Costco Wholesale Earnings Call Insights: Merchant Insights and Margins

Costco Wholesale Corporation (NASDAQ:COST) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Merchant Insights

John Heinbockel – Guggenheim Securities: Richard, a couple of things, what are your merchants now saying about reflation in ’13. I mean it seems like it may be less than we originally thought, but there still would seem there is some price increases coming down the pipe. What’s your thought in terms of what you put in the budget?

Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.

Richard A. Galanti – EVP and CFO: Well, I think the buyers are the ones that more put in the budget, but in poling to buyers just yesterday actually and the ones – the theory that stands out would be components of fresh foods, notably protein, beef, poultry and pork. The view there is, there is still additional mid to high single-digit inflation expected over the next six to nine months. Beyond that it’s hit and miss – there is – if I look at our LIFO statistics as an indication apparel is down ever so slightly year-over-year but that’s partly because it was up a lot last year. So it’s coming off of its peak. It’s still probably higher than a few years ago. So I would say the overall view aside from electronics being down slightly per like item but actually our average price points are up a little I believe because we have tended go towards higher end like 60 and 80 inch TVs and more SLR cameras, DSLR cameras and the like. But just looking down the list of some unusual items, again tuna looks like it has come up a little bit, canned tuna. As I mentioned beef was up some. There is always going to be some ups and downs on produce just based on supplies, grapes are dramatic – and blueberries are dramatic right now higher year-over-year but I’m sure it’s weather-related and not anything else related. On the downside when I stay on the list of the top 20 or 30 items here most of them are electronics with a few other things, I mean, just anecdotally pecans and walnuts, but I know a year ago again they were way up. So if you put it all in and my guess is that gas who the heck knows, fresh foods inflationary, the rest of it kind of a wash at this point, nothing up or down a lot.

John Heinbockel – Guggenheim Securities: But the part — and it sounds like right?

Richard A. Galanti – EVP and CFO: Not on our part.

John Heinbockel – Guggenheim Securities: Your big competitor has talked about price investments in other than rotisserie chickens, I can’t see a lot of big change in the competitive environment to the intensity of competition, what have you seen and it does look like you had do any reaction thus far likely is that sort of a plan going forward based on what you’ve seen today?

Richard A. Galanti – EVP and CFO: I can only speak of today and – probably yesterday and prior, but we don’t see any big changes there.

John Heinbockel – Guggenheim Securities: Then I guess finally when you look out into January, is there either with your individual customers or small business customer, do you think as best as you can tell, do you think the cliff, hasn’t created any change in behavior to-date, do you think it will or it’s pretty much a non-event for you?

Richard A. Galanti – EVP and CFO: Well, I think – and again we’re little jaded here because our numbers– particularly our frequencies and our comps have been pretty darn good. I think we like everybody have a little of cautious optimism that they would do at least to compromise and or they better. So, we’re not really focusing a lot on it right now. I was thinking we do a little better than others at least if history continues.