Richard Galanti - Executive Vice President, Chief Financial Officer

Ladies and gentlemen, thank you for standing by and welcome to the Costco Q4 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Richard Galanti. Please go ahead.

Thank you, Laurie, and good afternoon to everyone. I will start by stating that these discussions 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. In today's press release, we reported operating results for the fourth quarter and fiscal year 2020, the 16 and 52 weeks ended August 30. Reported net income for the fourth quarter came in at $1.389 billion or $3.13 per diluted share as compared to $1.097 billion or $2.47 a share - per diluted share last year in the fourth quarter. This year’s fourth quarter was negatively impacted by incremental expense related to COVID-19 premium wages and sanitation costs, totaling $281 million pretax or $0.47 a share, as well as a $36 million pre-tax charge or $0.06 per share related to early payment of $1.5 billion of debt. These items were partially offset by an $84 million pre-tax benefit or $0.15 a share for the partial reversal of reserve of $123 million pretax, $0.22 per diluted share related to our product tax assessment taken in the fourth quarter of last year. Net sales for the quarter increased 12.5% to $52.28 billion, up from $46.45 billion in the fourth quarter a year earlier. For the fiscal year in its entirety, fiscal 2020 came in at $163.22 billion, a 9.3% increase over the $149.35 billion in fiscal 2019. Comparable sales for the fourth quarter of fiscal 2020 were as follows: On a reported basis for the 16 weeks the U.S. was 11%, excluding gas deflation and FX the U.S. was 13.6%. Canada reported 9.1% up, again ex-gas deflation FX 12.6% up. Other international reported 16.1%, ex-gas deflation in FX, 18.8%, bringing the total company to a reported number of 11.4% comp and again ex-gas deflation and FX up 14.1%. For the company, e-commerce reported was 90.6% up, and ex-gas and FX –FX, 91.3% up. In terms of the fourth quarter comp sales metrics, foreign currencies relative to the U.S. dollar negatively impacted sales by about 50 basis points, and gasoline price deflation negatively impacted sales by approximately 220 basis points. Traffic or shopping frequency on a worldwide basis was down 1.2% during the fourth quarter and showed an increase of 1.2% in the U.S. Our average transaction or average basket size was up 12.7% during the fourth quarter, notwithstanding the negative impacts from gas deflation and FX which were included in that number. We’ve kept you up-to-date in our monthly sales calls on the impacts from the pandemic as we've been able to identify those. Overall merchandise sales in the core, core being food and sundries, hardlines, softlines and fresh, as well as pharmacy have all been strong, while sales in our ancillary, other ancillary, and travel businesses though now open have been soft. Next, moving down the income statement, membership fee income. We reported a fourth quarter membership fee income of $1.106 billion, up $56 million from $1.05 billion in the fourth quarter of ’19. The $56 million increase ex-FX would have been $60 million up. During the quarter we opened eight net new units and 13 for the entire fiscal year. In terms of renewal rates, at fourth quarter end our U.S. and Canada renewal rate remained at 91.0% and worldwide rate also remained at its similar number from a quarter ago at 88.4%. In terms of the number of members at Q4 end, both member households and card holders, total paid households at fourth quarter end was up – came in at 58.1 million and card holders 105.5 million. In the fourth quarter, we standardized the membership count methodology globally, which we had apparently done differently in different markets, North America versus others, and so that increase includes that slight adjustment. The change resulted in adding approximately 1.3 million paid members and 2.0 million card holders to our member base. So as an example, from Q3 to Q4 when we showed going from 55.8 million to 58.1 million or up 2.3 million, that 2.3 million increase includes the 1.3 million adjustment upwards. Similarly, the $3.7 million increase from the end of third quarter to fourth quarter, that 3.7 million increase includes 2.0 million of an adjustment. I'd like to note however that neither the membership fee income dollars nor the renewal rate calculations were affected by this adjustment. At fourth quarter end, paid executive memberships totaled 22.6 million, an increase of 765,000 during the 16 weeks since third quarter end. Going down the gross margin line -- going down to the gross margin line, our reported gross margin came in at 11.24%, up 18 basis points from last year's fourth quarter gross margin of 11.06%. That 18 basis point increase, excluding gas deflation came in – would have been minus 4 basis points and excluding a portion of the direct COVID expenses would have been up 8 and I’ll show you that in the numbers that I ask you to jot down here. If you jot down the following numbers, two columns: First column will be fourth quarter as reported, second column will be fourth quarter ex-gas deflation. The first line item would be core merchandise. Year-over-year on a reported basis, core merchandise was up 101 basis points, ex-gas deflation up 82 basis points, so plus 101 and plus 82 in the first line item. Ancillary businesses being the second line item reported minus 66 basis points and without gas deflation minus 71. A 2% reward, minus-4 basis points and minus-2 basis points, other minus-13 basis points and minus-13 basis points and that would give you totals on a reported basis of plus-18 basis points which I mentioned and ex-gas deflation of minus-4 basis points. Now the core merchandise component of gross margin again was higher by 101 basis points year-over-year and 82 basis points higher ex-gas deflation, similar to last quarter and even more dramatic of an impact during this quarter, we had a significant sales shift from ancillary and other businesses to the core. This resulted in a higher contribution of our total gross margin dollars coming from the core operations versus last year. Looking at the core merchandise categories in relation to only their own sales, so core-on-core if you will, margins year-over-year were up by 70 basis points. Fresh foods was the biggest driver up here with a strong sales in fresh we benefited from efficiency gains in both labor productivity and significantly lower what we call D-and-D or damage and destroyed or product spoilage. Food and sundries, softlines, hardlines as well as fresh - as a mentor fresh foods already, but in addition food and sundries, softlines and hardlines all had higher margins year-over-year in the quarter as well. Ancillary and other businesses gross margin again was lower by 66 basis points and 71 basis points ex-gas deflation. Most of our ancillary businesses were lower year-over-year with a most significant negative impact coming from gasoline and travel, which accounted for about three quarters of the decline. Costco logistics, which was primarily our acquisition this past March of The big-and-bulky last-mile carrier called Innovel.” That was our newly acquired businesses. That impacted ancillary margins by minus-8 basis points. Again, we acquired this, this past March and we anticipated losses in this business as it ramps up. Note that these losses are not taking into account any added sales or expanded product offerings, lower delivered prices and improve member satisfaction. Next, 2% reward, nothing really to say there, minus-2 basis points ex-gas deflation. In other, the minus-13 basis points, nearly all of this is attributable to the costs from COVID, $64 million of the $281 million previously mentioned. These are direct costs for incremental wages and sanitation allocated to our cost departments and to our merchandize fulfillment operations, so it impacts cost of sales. Moving to SG&A. our reported SG&A percentage year-over-year was lower or better by 47 basis points coming in at 9.62% of sales this year in the fourth quarter versus 10.09% last year in the fourth quarter. Ex-gas deflation SG&A was lower or better by 66 basis points. Again, if we jot down the following two columns of numbers, first column is reported year-over-year SG&A change, and the second column would be ex-gas deflation. Core operations as reported were better or lower by 42 basis points and ex-gas deflation lower or better by 57 basis points, so plus-42 and plus-57. Central plus-1 and plus-3; stock compensation plus-3 and plus-4, other plus-1 and plus-2 and that gives you the total on a reported basis SG&A being better by 47 basis points and ex-gas inflation being better by 66. SG&A in the core excluding COVID related expenses which I’ll discuss in a moment was significantly leveraged of course with a strong core of merchandise sales increases. As I mentioned, central, stock compensation showing small improvements year-over-year as a percent of sales and now the other plus-1 and plus-1 basis point and reported in a plus-2 ex-gas deflation. As I discussed earlier in the call the quarter was positively impacted by an $84 million reversal of last year's fourth quarter, a $123 million pre-tax reserve related to a product tax assessment taking a year ago in the fourth quarter. The net impact from this item was plus-43 basis points. That plus-43 basis points is in this plus-1 and plus-2 basis point number. Also included in other are the incremental COVID costs or $217 million of the $281 million total amount. That equates to 42 basis or 41 basis points without gas deflation offsetting it the other way, so that's why you have that very small number in that line. Again, these are the costs for incremental wages and safety and sanitation. Next on the income statement, pre-opening expense. That pre-opening expense last year in the fourth quarter was $41 million, this year in the fourth quarter was $15 million less coming in at $26 million. Last year in the fourth quarter we had 12 gross openings, 10 net and two relos, and that compares to 10 openings gross or 8 net in the fourth quarter this year. The big difference in those two numbers, this year's fourth quarter relates primarily to warehouses opened during the quarter, as well as warehouses scheduled to open in the first quarter. Last year's pre-opening included $12 million in pre-opening expenses related to our new – our then new poultry complex. All total reported operating income in Q4 increased 32%, coming in at $1.929 billion this year compared to $1.463 billion last year and it would be a slightly higher percent increase if you excluded the items that I had mentioned earlier. Below the operating income line, interest expense was higher year-over-year by $6 million coming in at $51 million this year compared to $45 million last year. Interest income and other for the quarter was lower by $83 million year-over-year. As discussed earlier, following the completion of the debt offering we pre-paid $1.5 billion of debt during the quarter. There was a pretext expense of – or what's known as a make-all payment of $36 million related to the early retirement of that debt, that's in this interest income and other line. Actual interest income was lower by $28 million. It was actually lower by $28 million year-over-year in the quarter due principally to lower interest rates being realized. And lastly FX and other was lower by $19 million. Overall reported pre-tax income in the fourth quarter was up. It came in higher by 25%, coming in at $1.869 billion this year compared to $1.492 billion last year. Again, these exclude those items I point – that's including those items I pointed out earlier. In terms of the income tax rate, our tax rate in Q4 of ‘20 was 24.9%, a little lower than a year ago when it was at 25.7% in the fourth quarter a year ago, so a little benefit there. A few other items – a few other items of note. In terms of warehouse expansion, with COVID we had some delays in some of the planned openings for the fiscal year that just ended this past August 30 and a few of those have been pushed into this year, that we are in now. For the year we opened 16 total units including three relos. So last year we opened a net increase of 13 locations. Our plans for this year is to open about 20 net, 23 including the 3 relos, that's our best guess and plan at this point, and as of Q4 end our total warehouse square footage stood at 116 million square feet. In terms of capital expenditures, for the 16 week fourth quarter we spent approximately $852 million and the full year we spent $2.8 billion. Our estimated CapEx for all of fiscal ’21 is in the $3 billion to $3.2 billion range. E-commerce: overall our e-commerce sales as you’ve seen each month have increased nicely. For the fourth quarter on a reported basis up 90.6% and ex-FX 91.3% increase during the fourth quarter. A few of the stronger deployments and there's several, health and beauty aids, food and sundries, appliances, TV's, computers and tablets, housewares and small electrics. Total online grocery grew at a very strong rate in Q4, several 100%. This e-commerce comp if you will, the e-commerce numbers I just mentioned above follow our usual convention which we exclude the third party same day grocery program. If we included that third party same day our e-commerce comps result would have been approximately 120% up during the quarter. Overall our e-com sites were relatively smoothly during the quarter despite the dramatic volume increases and we were able to improve our delivery times throughout - delivery times throughout the quarter as we adjusted to the ramped-up order volumes. Now, quickly turning to COVID and the coronavirus and some of the issues and impacts surrounding it. From a sales perspective as indicated by our past three monthly sales releases, we've enjoyed strong sales results during the June, July and August time frame. Certainly these – the sale strength starts with our being deemed essential, resulting in strong sales of fresh foods and foods and sundries and health and beauty aids and the like. We've also benefited from the much improved sales and products and items for the home, outside of the food area. As people are spending less on travel, air and hotel and dining out, they seem to have redirected some of those dollars to categories like lawn and garden, furniture and mattresses, exercise equipment, bicycles, housewares, cookware, plastics [ph] and the like. And lastly, a few of our ancillary businesses, notably our optical and hearing aid operations were closed for 12 to 16 weeks and reopened during the mid-summer. From a supply chain perspective, kind of 40,000 foot view, in terms of China, at least judging by the shipments to us, most of the factories are up and running. There are still some production challenges due to certain components downstream in the supply chain, in areas like electronics, computer and certain white goods. It is getting better and improving each week, and like us so we feel that our suppliers’ factories have gotten better over the last several months of instituting safety protocols, that's our best guess. India in terms of getting back to normal, each week is showing improvement and catching up, still a little behind. Food and sundries, some limits on paper goods are getting better. Toughest area overall is still sanitizing wipes, as well as latex gloves. In terms of other PP&E, we are in pretty good shape selling quite a bit of masks and the like. Milk and butter, things like that are generally okay. In terms of fresh foods, proteins are currently all pretty good. There had been some slowdowns over the past few months and some allocations and some limits that we had to put on some of the sales in those items, but that's gotten back to normal at this point. Seafood and produce, all good as it has generally been throughout. In terms of holiday merchandise planning; Halloween, a few – a small reduction in the amount of costumes. Some more basic candy items, as well as for Christmas going a little more basic in some areas and as well as looking at things, the needs and uses for the house. But viewing and given our strength of late, relatively optimistically. And Costco Travel has shown some very modest improvement, but still significantly impacted during the quarter due to reduce demand. We do see our remember starting to book travel again, although generally further out than we have historically seen. Our warehouses overall have remained open and are back to regular hours with additional hour on certain weekday mornings and many markets for seniors and persons with disabilities. The warehouses are still of course following the social distancing and sanitization guidelines and since May 4 as you know we've required all members and employees in the warehouse to wear masks. Finally, in terms of upcoming releases, we will announce our September sales results which is for the five weeks ending Sunday, October 4, on that following Wednesday, October 7th after market close. With that, I will open it up to Q&A and give it back to Laurie. Thank you.

[Operator Instructions]. And your first question is from Simeon Gutman from Morgan Stanley. Your line is open.

Hi everyone. Hey Richard, my first question is how should we think about or how you are planning COVID costs for Q1 of the next fiscal year? And if I'm not mistaken, I thought that for this fourth quarter there was a range – I don't know if there was a range, but we were expecting them to be lower sequentially and I think they were pretty similar. So you mentioned the basics what it constituted, but can you talk about why?

Sure, as you may recall, on our first quarter conference call we indicated that such types of costs in the Q4 would be at least $100 million or over $100 million and of course $281 million is over $100 million, but quite a bit larger. But the reality is, the biggest factor is we chose to continue at least for the time being the $2 an hour premium. That represents about $14 million a week. To-date, we are doing that and we've committed to doing that at least through, I believe the first eight weeks of fiscal – of this fiscal quarter, and again, we'll take that time and again. Our numbers have been very good, our employees are on the frontline, and so that – mind you, the fourth quarter was a 16-week quarter versus Q3, which is a 12-week quarter. So on a per week basis, it’s come down. There’s other things that have been, that won’t be repeated in the first quarter at least. If you go back to the very beginning of time, for the first four to five weeks when we stopped doing food samples, we employed those third party employees ourselves. We paid our third party to have them help us in the warehouse, that was during those three to four weeks of craziness in late February through mid to late March when people were coming in and hoarding and what have you and that helped quite a bit. So there's some costs that I don't expect to be continued. The biggest component of course would be the $2 premium and we'll see. At this juncture, we’ve committed to our employees for the first 8 weeks of this quarter.

Okay, thanks for that. My follow-up, as you mentioned the holiday and I think you said, you're looking at it optimistically or favorable for now. Can you talk about, maybe a little more detail why? It seems like the results speak for themselves for now, but there could be a lot of change over the next couple of months, and has your customer diversified their basket with you know and you know you think you'll be able to retain them across more categories and keep trips as more retail gets their traffic back? Thanks.

Sure. Well look, I mean the main data points that we look at is how strong things have been in the last 3.5 months, 4 months. You know June, July and August sales results which we've all shared with you guys. The trend in traffic has improved, so it's been positive the last couple of months instead of slightly or even more than slightly negative, going back to April and May, while the average ticket or average basket sizes continue to be relatively strong, so – and then probably if you ask what are some of the biggest surprises that we've had looking at the last three months of sales results compared to what we had expected a few months before that. I mean the big surprise is we expected you know fresh and food and sundries and paper goods and the like and health and beauty aids to be strong, particularly food because of the weakness, you know people dining out. But I think we're a little surprised by the strength in many of these discretionary, non-food categories, things for the house and big-ticket items. Again, not only furniture for that inside the house, but patio furniture; live goods were particularly strong. Where in some instances we had tried to cut back a few orders back in March and April for seasonal summer goods like patio furniture. Very quickly we were having to scramble for more of those. And so, so far so good. We recognized that people who are coming into Costco, we believe they feel safe given the safety protocols and the mask requirements. The sheer size of the building itself and the width of the aisles, so all of those things have helped us in that regard. We are also back to after a couple months of not having our traditional multi-vendor mailer, you know coupon type of offerings, because several key items were limited or on allocation. We’ve gotten back to that, and so I think our – at least our most recent three-plus-month history has given us some comfort at this point. Now as soon as I say that, things may change, but you know at this juncture we feel very good about how it’ll be – what it looks like going forward. Recognizing, looking at some of these things with the more basic in terms of Halloween and Christmas and the like.

Your next question is from Chris Horvers from JPMorgan. Your line is open.

Thanks. Good evening guys. So my first question is, you know what's driving that strong core-on-core margin outside of the fresh category, which you know clearly would benefit from a shrink perspective. Is it sell-through and low clearance? Is it mix within the categories or is it something else?

Well, on fresh, it’s all the above. I mean its strong sales on a relatively higher initial margin business within our small confines of margin range. But then you know two components across the sales and fresh is labor productivity and spoilage. We don't have spoilage, we sell out, not literally but almost literally to the piece on these and things, and so you're not throwing stuff away, there is – it’s a great business from a gross margin dollar perspective given the sales strength in it. So that’s clearly the biggest thing. But again, if you look at the other three core areas, core-on-core, food and sundries, hardlines and softlines, they're all up. But up you know a nice amount but nothing like fresh foods, so that’s helped. Now mind you, other things have offset that and the sum of all those things is still a positive. The things that have offset it would be things like the fact that certain ancillary businesses which are higher margin businesses were closed for 12 to 16 week period. Our food court of course has been limited of what we do there. We took out all the tables, we’ve limited the product offerings. Travel which is, you know while a small business is an extreme an example of high margin, many items in travel is just a brokerage fee, almost sales minus no-cost of sales equal gross margin if you will, is the markup or the commission on some of that stuff, a portion of that. So you know those things have calmed down, but the sum of all those negatives are outweighed by the overall strength and core merchandise sales and pharmacy, pharmacy’s been relatively strong too. Within that, fresh has been the biggest driver of it.

Got it. So a final question on that. You were surprised by the negative gas impact and ancillary. I mean you're peers, while not the same quarter saw tailwinds for the periods that crossed over, and so can you talk about how much of that 66 basis points is specifically gas versus the other businesses and as you look forward, you know considering that opticals open and food courts at least with a smaller menu open and starting to see some traction around travel and gas prices being stable. Do you expect that at this point that ancillary headwind could abate?

I think it will be less negative, but I think it’s going to be around for a while. I mean if you look at gas, gas is more profitable per dollar, per gallon of sales than it was a couple of years ago. Because I think the prices have come down, traditional retailer has not been as competitive, which allows us to be more competitive, but still make a little more. At our trough, at the lowest point, I'm guessing back in April and May, there was a week where our gallons were down close to half. Today they're down closer to maybe down 10%, you know maybe 5% to 15% depending on the day of the week. But you know in normal times for the last few years pre-COVID, when the U.S. gasoline industry had comps in the very low single digits, we'd be in the very, very high single digits or close to 10% or 11% even sometimes. So things have changed there. It’s still a profitable business, but when your price per gallon goes down 20%, 30% and your and gallons are down even some small amount, and it’s a 10% plus percent of sales of our business, it has that effect on it. At the end of the day, the sum of all this has still been quite good for us.

And could you break out that 66, that’s specifically related to gas?

No, when we said three quarters of it, it was gas and travel, that’s as good as we get here. I don’t have the detail in front of me. My guess is gas is more of it than travel, but they're both impactful.

Your guess is better than mine. Thanks very much.

And your next question is from Chuck Grom from Gordon Haskett; your line is open.

Hey, good afternoon. I’m curious Richard, how you are thinking about the recovery of your gasoline business, particularly from a gallons perspective. And then I guess how this interplay is holding back the traffic into your stores. It’s clearly getting better, but you know being impacted a little bit by the gas business.

Well, I don't know exactly. I haven't seen numbers in the last week or two, but I believe our call it 10% negative gallon comp is still way better than the U.S. as a whole – the U.S. gasoline industry as a whole. And so, but you know we’d rather have plus-10 to minus-10. The fact is that people are coming in less, but they are buying more each time and the sum of those two things as we've shown here, we used to enjoy a 5% to 8% comps pre-COVID on a regular basis and the last three months we've enjoyed 14% if you will. And so overall we'll take that, but it’s got to be a small impact still.

Okay and then just, it’s been a while since I asked it, but the crossover between our customers that purchase gas and then and shop in the store at unlike times, hours. Do you have the number handy?

I haven't seen it lately, but historically it has been for - during the hours that the warehouse itself was opened, the gas station is opened a couple hours perhaps on the other side of that, it’s in the low 50s.

Low 50s, okay great. And then just switching gears a little bit, on capital allocation, you ended the year with over $30 per share in cash and cash equivalents and you obviously remain significantly under lever. Curious how you and the border are approaching this high class problem?

Well, we have our regular quarterly board meeting in a couple of weeks, we'll see. But at the end of day, we talk about it every board meeting, all the different alternatives. Certainly we – when we went out to borrow the $4 billion, which was really a net increase of $2.5 billion because we used $1.5 billion to pay off existing debt. The fact was, it’s that we're planning for a worst case scenario where we would be more – there'd be a seasonal summer merchandise that we might have to hold for a year, as well as there’d be a lower inventory turn particularly on discretionary non-food categories. Up until June when we’ve seen the numbers really go in the northern way, you know June, July and August, much of that need has not occurred. So yes, we are in a good position right now, we’ll continue to look at it, but you'll know this after we know.

Got it. Thanks a lot.

Your next question is from Karen Short of Barclays. Your line is open.

Hi, thanks very much. I guess first question was just on the $2 premium. I guess the real question is, I mean I know you called out the eight weeks, but would it be more prudent as we kind of model this to just kind of think that that's more or less the new norm, meaning $14 million a week is kind of what we should add on, on an ongoing basis. It just seems that, it's hard to take something like that away once you've offered it. But just thought on that?

I don't think it’s completely hard to take away. We communicate via our COO and our Head of HR to our employees. We've done that and we've continued to extended, but saying this will be it, and then we’ve added a little more. Well, I think we’ll see. I think something will – I think its may be hard but not impossible and we want to make sure we communicate to our employees of why we're doing it and we'll just have to wait and see Karen.

Okay, and then I wanted to just…

I certainly budgeted it in for the full fiscal year, but we don't know at this point.

Okay, and then…

We know at least eight of the 12 weeks in Q2 and maybe more.

Okay, and then just back to traffic for a second. So within your reported traffic numbers, is obviously e-com rate. So I wanted to just ask a little about what your physical in-store traffic looks like and then I think on the last call you were asked on color on traffic with you're more loyal executive members versus you know the lower level members. Do you have any – do you have any color on both of those?

I'm, looking real quick. I really, I don't I don't have color in terms of. Generally, and the executive members do everything, spend more, come in more frequently, buy more each time and renew at a higher rate. I’m looking real quick here, hold on. I don't have traffic. Comps – within our comp number, e-commerce benefits it by a little over 3% of the comp, yeah and not the traffic number.

Okay. A - Richard Galanti: And the average ring has more than doubled. I’m sorry, the average rate on e-com versus the warehouse is about twice and that’s because you got a lot, and still even though we’ve expanded on food and sundries and apparel, you still got big ticket items like electronics and furniture, exercise equipment and the like. Bob here is saying, he's guessing that the traffic impact would be one to two, but we don't how that's broken out.

And your next question is from Michael Lasser form UBS. Your line is open.

Thanks a lot for taking my question. So Richard now that we’re six months into the pandemic, does cost still come out of this situation in a better position to experience incremental margin expansion over time, and is there any factor that you’ve learnt that will allow the company to generate more margin expansion that would otherwise.

Well, the more margin we can generate, the more likely we're going to give some of that back. In this case arguably given our strength, we've certainly given it back, but we’ve remained very competitive, but we’ve also maintained that $2 premium to our employees, which we appreciate. The first part of your question, when you started asking about, how do we feel we're going to come out of the pandemic and as thing change; I mean look there's factors as people eat out more and go out more or travel more, there's less for the home, you know that's on a macro basis. We have to believe here and we do believe that we have picked up new members, we've picked up sales from existing members, from categories that they are buying more at Costco now relatively speaking in-part, because certain other venues or traditional venues are either closed or not frequented as often. So again, we’ve been blessed in that regard. I think the other thing that I’ve witnessed over the last several months is our merchants ability to pivot and to add items for the – houseware items, additional items and so I think net of all those things, I still think on a macro basis when people start eating out more and start flying more and attending – you know going on vacations, some of these monies are now being used for purchasing things for the home is going to move that way. That being said, I think there’s several areas where we’re retaining more of their dollars and some portion of that will continue to retain when it gets back to normal.

Okay, and an on an unrelated note, when you look at commerce growth, what percentage of your membership is currently buying from you online, with the profile of the member who is driving the growth? And presumably a lot of the spend is incremental, because the spend of those members is going up. So does that change how you are thinking about emphasizing or investing behind your e-commerce business?

Yeah, I don't have all those specifics. What I know is, what was happening even before COVID and has been exacerbated in a positive way since COVID is more some members have signed up to utilize those services. More members are utilizing those services and spending more on it. If you think about the one day fresh, it is up several 100% fold recognizing it was a smaller base, even as its gone down from its peak couple three months ago, it's still a lot higher than it was before, and my guess is even as people get used to wanting to go out, there are some people right now that aren’t going to the supermarket or aren’t going out to shop, or to Costco to shop, they love the service. There are some people that are going – there’s going to be some group that is going to like that, and given our quality and value you know we and the supermarket are not mutually exclusive of one another and we think we'll keep some of that. So we are certainly doing more to market to members not only in store promotions, but online promotions as well. Yeah, we feel – I feel better about our offerings today certainly than a year ago or two years ago, recognizing there’s a lot of low hanging fruit because of some of the things we had done historically. We know that on the – I hate to use the phase again, but on the big-and-bulky side, a lot of those things – you know for four years we had talked, which is pre-COVID, we had talked about going from $50 million in white goods sales in store in the U.S. with a limited sales penetration if you will, to fiscal ‘19 doing almost $700 million, I think just under $700 million. That business has increased at a more rapid pace in the last year for two reasons, COVID and many people buying things for the home, as well as in our view the rigid old things we are seeing trends wise in terms of how to utilize, better utilize our big-and-bulky Innovel acquisition what we call now, what we now call Costco Logistics for big-ticket furniture items, lawn and garden items, exercise equipment and a like.

Okay, thank you very much and good luck.

Thanks.

[Operator Instructions] Your next question is from Paul Lejuez of Citi; your line is open.

Hey guys, Paul Lejuez. Richard, can you maybe talk about what you're seeing in terms of spending by new customers relative to existing customers, but also relative to what you would typically see from a new customer. And then second, I guess I'm curious if you looked at club usage by members at all? You know what percent of your members used the club this quarter versus last quarter anyway to frame that? Thanks.

I don’t know if I can answer all those specifically, but keep in mind, some of our new members signed up simply for same day fresh or two day dry. Same day fresh, you have to be within a market trade area where there's a Costco. Two day dry, you can be anywhere, I think almost anywhere in the United States and with Instacart it’s both United States and a good part of Canada now. And so we have some members, if they weren’t a member, but they are signing up just to get two day dry and they're not near a Costco, need to say they’re just buying those types of basic dry grocery items and that's it. Generally speaking, what we’ve seen in any given number, whatever type of member, they buy more each year over the first few years of their membership, and then there's the age thing as well. The sweet spot for us is still 40 to 55 year olds as they've grown economically, grown family wise and are not on the downside of that curve in terms of empty nesting and what have you, but I don't have any specifics beyond that to give you.

How about club usage? A - Richard Galanti: Club usage, same thing. Again, I can tell you, I don't have anything specific, like you know the last few months, but club other than traffic has improved greatly from its trough five months ago, not back to where it was you know pre-COVID. But one of the things that we see is is that the typical member over the first three to five years is growing their total purchases, which is a combination of their basket and their frequency. And clearly when we can convert somebody to an executive member, they are buying more and shopping more frequently than that.

Got it, thank you. Good luck!

Your next question is from Oliver Chen of Cowen; your line is open.

Hi, think you. Richard, on the e-commerce frontier it's been really impressive what you've done. What is some of the lower hanging fruit that you see had there, and also if you could brief us on the penetration now and how you might see that step change and where that will head in the future?

Well, I mean the main lower penetration things are if you go back three or four years ago, I don't think we had good email addresses for much more than a third of our member base, we didn't focus on that kind of stuff. Today we have well over 60% and growing. We now require you when you sign up – and more members are signing up online, than in store in general anyway. When you sign-up, you sign-up with an email address. So we’re doing a lot more to collect and gather those email addresses and then communicating with them more often, so that's probably the single biggest low hanging fruit. The other thing is we feel that we've been able to use you know emails if you will not only to drive e-commerce special promotions, but also in-store special promotions, as well the COVID, you know we were pleasantly surprised by just a sheer increase and people using same day fresh. You know anecdotally I can’t tell you how many people have mentioned to me how they love it and that means they may very well be shopping same day fresh or same day whatever from their local supermarket as well. But we've got a lot of great items on there and it's hitting a cord.

And Richard, as we look to this holiday season, which is definitely like no other, what factors would you prioritize as how you're planning it as best you can differently this year versus others, and is the multi-vendor mailer in good shape and are you going to leverage that a lot for holiday as well. Would love your thoughts around dynamics of supply chain and marketing for holiday. A - Richard Galanti: Well, the multi-vendor mailer is back and you know there may be a few items that we don't have because of certain supply limitations, but for the most part it’s completely back after I think two or three of those or six or nine weeks of multi-vendor mailers if you will that we didn't do. I think the biggest difference is again for the Christmas holidays, is getting back to the basics, but you're still going to see some hot, exciting items at Costco. The – again as I mentioned, even on Halloween we still have costumes. I think we brought in something like 80% of what we would have normally brought in, 80% or 90% and we're actually selling them. So we added some vendors over the last several months given certain shortages. You know one of the challenge is right now, we've had great numbers in electronics and white goods, not restating the fact that the numbers would be better if there was greater supply. We all read about their service supply issues on laptops and computers and things like that, on some of the gaming things on some of the white goods you know where there might be downstream shortage or at least some allocation of compressors. So we're doing very well on that. We've added some different vendors in some cases and I think the fact that we did so well this summer relative to what we had anticipated has given us the confidence to be still pretty aggressive going into the fall.

Our last question, on same day fresh and the momentum there, what are the margins like and what are your thoughts about that margin and the take rate and also taking some of those capabilities in-house versus using the white label? A - Richard Galanti: Well, at this juncture we have a very good relationship, who with other competitors I'm sure having a good relationship also with Instacart. There’s a few other smaller ones that we're using. We're not necessarily looking to take that in-house at this juncture, but we are always looking at various third parties and we have good existing relationships and we want to keep growing those as well.

Thank you. Best regards. A - Richard Galanti: Thanks.

Your next question is from John Heinbockel of Guggenheim Partners; your line is open.

Hey Richard, so there are a couple of things in gross. Even if you take out fresh food right, it looks like the other three were up quite a bit. Maybe you know dive into a little bit similarities driving those three of the categories versus what might be unique to each and then how sustainable is that right, because this is probably for the better core-on-cores we've seen in a while.

Sure. Well look, first and foremost there's a – well, I guess two things. There's a little bit less promotional activity going on. If you think about TV's and electronics, those have been such a strong category, not just for Costco, but in general. The manufacturers haven't been doing as many promotional things. So – and the other thing is is, given just this year’s sales strength, you know when you're comping – you know if we comp to the, whatever it was in August 14, I don’t have it in front of me or whatever, but in some of these categories that we’re talking about where we're stronger, you're talking you know comps in the low to high 20’s. When you got those, that kind of sales strength, you have very little – on a much smaller scale you have less markdowns. So you got a – whatever your regular margin is on those categories, less, a little bit less. You know without a little bit of an offset from end of cycle or – and some of those cycles are 60 and 90 days by the away on some of those skews, so that’s helped here a little bit.

And then on ancillary right, you said 75% was gas and travel. Was gas the bulk of that and if so, and is gas more of the compare last year versus any decision you made right to take less margin. I imagine it's not that to take less margin and try to drive traffic. This market’s just not there, right. A - Richard Galanti: You know, I think in terms of less margin, that's more of our DNA. You know when things are really good we're going to drive sales even further and do that or when things are good we're going to you know – we feel a little more comfortable doing that $2 an hour for another month, whatever it might be. But at the end of the day there's probably less price competition out there today than there was a year ago and so we’re able to maintain our fair margins.

Alright, and then lastly, what's the current thought process on two things: expanded both as, well what you happen to want to do for cost reasons and a third tier of membership. I don’t know if it would be a higher tier or a middle tier, but you know sort of segmenting that a little more. A - Richard Galanti: Yeah, well on Buy Online and Pickup In Store, we continue to look at what others do, we continue to scratch our head a little bit. It's not that we’ll never do it, but it's not on the agenda for this week. And as it relates to an additional tier of membership, again I don't think that's on the top of the priority play at this juncture given everything else that’s going on.

Okay, thanks.

Your next question is from Scott Mushkin of R5 Capital; your line is open.

Hey guys, thanks for taking my question. So I guess I want to get back Richard to the e-commerce, the traffic mix and you know comments that you’ve made prior about really wanting to get people into the club. As the pandemic shifts that, where you’re going to see permanently traffic being an issue there, you know how are we supposed to – how are you thinking about like impulse purchases and just a classical model once we exit the pandemic if this kind of sticks with omnichannel just being a much bigger piece of the pie overall?

Well, you know first of all keep in mind, if our online business was 5%-ish a year ago and now it's 8%-ish, that's a big delta in one year and it'll continue – it will probably continue to increase as a percentage from there, and that excludes the third party Instacart type business, yeah the one day grocery. So you know look, we've been pretty good at pivoting along the way, and we recognize there's lots of attributes to value. The first and foremost is the lowest price on the greatest quality or quantity of goods and services and the trust that we've endeared with our members. I think that we'll figure that out as we go along. We're not – we maybe occasionally stubborn on something, but we're not completely intransient if we see we need to do something. We figure out how to do things in a little different way than others and we’ll continue to do that.

And as far as the pickup, I think you were quoted in a recent article on this. I mean how are you thinking about pickup over time and you know is there a way to bring that to – you know bring that arrow into what you guys are doing without – at better economics. I know you’ve always been cautious about those economics. A - Richard Galanti: Well, keep in mind, when third parties do it, their cost for picking, we believe we don't know exactly what they are, but we believe based on our wages and benefits is less and they've created a model that works with their density and everything else. They are not just buying and delivering from Costco; they're buying and delivering to others, so there's some economics in that model that makes sense. Our view also is there’s some retailers that are doing it because they feel they have to. You know one of things, the article that you're talking about is the article today. The one in my view, the thing I would disagree in the article is we should be concerned because our sales have started slowing, which is the contrary. They're stronger than they've ever been in the last three months. So you know we don't have our head in the sand on it. We look at it. We have people here that study it and maybe we'll surprise you one day, but at this juncture we're not prepared to do that.

Hey, thanks for taking my questions. I appreciate it.

Your next question is from Rupesh Parikh of Oppenheimer; your line is open.

Good evening! Thanks for taking my questions. I guess just two related questions on real estate. So as you look at your store growth for this year, what’s the split between international and domestic? And also just given some of the challenges of brick and mortar, I'm also just curious if you're starting to see more opportunities on the real-estate front? A - Richard Galanti: Yeah, I mean I think our general view is that we still feel that – we want to open looking at this year into next five years, open somewhere between 20 and 25 a year net new units. About half of those, a little more than half will start by coming in the United States and that'll trend over the five years to maybe being slightly over 50/50 in the U.S. to slightly under 50/50 in the U.S. We still think we have plenty of opportunities in the U.S. It does take longer in certain other countries. I think we're just about ready to do a second unit in France. We just opened our third unit in Spain after having opened our first unit in Spain, Gosh! Five years ago. We have one unit in China with two planned for fiscal ’22; we're now in fiscal ’21, and so some of these countries do take longer, but we are also putting a little bit more emphasis on that, where we've been successful or where we think we can be successful and – but I think you know again, at the 40,000 foot level, if we did 20 to 25, a little more than half in the first couple years is U.S. and by year four, five or six It’ll probably be you know a set of 60/40 or 55/45 U.S. and will turn to be just the opposite.

Great! Thank you.

Your next question is from Scot Ciccarelli of RBC Capital; your line is open.

Thank you. Hi guys! Actually another store growth question. What is the limiting factor for you in terms of accelerating your store grow further? Like you’ve got you know a grand total of one in France and grand total of one in Spain right, and you've been there for five years. Like it just seems to me like there could be a lot more store expansion if you really wanted to push it and I guess what I'm wondering is, you know what keeps you from accelerating that further? A - Richard Galanti: I think there are a couple of things. First of all, I've always said that we're a very hands-on company and one of the things we’ve learned when we've gone a little too fast, not to suggest one in five years is too fast, it is not, but you know I remember in Japan we got to 10 or 12 locations and then in about an 18 month period we opened eight or nine and we had a little bit of operating indigestion. As it relates to France, it took us close to 10 years to get our first open. The level of people and entities that can appeal that process and fight you to keep you out is unbelievable, and again, in Spain we actually have three, the fourth this year. Generally speaking, if I were to look at various countries, we’d open five in the first five years and that would be relatively fast for us, and – but again it gets back to I think getting that hands-on and make sure that we feel comfortable, how that market is doing. We're probably a little slower than we could be, but we feel good about it. It’s worked for us, then we’ll I think continue to do that.

So Richard, that’s on the international front and that makes sense. You got to get comfortable with the market and supply chain of course, but what about just in the U.S. Like you're obviously comfortable with all the, you know how to navigate kind of store openings and you know what are the kind of restrictions you might have. You know it just seems to me like if you've got a decent amount of white space. A - Richard Galanti: Fair enough. Well, I think some of the white space gets better each year. If I look at even the Seattle market, you know there was a multi-year period where we didn't open any additional units and then we opened on the east side here at Redmond and a couple of others, and part of it is cannibalizing nearby units. But no, we try to be relatively methodical and disciplined of kind of the returns that a new unit can generate, net of cannibalization, and could we open 20 instead of 12 or 13 in the U.S.? Absolutely. But it's how fast the real-estate people or the regional operations people get with our CEO to go through that process and finding the right properties, yeah.

Got it. Okay, thanks a lot guys.

Your next question is from Mike Baker of D.A. Davidson; your line is open.

Hi! Thanks guys and it’s getting late, so I'll be quick. But I wanted to ask you about the membership fee income up about five and change I think this quarter, which has been pretty consistent throughout the year. But I guess how much of that you think is from new members that you're picking up because of the pandemic. Some of your competitors are seeing you know big increases in new members from the pandemic. It's hard to tease that out from your numbers. I mean if you compare this – we can compare it to past MFI numbers, but it's a little lumpy because of the fee increases. So any idea of what you're picking up in terms of new members because of the pandemic?

We don't disclose that. It’s still a smaller percentage of the total, it’s not a majority of the total.

And does it surprise you that those membership numbers aren't accelerating more as you might see from some of your competitors? A - Richard Galanti: You know, our view when we look at some of our competitors numbers is partly because they have a much lower number of members per location than we do, and that's our view. But the fact is when we look at how penetrated we are in so many of our markets, I mean we are even in California where we have 120, 130 units, I forget how many units we got there. I believe we're north of 60, slightly north of 60% member household market share, in states like Oregon and Washington where we’re well in excess of that. So I think that's part of the issue in our view. We've got a lot of people already.

Right yeah, yeah, makes sense. Alright if I could ask one follow-up on gas gallons sold, you said you were at 10% today, that’s not at 10% for the quarter, down 10% that is, I believe right at that sort of point in time. Did you mention how your gas gallons sold were for the – as we go through the whole quarter.

We did not, that is definitely a more recent number in the last month let’s say. I mentioned it may have been even in the end of Q3, which ended like May 10 or May whatever around them, where we were like a minus-50. But my guess is we are somewhere in the low to mid-teens for the last month.

For the last quarter or for the last month.

The last month, low teens.

Okay, and so the total quarter is somewhere between those numbers presumably.

Yes, yes.

Got it! Great, got it, understood. Thank you.

Yeah your next question is from Peter Benedict of Baird. Your lines open.

Yeah, hey Richard. Just a question on how the product shortages issues that you guys have seen around COVID might be influencing your view on where you might go next in terms of vertical sourcing. I mean I don't assume there's anything electronics or white goods, but has the experience of the last four or five months, maybe set the curve in terms of when certain initiatives might be pulled forward?

Well, yeah in terms of vertical initiatives, we've got – you know the last two or three years have been quite a bit, not only a bakery commissary that serves U.S. and Canada, just across the Canadian border, not only a second meat plant in Illinois versus the one we've had for many years in California, not only the poultry complex, and not only a couple of smaller produce initiatives we've got going on right now. And last but not even expected, but the acquisition of Innovel or what we now call Costco Logistics. So we’ve got our hands full with a lot of things right now. I don’t necessarily see – I think one of the things that we’ve learnt from COVID, we have great relationships with large companies, both consumer product name companies and private label name companies doing literally multi hundreds of millions of dollars of one item. When there's been some shortage of supply, we've had to expand that vendor network a little bit. There is some instances where given our sheer volume in Asia now can we find a comparable manufacture or existing supplier that wants to do something over there. So I think there's be some ways to continue to reduce costs on key items, but in terms of what's the next big vertical, I don't know if we know at this point.

Okay, no that’s fair and just lastly on the travel bookings you had mentioned. You were starting to see a pick up there, but it's further out the normal. Can you frame maybe what's normal and what you're kind of seeing now? I thought that was interesting.

This is my definition of what I understood previously at normal, is if you go back pre-COVID you know the majority of your booking is each day related to stuff for the next few months, may be a little further out for you know five months before Christmas or five months before the beginning of summer. Today you've got people booking things out five and nine months in some cases. Now there's two reasons; one there is some great deals out there and two, in many instances there's no cancellation charges. And so we'll have to wait and see and part of that will be dictated by – you know we’ve actually sold and have had some members go one some cruise of late, still a very small number. The car rental business has picked up a little bit better than the other, but still down relative to what it had been pre-COVID.

Great! Thanks so much.

Overall – and mind you, if we book something out nine months, we don't take it into revenue until the trip is taken. So even though business has improved, in terms of what we show in our numbers, there's very little – it's just starting to – first of all it’s not negative right now. You know there were a few months there in April, May, June or April, May certainly where cancellation costs were greater than trips being taken.

Alright, makes sense. Alright, thanks Richard.

Your next question is from Kelly Bania of BMO Capital. Your line is open.

Hi Richard, thanks for taking our question. Just wanted to ask maybe a two part question here. More and more retailers are talking a little bit about advertising, maybe as a way to offset their lower margin e-commerce business and so I was curious; one, if you could talk about where are e-com margins just with all the acceleration and maybe just also remind us what bucket that is in your table. But then also just philosophically how do you think about that, maybe taking on any more ad-revenue to your dot.com business? Thank you.

Well, we're taking on more ad revenue and we keep learning more about that as well as we drive that business. But overall the margins – as lower gross margins, part of that is category specific, you know electronics which is by far the largest single component of e-commerce is a high single digit margin. If you think about it, in the Costco warehouse you've got fresh that’s in the low double digits, you know sometimes a pre-teen or early-teen and you've got again conversely electronics, which is you know it mid to high. You also, as we try to drive the business in certain new categories like apparel, where you know buy two items and get $5 off of whatever the marketing or promotional item is, there is a low realized margin on a given category and some of those categories versus in store. So overall you also have less SG&A and I’d get back to what Costco is always been at top line company. We are looking to grow the top line. Certainly the profitability of e-commerce has improved dramatically in the last year with these strong sales, but its part of the ecosystem. Where is it in the matrix? It’s an ancillary.

It is an ancillary, okay. Thank you.

Your next question is from Laura Champine of Loop Capital; your line is open.

Just a quick one, Richard. You’ve managed to improve inventory turns or grow inventory slower than sales since the onset of COVID. I know that some of this has been supply chain issues or issues with certain skew sourcing, but that seems to be clearing up. How long can you keep improving inventory turns at this pace?

Well, if we keep doing 14% sales for a while, but I’d say that tongue-in-cheek, because if you go back to April and May, the inventory turns had come down and one of the reasons we are planning for additional capital, working capital needs. Look, I think we’ve gotten to a point when we’ve enjoyed a turn based on how you calculated in the 12% to 13% range. When you get up to that range, it’s difficult to some extent as well. Gas helps it, because we turn the gas every day; fresh foods helps it, because we turn fresh foods every week or less. I think about every week, maybe a little better than that. And the fact that we didn’t have a big denigration on non-food items, which we had thought would be an offset to that, so it’s helped it a little bit right now. But if you ask me if I could just keep where we are right now, I’d say sure.

Got it. Thank you.

Your next question is from Christopher Mandeville of Jefferies. Your line is open.

Hi, this is Blake on for Chris. Thanks for squeezing us in here. I was wondering if you comment at all on the extent to – you know how much of your existing customers you had before the pandemic that historically didn’t buy general merchandise, that are now shopping that category. How much of that example have you seen?

Yeah, I don’t know of the top of my head that, sorry.

Okay. And then just lastly, can you talk about renewal rates and your expectations on those? Should we expect them to maybe creep higher given all the comp strengths you’re seeing now?

Yeah, sorry, you’re 0 for two. No, we don’t guide. There are things that help the comp, that help the renewal rate, getting people to executive, getting people to do our credit card. Some of the things we do now when you sign-up online, auto bill, and so those are things that help push it upward a little bit. Yeah, the fact to the extent, but conversely, if we ramped up internationally and not that we are going to do that overnight, but if we ramped up internationally, you start in any new market, the first few warehouses in a new country, you work on a much lower renewal rate to start with, but a much higher number of initial sign-ups, because there’s lot of lookie-loo’s. And so all those things weigh in, we feel so far that you know – I know as soon as we show a minus tenth of a percent in a quarter, which is knock on wood, we haven’t of late, people worry what’s going on. But our view is that we’re hanging onto our members, we’re getting them to – where in most countries, even in new countries we’ve seen the trend to more often improve than not and so I think we feel pretty good about that.

Got it! Thanks so much.

Why don’t we take two more questions.

Yes. Your next question is from Greg Melich of Evercore ISI; your line is open.

Alright. Richard, just one clarification and one question. Did you say e-commerce was 8% and then over 10% including Instacart? Was that for the year or the quarter?

Quarter and roughly.

8%-ish and 10%-ish, got it. And then…

Yes-ish.

So on traffic, I guess that was my follow-up. You talked a lot about and it’s nice to see the U.S. traffic come back through the quarter. Could you help us understand why international traffic remains negative and if there is any outlier countries driving that or is really the U.S. the outlier with traffic come back, and if you’re concerned that that could influence the renewal rates in those international markets? Thanks.

Well no, Canada is the outlier internationally. Mind you, if U.S. is a little over 70% of our company’s sales, Canada is around 10%, 15%, I’m sorry 15%. And so you’ve got other international being less than... Yeah, there have been more restrictions in Canada. Australia also there have been more lockdowns of late, but in Canada and we have no direct warehouse competition in Canada. We’ve seen their traffic more negative with a basket even bigger than the U.S. So we are still kind of buying and we’ve seen that improve also. It’s that negative has been reduced, so hopefully that will continue as well.

Got it.

Trend-wise, the last four months have been on the up and up.

Got it. So the trends are in the right direction, it’s just taking longer for those country-specific reasons?

It went further down to start with too. I mean I think even I’m shooting from the hip here, but even several months ago if the U.S. was a minus-five traffic, Canada was a minus double-digit traffic.

Got it! Great, thanks a lot. Good luck.

Thank you.

And we have Robert Moskow of Credit Suisse. Please ask your question. Your line is open.

Hi, thanks for having me on the call. I wanted to know if you’re noticing any regional differences in terms of how consumers are behaving during the pandemic? Infection rates are rising in certain states and there is threat more. I don’t know if they will fully go to lockdowns or not. But do you see any differences in terms of how they’re getting ready for Halloween or worried about trigger treating or anything like that and how are you responding to that?

I can’t be specific, tell you specifically about Halloween. The only – if I look back over the last several months, the only thing that we saw was is when certain states unlocked more quickly, we saw a little pickup there faster, earlier, because people were getting out, getting out faster. Some of those states that did that. Other than that, we haven’t seen anything dramatic. [Inaudible] I mean Bob makes a good point here. I think and we are all guilty of it is, the pandemic has progressed, we are all hopefully.

Hello?

Yeah, we can hear you.

You can hear me now. I thought I hung up on you, sorry. I think as the pandemic has continued, people have gotten a little more comfortable, hopefully still maintaining the safety protocols, but going out more often and that’s helped us, the numbers pick up a little bit as well. And overall, again anecdotally we feel that people feel more comfortable coming into a place where masks are required, where the places, the physical spaces are larger with more cubic feet of open-air if you will. So I think those things have probably helped us. But the only real difference we saw was during those couple of months where some states opened up a little faster than others.

Okay. Does that mean, net-net, past re-openings eventually improved, that’s a net positive for your business in 2021?

Well, it’s a net positive, but we don’t know, does that also mean that if people eat out more frequently, they’re going to buy less food, fresh food or food items at supermarkets and Costco. There’s probably some different offsets there. Again, we believe that some of the things that we’ve picked up through this pandemic, in part because a lot of these non-food discretionary categories and big ticket categories, some of that’s going to be sticky. And once they’ve shopped and had a good experience at Costco at a great value, they’ll hopefully continue that.

Okay, thanks so much. A - Richard Galanti: Okay. Well, thank you everyone. Have a good day and we’re around. Have a good day!

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.