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The following is the Analyst Q&A from Costco’s COST 2Q 2024 earnings call:
- Question about membership fee increase strategy:
Response: Costco historically reviews membership fee increases every 5 years, currently beyond typical cycle.
No immediate plans to increase fees; focus on delivering value and monitoring business performance.
Fee increase is a matter of "when" rather than "if," but timing is still under consideration
- Question on U.S. expansion and warehouse openings:
Response: U.S. expansion continues with good runway for more warehouses.
Membership renewal rates increase with new openings.
Growth opportunities also seen in international markets.
- Question on price investments in response to competitors:
Response: Costco maintains daily competitive pricing as part of its DNA.
No need for sizable price investments; confident in current positioning.
- Question on evolution of Costco's model and technology use:
Response: Costco is expanding buy online, pickup in warehouse offerings.
Technology is a key priority for enhancing member engagement and driving business.
Data and retail media seen as significant opportunities for growth.
- Question on gross margin ceiling adherence:
Response: Costco adheres to a 14%-15% margin ceiling as part of its core strategy.
No plans to change this approach; focus remains on aggressive pricing for value delivery.
- Question on digital and e-commerce strategy:
Response: Costco's strength in e-commerce is merchandise and value.
Focus on foundational improvements for better fulfillment and reliability.
Personalization and integration of warehouse and online offerings are opportunities.
- Question on discretionary sales and member spending:
Response: Discretionary spend indicates members are willing to spend on wants, not just needs.
Categories like Home, Toys, and Sporting Goods are leading due to exciting merchandise.
- Question on leadership changes and potential strategy shifts:
Response: No major changes planned; proven strategy will continue.
Innovation and adaptation to member needs will persist.
- Question on vertical sourcing strategy:
Response: Vertical sourcing is strategic and based on need.
Focus on partnerships and stepping in where necessary, but no major expansions announced.
- Question on Instacart gift cards and strategy:
Response: Strategy is to bring additional value to members.
Partnership with Instacart and Uber expands delivery options and member engagement.
- Question on warehouse cannibalization and new openings:
Response: Strategic cannibalization is managed with data to adjust for impact.
International expansion continues with some regions taking longer for new openings.
- Question on SG&A rate potential decrease:
Response: SG&A rate improvement is possible with continued top-line growth.
Warehouse efficiency and technology can drive down SG&A rate.
- Question on gas gallons growth and impact on traffic:
Response: Gas gallons were up 5% for the quarter, contributing to traffic.
- Question on unit growth acceleration potential:
Response: Unit growth of 25-30 new locations is solid; strategic infill and international expansion are key.
- Question on Uber partnership and multi-provider delivery strategy:
Response: Uber partnership opens new member engagement opportunities and international expansion.
- Question on non-foods innovation and competitive environment:
Response: Non-foods driven by unique items and great values.
Costco is competitive and gaining market share in various categories.
- Question on Costco Logistics growth drivers:
Response: 28% increase driven by appliances, furnishings, and outdoor categories.
Costco Logistics only delivers for Costco members, no partnerships included in reported growth.
- Question on Costco Next and marketplace model:
Response: Costco Next seen as significant growth driver and opportunity to expand offerings.
Marketplace will be curated to maintain unique and valuable offerings for members.
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