parents, having somebody in our pharmacy business here help my parents try to consider what they want to do with the Medicare prescription drug programs, you need to be a Ph.D. at something in mathematics, to figure this thing out. It is the most convoluted, complicated system. And I guess technically, and legally pharmacies are not allowed to tell or recommend one program over another. When you do all the numbers and all the machinations. In one case one of my parents, who is spending about $600 on prescriptions drugs at Costco's prices. The worst of the 12 alternatives that they have under Medicare will get it down to $4,600 or $4,800. And the best about $4,400 or $4,500. So, nobody is going to necessarily really wrong with any of these programs because of how this Medicare program works. On average it's a slight negative because it's an alternative. And under the Medicare program, you're essentially going to be paying the same on some of those items here versus Walgreens, as an example. So on the one hand it's a negative. On the other hand, we've got great loyalty. We've seen a pick up in business to us offering third party plans to be a source for them. There are instances where we've had large employer groups come to us. And this is a relatively new phenomenon over the last six or nine months. Come to us and actually, because we're so cheap, that they actually incent their employees that if you get your drugs at Costco, it's a lower copay because they're saving money. The company who is writing the check. So we're seeing, arguably Medicare is not a net positive for us. But we don't think it's a big net negative because some of those people are still going to come to us, a lot of them. And we're finding ways to continue to grow that business. We think our business is solid and will continue to grow.

Q - Mark Husson

That's helpful. Thank you.

Operator

Your next question is from Maribeth Holland.

Q - Maribeth Holland

Hi. I just wanted to double check what your comment about the comps in all the regions were stronger this year than last year. Is that including the Southeast region? That obvious was hit by the hurricanes.

A - Richard Galanti

No. I'm sorry, I thought I mentioned that. The Southeast was slightly lower. Recognizing that Southeast has been in the low double digits, So, it's still a decent number. But I think it was 2 or 3 percentage points lower in the quarter. And again, if you took out Wilma, it was as good as it had had been.

Q - Maribeth Holland

Thank you.

Operator

Your next question is from Adrianne Shapira

Q - Adrianne Shapira

Richard in your comments you mentioned that you're comfortable with the competitive landscape and what's going on out there. But just last month we obviously saw Sam's comp better than Costco. Probably the first in a long time. And we had heard they were pretty aggressive on blitzes and that was probably the first time they had engaged in some doorbuster activity. Can you just give a sense of what's been going on there since the holidays?

A - Richard Galanti

Yes. Getting back to pricing we feel very good about our pricing. I can't tell you anything else. As it relates to their number, I think they should be happy with it. I don't know about your newspaper but in many national newspapers around the country they had an eight-page full color insert that looked like something from Bergdorfs. Very nice looking ad. But I'm sure, and they opened at 5:00 a.m. I think, on Friday. So, they did some things. And as we all know, and as Jim has told us in the past, it's arguably some of our marking, while it's direct marketing, not advertising. And advertising works. It works the first time and it works a little less good the second time. We like it when our competitors do national print ad advertising.

Q - Adrianne Shapira

Okay. And then can you just talk about post holiday, it sounds as if a lot of new merchandise coming into the stores shortly after the holiday winds down. We're hearing a big push across furniture, particularly in Thomasville categories. Can you talk about that and what you're doing this year versus last year?

A - Richard Galanti

In terms of as to Christmas?

Q - Adrianne Shapira

Yes.

A - Richard Galanti

Well, I think needless to say we have two Costco home stores now. We'll have another one near the end of the fiscal year, early into '07. We're learning from it. And certainly that's a category that we like and we think we can do some things with. I don't think specifically Thomasville, by the way, but just in general. And again, it's both furniture and home furnishings. I can't really tell you anything more specific. We'll be mailing shortly, the winter wallet that will give you some idea. I think that comes out in a couple of weeks. And everybody here has been sworn to double secret probation secrecy.

Q - Adrianne Shapira

Thanks.

Operator

Your next question is from Dan Geiman.

Q - Dan Geiman

Hi. Good morning. Can you talk a little more about the components of the higher than expected tax rate that you saw during the quarter? And also the outlook for the year?

A - Richard Galanti

I think part of it is under Sarbanes-Oxley and everything else in life today, we're all a lot more conscious of not only looking at all kinds of accruals annually but quarterly. And this is not a change. This is more of an evolutionary change over two years. And also I think, I know that there was one specific item as it relates to some state tax audits. Not necessarily income but property sales use taxes, excise taxes, things of the like. And where, based on audits, the threshold for being deemed likely has lessened, or strengthened. Meaning that things are more, things that weren't deemed likely yesterday and we still, again, our opinion of the particular claim hasn't changed. But you actually put something on there. And so, I know we took in Q1 just on what I'll call the more likely category, again, and again nothing, the circumstances haven't changed, just kind of the rules of engagement have changed a little bit of how you account for it. We had about a $4 million tax hit to the income tax line. 4 million on pretax, yes. And offsetting that there was a couple million going the other way but it was a net negative. So, I think what you're going to find is, is that not only with us, but with all companies, you're going to see, if we get direction of something in the mid 37's for the year, it, frankly, will range up and down a little bit from that number each quarter. I can track that to last year. And again, taking all the truly one-time benefits that we had. Because we had some very big benefits in taxes from some appeals and what have you. If you look at last year, a part of what I'll call normalized was what we call state apportionment. You don't know until the end of the year what each state income tax is because every state does it differently. Some do it based on the profits in that state. Some do it as a percentage of certain ratios. Fixed assets to total company fixed assets. Payroll to total company payroll. Income in that state to total company income. And then some averages. We're now doing that on a quarterly basis and fine-tuning it more. So, even something like that, which had it, actually at the end of last year had 1 full percentage point boon to us for the year, we won't see that this year. And so, I think there's really nothing more than that.

Q - Dan Geiman

Good. That's very helpful. Thanks.

Operator

Your next question is from Christine Augustine.

Q - Christine Kilton-Augustine

Good morning. Thanks. Richard, I'm wondering on the fourth quarter for this year, do you think that we could see a full reversal of that, those 24 basis points of merchandise margin erosion that you experienced? Because I think most of that probably was gasoline, wasn't it?

A - Richard Galanti

A good chunk. But again, if you look to the four core categories, which is 80% of our sales, in Q4 year-over-year they were up a little. In Q1 year-over-year they were down a little. And I do mean a little in the aggregate. Single digit basis points here. But, and again, some of it was, we had about 3 basis points higher markdowns in apparel versus our budget. We're definitely getting a little more what we call D&D, or damaged and destroyed when we're getting some of the, Some of the boon to our electronic sales is also a little bit of a bane, if will you, that's coming back. But that's again planned. We knew about it. We expected it. But it hits us.

Q - Christine Kilton-Augustine

But certainly you would see some recovery because that is, part of that hit was gasoline?

A - Richard Galanti

I'm sorry, yes, getting back to your question. We would indeed expect to see some recovery.

Q - Christine Kilton-Augustine

The other question I have is just with regard to your long-term 4% pretax margin goal. First of all, are you still comfortable with that? Second of all, one of the ways you get to that is through gross margin improvement. And so, I wanted to ask you about private label and kind of where that was, and is that going higher?

A - Richard Galanti

Well, private label is going higher. I don't think we've really changed our direction. 10 years ago it was 5% of sales and last year it was 15% of sales. We would expect it to be in the low 20's five years from now. Certainly, taking $100+ million out of branded diaper and putting it into a private label typer where we can provide the customer a 20% savings compared to the branded. And actually make more gross dollar margins per unit because everybody and their brother football diapers out there. So those are the kind of things that help you. And again, while it's a tough competitive landscape our there right now, as Jim said a couple years ago we're smart enough to figure out how to do both. I guess the one change I would make, yes, do I feel comfortable with 4%? Yes. Good news and bad news was; is for the first five fiscal quarters after we said that we did exactly that or even did a little better than that. Then, of course, we've had a couple quarters where we did about flat year-over-year. So, we didn't see that kind of 20 basis point pick-up. I think you have to adjust it for stock repurchases because we have changed our view on that versus two years ago, needless to say. So, maybe you need to look more at the operating income line. And we haven't gone through that process, But recognizing, to the extent that pretax comes down a little because stock option exercises. Earnings growth goes up a little because it's accretive. So it's actually a net positive wash. But philosophically, the answer is exactly yes. And I asked that to Jim last week and that's what he said. And if it takes seven years instead of six, so be it. We're running our business. We feel good about our fundamentals. And again I look at this quarter, recognizing relative to our guidance for the year, three months ago and for the quarter, we feel we did just fine. Got there a little differently. Not a lot differently. And--

Q - Christine Kilton-Augustine

Are you seeing any changes in how the executive members purchase? Is there any change to their basket size or their traffic trends?

A - Richard Galanti

Well, we don't disclose the exact amount. But clearly if you take two pools of existing members, call it the pool of members that are five to eight years and tenure with us and spend X to Y in dollars each year. And if you look back over the last two or three years, each of those groups, 50, each of those groups spent the same amount every year and grew the same amount every year on average. And then half of them become executive members. In that first year as an executive member their comp dramatically increases. In the second year, it's slightly less than the other ones. But still for the two year aggregate it's still a decent good increase. And then it stays at that level going forward beyond that. That's what we see. So, it does work. What's particularly nice and gratifying is, is for those of you who have followed us for a number of years. Four years ago when we first initiated this, 2% reward, what we saw in the first year was adverse selection, and we felt it cost us I think 16 or 18 million pretax. Because who is the first person who is going to sign up? It's the small restaurant owner or small business owner that's already spending 25,000 a year with us. And they say, "hey, for 55 extra dollars, or at the time for 60 extra dollars, I'll get a check for $500 at the end of the year". That's a no-brainer and it doesn't change their buying habits because they're already there. But there were a lot of members that were 10,000. That were maybe buying 10,000 from us and 10,000 elsewhere and they're now buying 18 of that 20 from us. The difference now is that big influx of people we had now, there's a higher percentage of those people that are either a little below or a above break even on this thing. In other words, they're spending, to break even technically on $45 versus $100, you've got to spend $2,750. We have people that are spending 1,800 to 2,200. Affinity programs work. They see their sales go up because they want to get there. We see more people today in the 2,700 to 3,500. They, too, go up relative. So, it does work. It's not without risk,. We're beyond the risk now and we're pleased with the report. It certainly has helped our comps and our renewal rates.

Q - Christine Kilton-Augustine

Thank you.

Operator

Your next question is from Amy Kozloff.

Q - Emme Kozloff

Can you hear me?

A - Richard Galanti

Yes.

Q - Emme Kozloff

Okay. A question Richard about the membership fee. I know you're not going to comment obviously on the timing of it. But Sam's they announced theirs in October and with that announcement they said they would be reinvesting the additional fee income in lower pricing around additional services. So, I wanted to know have you come up against this in the past? And there a risk that if you do end up raising your fees you'll end up having to give a lot of it back to the members in order to remain competitive on pricing with Sam's? So that we may not see the same improvement to the bottom line that you have gotten in the past?

A - Richard Galanti

We don't look at our membership fee, we don't look at our membership fee increase that way. Recognizing money is fungible. We talk about the fact that we have roughly an 11% gross margin, which is the mark-up on goods. And roughly a 2% membership fee. We have a total gross profit margin of 13%, which pays for everything. All I can tell you is we will continue to remain competitive irrespective of membership fees. We don't look at membership fees per se as something giving us the ability to do anything other than that the value, when we were at 45 and our competitors are at 30, 35, and 40, we still think that we're the best value out there as evidence by sales per unit that are 2 and 3 x our competitors. And we will remain competitive. If that's the way they choose to use it, good for them. I don't believe for a minute though, that they're doing everything to be fiercely competitive, as we are, before that increase. So, money is fungible. They'll do with it what they want. We don't look at it the same way.

Q - Emme Kozloff

Okay. And then I have another question. What kind of foreign exchange outlook and gas price outlook is factored into your guidance? because the beneficial impact of sales from the weak U.S. dollar seems to be diminishing as the Canadian dollar's appreciation has slowed. You Mentioned some of this, I think currency was actually negative in November. So, how should we think about comps and earnings for the rest of the year? Could there be a slight drag just from these factors?

A - Richard Galanti

It's really not going to have a major impact. Maybe it's 100 basis points. But when our original budget was on comps was I think we said 5 to 7 originally on the call and it was right in the middle there. And so maybe if the middle was 6, it's 5.5 versus 6.25. We really don't look at it that way. We're just trying to drive sales. And I don't mean to be simple and stupid about it but that's not a big concern of ours. Frankly a little you know a little inflation helps us. So, while we hope for the economy we don't have any. A lot of inflation doesn't thrill us because other things happen to multiples and what have you. But a little inflation would be positive for us.

Q - Emme Kozloff

Okay. Thanks.

Operator

Your next question is from Laurie Breidenbach

Q - Laurie Breidenbach

Could you tell us if you have any programs in place to better control utility costs given the expectation that they're probably not going to come down to a great extent any time soon?

A - Richard Galanti

Well we, back when the energy costs were a topic du Jour about two or three years in California when all the scandals happened with the providers of energy and what have you. We did a lot back then. We benefit, of course, from a lighting standpoint that we've got lots of skylights. And that helps us a lot, in terms of controlling energy. But we also have a lot of refrigeration and frozen. And of course, in the summer in L.A. and Phoenix, you have air conditioning. In the winter in the east and the north, in Montana and New York and Boston you have lots of, and Canada, you've got lots of heat. I don't see this doing a lot to mitigate it right now. We have three or four dedicated people that were actually put in place three years ago when that first tranche happened. And I think we've done a lot over the years to mitigate costs. It's not just energy management systems. It's the materials we're using to build our buildings. The RF factors of the metal building walls that we're using. So, we're doing a lot of things to improve that. So. I think we've done a very good job of mitigating it. And what I call the three basis point increase year-over-year right now is just that. It's, there's not a lot more efficiencies to wring out of that stuff.

Q - Laurie Breidenbach

Thank you.

Operator

Your next question is from Mitchell Kaiser

Q - Mitchell Kaiser

My questions have been answered.

Operator

Your next question is from David Schick.

Q - David Schick

Good morning. If I look back to my notes from last quarter, gasoline had a negative impact to gross margin of 35 basis points. Mix was 20. And lower gas margin itself was 10. Could you give us that overall and that breakdown for this quarter?

A - Richard Galanti

I don't have that level of detail in front of me. I would say gas was higher but not by as much as the hit last time. And as I mentioned, the core business which was up a single digit amount of basis points was down a little bit, a like amount, in this quarter. So that's, that was a decent chunk of it but it wasn't nearly as dramatic as Q4.

Q - David Schick

Okay. So just so we can walk away with some sort of thought around it. If there was, forgetting the freight costs, which were the highest, there was 30, should we think of that combined impact as something like maybe half of that? Is that kind of the way--?

A - Richard Galanti

Yes. In fact, freight was about half.

Q - David Schick

So flipping to a positive though however. So, it was positive by half the amount that last quarter was negative?

A - Richard Galanti

That's a pretty good estimate. I don't have the detail in front of me. And freight I know which was -5 in the Q1, in Q4 I think it was like -2.5 or -3. We expected that. We said it would diminish in Q1. And I suspect it will be a little less even in Q2.

Q - David Schick

Okay, that's helpful. Thanks.

Operator

Your next question is from Teresa Donahue.

Q - Teresa Donahue

Hi, Richard. Just on share repurchase, it seems as though you're about a third of the way through the new authorization. Would it be fair for us to assume that there will be more, at a continuing pace from now on?

A - Richard Galanti

Well, again, Terry, we'll take every day at a time. I think our message, at least what you've seen in the tea leaves over the last six months is; is that we'll we seem to be buying on a somewhat regular basis. And would be opportunistic if the event arose. Although, we don't want to have necessarily that opportunistic event. Meaning stubbing our toe in a big way. But in terms of, we still have about 800 million left because the additional 87 of that was from the other program.

Q - Teresa Donahue

Thanks. Sorry.

Operator

There are no further questions at this time.

Richard Galanti, Chief Financial Officer

Okay. As I mentioned to you, you can hear this again if you'd like on costco.com. As well we'll post on to costco.com within the hour what we call additional first quarter information, which talks about LIFO detail and opening schedules, balance sheet cash flow and how we calculate EPS with all the convert and the treasury stock and options and everything. Thank you very much. Good night.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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Source: Full Transcript of Costco Wholesale’s F1Q06 (Qtr Ending Nov 20, 2005) Conference Call - Q&A (COST)
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