好市多 (COST) 2017 Q4 法說會逐字稿

Good afternoon.

My name is Christy, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Q4 earnings call and September sales.

(Operator Instructions) Thank you.

I will now turn the call over to CFO Richard Galanti.

You may begin, sir.

Thank you, Christy, and good afternoon to everyone.

I'll 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 our fourth quarter and fiscal year-end 2017 operating results for the 17-week and 53-week periods ended September 3 and our September sales results for the 5-week retail month ended this past Sunday, October 1. For the 17-week fiscal fourth quarter, reported earnings came in at $2.08 a share, up $0.31 over last year's fourth quarter earnings per share of $1.77.

In comparing our year-over-year fourth quarter operating results, several items to note: First, of course, this year's fiscal fourth quarter was comprised of 17 weeks of operations.

Last year's fourth quarter results covered 16 weeks.

We just finished a year which had the extra week in it.

Second, the improved results related to cobrand credit card.

As we reported in each of our first 3 quarters of fiscal '17, the Citi Visa cobranded credit card program again positively impacted our year-over-year gross margins by 14 basis points and SG&A expenses by 8 basis points and our overall bottom line in Q4 benefiting earnings year-over-year by an aggregate of 22 basis points or $0.13 a share over the 17-week fourth quarter.

More detail to follow later in the call on this.

Gas profitability, the third item.

Our profits from gas during the quarter as compared to last year's fourth quarter were higher by about $40 million pretax or $0.05 a share.

Number four, gross margin.

This year's fourth quarter margin -- gross margin included $20 million of pretax benefits from nonrecurring legal items, which were partially offset by about a $10 million reserve charge for inventory losses attributable to Hurricane Harvey.

Together, this net $10 million pretax benefit represented a benefit of 2 basis point improvement to gross margin or about $0.015 share -- a benefit to earnings per share.

Fifth item of note, SG&A.

This year's fourth quarter SG&A expenses included an $11 million or about $0.015 negative hit related to Hurricane Harvey.

This represented about a 3 basis point detriment to our reported SG&A percentage in the quarter.

Number six, modernization-related IT.

As a percent of sales, only slightly higher by 1 basis point year-over-year.

Next, FX.

There's 2 FX items to point out on an operating basis compared to a year ago.

Foreign currencies had a very slight negative impact to earnings, less than $1 million pretax, also in our interest income and other line, the year-over-year swing in gains and losses related to accounting for our FX exposures in the other countries where we operate.

In Q4, the year-over-year swing was about a minus $12 million pretax or $0.02 a share hit impact to EPS year-over-year.

Last year, in Q4, we had a gain of $11 million in terms of these items.

This year, we had a loss of about $1 million recorded in this year in the fourth quarter.

Number eight, income taxes.

We had favorable discrete tax items in both fourth quarters both this year and last.

In last year's fourth quarter, discrete tax items benefited last year's fourth quarter earnings by $0.05 a share.

This year's fourth quarter discrete positive tax items benefited earnings per share by $0.03, so $0.02 less of benefit this year over last year.

And lastly, LIFO.

There was no LIFO charge or credit in this year's fourth quarter results, whereas last year's fourth quarter results had a LIFO credit of $31 million, reflecting deflation in our LIFO indices a year ago or a $0.04 per share benefit last year versus 0 this year.

Turning to fourth quarter sales.

Reported sales were up 16% in the quarter, including the benefit from the extra week.

And reported comparable sales figure, which compares a like-for-like number of weeks year-over-year, was up 6.1%.

For the quarter, the plus 6.1% comp sales figure was helped by gasoline price inflation to the tune of about 0.5 percentage point and hurt slightly by a slight detriment from the FX impact.

In terms of new openings, in Q4, we opened 12 new locations, 6 in the U.S., 2 in Canada and 1 each in Australia, Japan, Iceland and France, the last 2 countries being new countries for us as well.

As our fiscal -- as of our fiscal year-end, we operated 741 locations worldwide, including 26 new buildings during the year.

We opened 28, but 2 of them are relos.

This afternoon, I'll also review with you membership trends and renewal rates, an update on our cobrand Citi Visa card.

I'll discuss a little bit further about margins and expenses.

I'll discuss e-commerce results and some recent initiatives, a couple of other new initiatives as well.

And lastly, I'll give you a recap of our September sales results for the 5-week period ended this past Sunday.

So on to the results.

Sales for this year's fourth quarter, the 17 weeks ended September 3, were $41.36 billion, up 16% over last year's $35.73 billion.

On a reported comp basis, Q4 comp sales were up 6.1%; for the quarter on a reported basis, up 5.7% after accounting for fluctuations in gas prices and FX.

For the quarter, our reported 6.1% comp sales results were a combination of an average transaction increase of 2.1% for the quarter, and average shopping frequency increased for the company worldwide, 3.9% up.

And within that 3.9%, it's up 4.4% for the U.S.

In terms of sales comparisons by geography.

For the fourth quarter within the U.S., the Midwest, Southeast and Texas regions were the strongest with other U.S. regions not far behind.

Internationally, in local currencies, better-performing countries were Japan, Mexico and the U.K.

In terms of merchandise categories for the quarter, within that 6% reported comp, food and sundries up about 4%.

Strong categories include spirits, deli and frozen; hardlines up in the mid-single digits.

Overall, strongest department results were lawn and garden, tires, toys.

And consumer electronics itself were up in the high singles.

Softlines were up in the high singles overall with housewares, jewelry and home furnishings showing the best results.

And in fresh foods, comp sales were in the mid-single digits, relatively consistent across various departments of meat, bakery, deli and produce.

Within ancillary, gasoline had strong comps in the quarter, aided by higher average sale price this year versus last as well as very strong gallon growth.

In addition, hearing aids were up in the mid-teens followed by optical and food court.

Moving to the line items of the income statement.

I'll start with membership fees.

Membership fees were up 13.4% or $111 million year-over-year.

As a percent of sales, they were down 5 basis points, as we expected in part due simply to strong sales results.

Of the $111 million increase in fees year-over-year, about $15 million related to the membership fee increases we took, a little over half of that $15 million from the fee increases taken in our international operations last September 2016, and the balance from the June 1 increases taken in the U.S. and Canada recently.

In terms of membership, renewal rates are fine.

There's still some slight negative renewal rate impact from the U.S. credit card conversion last year, and we expect that to continue for at least a quarter or 2, and we continue to see increased penetration of our Executive Membership.

In terms of number of members at Q4 end.

At year-end -- Q3 end, we started with Gold Star of 37.8 million.

And at the end of the quarter or at the end of the year, we had 38.6 million.

Business, Primary was 7.4 million at each period; Business add-on, 3.4 million; total member households, 48.6 million at third quarter end; and 17 weeks later at fiscal year-end, 49.4 million.

All told, cardholders were 88.9 million a quarter ago, and fourth quarter at year-end was 90.3 million.

At year-end, paid Executive Memberships totaled 18.5 million, an increase of 274,000 since third quarter end, which is about 16,000 per week increase in the quarter.

Executive Members are about 38% of our member base and about 2/3 of our sales.

In terms of renewal rates, at year-end, Business Members renewed at 94%; Gold Star members at 89.3%.

These numbers are for the U.S. and Canada combined, which is over 80% of our company; and total, U.S. and Canada, 90.0%; worldwide, 87.2%, a slight tick down of 0.1% or 0.2% from the last quarter.

A lot of that, as I mentioned earlier, we believe, relates to, in the U.S., the conversion last June to the new credit card program and -- with auto rebill.

And we -- again, we expect that to continue to downtrend a little bit the next quarter or 2.

While I'm on the subject of membership, I'd like to spend a couple of minutes to respond to the many questions we get literally every day relating to concerns -- the following concerns: one, that new member sign-ups might be slowing; two, that the average number of member households per location seems to be coming down a little; and three, that with the increasing overlap of people having both a Costco membership and an Amazon Prime account and the fact that more and more people are having groceries delivered by everyone, is this the beginning of something that will impact Costco?

As to new memberships sign-ups slowing, we believe it's -- virtually are related to timing, the timing of openings and the timing of 2 online new membership initiatives we undertook, 1 each in the past 2 fiscal years.

For example, in the first 3 fiscal quarters of 2017 -- fiscal 2017, in these 36 weeks, we opened 16 new warehouses, including 2 openings with outsized sign-ups both in Asia, a new unit in each of Korea and Taiwan.

Those were done last January.

Each of these locations added almost 60,000 new members to our base.

In Q4, we opened -- in these 17 weeks, we opened 12 new locations, 3 with large sign-ups in Japan, Iceland and France.

Again, these 3 locations each opened for only 5 to 15 weeks in the fourth quarter, added a total of 180,000 members to our base, again an average of about 60,000 new members per building.

So timing of those certainly impact the numbers in terms of averages.

Conversely, when we looked at openings that cannibalized existing nearby locations, you'll add maybe a few thousand, at the most, new members at that new location.

The result will drive an expected $80 million to $100 million of new annual sales in that market but lower the average number of members for each building in that market by 10,000 or more.

The other timing issue.

In the last 2 years -- fiscal years, we've done 2 online new membership drives, each with an added -- each which added an average of around 200,000 members, 1 a little less and 1 a little more.

The fiscal 2016 event occurred in February of '16 near the end of our second quarter.

The fiscal '17 event occurred in August in the fourth quarter this year.

So again, timing played an issue with that.

One last data point.

If I take all of the U.S. and Canada locations and I exclude all the new openings in all locations that were being cannibalized in many cases by these new openings, the average number of members at these remaining locations grew by -- grew year-over-year from the end of fiscal '16 to the end of fiscal '17 by approximately 4% year-over-year.

So our view is that we're fine, and hopefully, that answers some of the many questions we've got on these questions.

As to the other questions as it relates to increased delivery options by everyone.

Is it impacting us?

And is it impacting our brick-and-mortar?

A few comments: One, of course, our sales and our comps are strong and have even trended up.

Two, our shopping frequency is strong and has also trended up.

Three, our value proposition, we believe, it's stronger than ever.

Four, we're just getting started on some of the new delivery options of our own, and I'll talk about that in a minute.

And five, we're using online and the Internet to drive businesses both to e-commerce as well as in-store.

So stay tuned, and we'll continue to discuss that in each quarter.

Before continuing down the income statement line items, a couple of updated stats on the Citi Visa card offering.

Again, this began in Q4 of last year, in June, about June 20, I believe.

With the conversion to Citi Visa card in June of '16, there were 11.4 million cobranded cards or about 7.4 million accounts being transferred over to Citi.

At Q4 end -- as of Q4 end, just over a year since the conversion, we now have 1.8 million new approved member accounts or about 2.4 million new cards, including about 270,000 new accounts during the past 17 weeks.

Overall, we're seeing the Citi Visa cobranded portfolio total spend higher year-over-year, both organically and from these new accounts.

Despite the fact that we had a partial comparison to the conversion last year since it was midway through Q4, it was still positive year-over-year to gross margin, SG&A and EPS, and I mentioned that earlier.

I should note though that we'd anticipate the year-over-year comparisons to moderate -- of course, as it did actually in Q4 as well, to moderate starting with the first quarter.

Lastly, we continue to enhance the value proposition not only of being a Costco member but then being a Costco Executive Member and then, even better, a Costco Executive Member using the Citi Visa Anywhere card.

I'll share a couple of new examples of that during the remainder of this call.

Overall, in terms of conversion, usage and sign-ups for the card, all good at this point.

Going down to the gross margin line.

Our reported gross margin in the fourth quarter was lower year-over-year by 15 basis points.

As I do always, I'll ask you to jot down a few numbers.

We'll do 4 columns.

The first 2 columns are year-over-year basis point changes for the third quarter.

First column would be as reported, and the second column would be without gas inflation, and then Q4 reported and Q4 without gas inflation.

So those will be the 4 columns.

First line item would be core merchandising.

In Q3, we reported improvement year-over-year of plus 7 basis points; without gas inflation, plus 20; this year, in Q4, minus 8 and minus 3. Ancillary in Q3 was plus 15 reported and plus 19 ex inflation in gas; in Q4, minus 1 and plus 1. 2% Reward from Executive Membership, minus 2 and minus 4; in the third and fourth columns, plus 1 and 0. LIFO, minus 5 and minus 5 in Q3; and minus 9 and minus 9 in Q4.

Other, minus 7 and minus 7 in Q3; and the 2 columns for Q4, plus 2 and plus 2. So all told, on a reported basis in Q3 '17 year-over-year, we were up 8 basis points; without gas inflation, up 23; and in Q4, on a reported basis, down 15, and without gas inflation, minus 9. Now mind you in these numbers, the Citi Visa impact, as I mentioned earlier, in Q4 was plus 14 as -- on a reported basis and on a -- without gas inflation.

So if you look at it that way, the plus -- the minus 15 would be minus 29 ex that, and the minus 9 would be minus 23 ex that.

Now overall, as I mentioned, reported margins were 15 basis points down year-over-year; and 9 ex gas; and as I just mentioned, taking out the Citi Visa benefit, minus 29 and minus 23.

Now within that, the core merchandise component of gross margin was lower by 8 reported; but 3 excluding gas.

As I've shared before, the subcategories within our gross -- our core gross margin, which is almost 80% of our sales than anywhere else, food and sundries, hardlines, softlines and fresh foods.

As a percent of their own sales, they were essentially flat year-over-year notwithstanding the investing in price that we have done during the course of this; with food and sundries and softlines being up a little bit year-over-year and hardlines and fresh being down a little bit, again investing in price.

Ancillary and other business gross margin was down 1 basis point; up 1 basis point ex gas inflation.

In the quarter, higher year-over-year margin contribution in gasoline, hearing aids, business centers and travel was offset by lower year-over-year margin contribution in e-commerce, again investing in price as well as pharmacy lower margins year-over-year.

LIFO.

I already shared with you the fact that we had a LIFO credit last year to the tune of $31 million versus 0 this year.

So year-over-year, that was the 9 basis point delta.

And Hurricane Harvey -- well, that was the net of 2 items.

So I won't go through that one.

But overall, margins were down relative to last year, and we feel it's a function of our own initiative to drive sales and enhance member loyalty and satisfaction.

Moving to reported SG&A.

Our reported SG&A year-over-year in Q4 was better or lower by 37 basis points and 31 without gas inflation, coming in at 9.97% for the year compared to 10.34% last year.

Excluding the Citi Visa benefit -- and again, the Citi Visa benefit was 8 basis points benefit to SG&A year-over-year lower.

Again, I'll ask you to jot down those 4 columns, Q3 reported and Q3 without gas and then Q4 reported and Q4 without gas.

In terms of core operations.

In Q3, plus 21 basis points -- and plus means good or lower; and plus 9 without gas; in Q4, plus 32 and plus 27.

Central, minus 1 and minus 3; and in Q4, reported and adjusted for gas, plus 8 and plus 7. Stock compensation, minus 1 and minus 1; and then in Q4, 0 and 0. Other, minus 5 and minus 5; and then in Q4, minus 3 and minus 3.

So reported Q3, lower or plus 14 basis points reported; and flat without gas inflation.

And reported, plus 37 or lower by 37 basis points year-over-year; and plus 31 or lower by 31 basis points ex gas.

And again, each of those numbers, those -- that 37 and 31, you could adjust -- you could look at it from the standpoint that 8 basis points came from the improvement year-over-year related to the Citi Visa card.

And while that's been a great improvement each of the last 4 quarters as it was to margin, we'll start to see that benefit -- we'll still expect to see some benefit, but it will be greatly reduced after the first full year.

In terms of our SG&A performance in Q4, the operations component again was quite good.

Strong top line sales frankly led to year-over-year improvement in payroll benefits and other items, particularly bank fees.

Central expense was lower year-over-year by 8 basis points and 7 without gas.

Again, we saw nice improvement in payroll and benefits expense percentages, again offset very slightly by 1 basis point from IT modernization.

And lastly, other was worse by 3 basis points that impacted negatively and that was the $11 million I mentioned earlier related to Hurricane Harvey.

Next on the income statement is preopening expense.

Last year in Q4, we had $24 million.

This year was $6 million higher at $30 million.

Last year, we opened 11 new units -- 11 units, 10 that are relos.

2 of those 11 were international.

This year, while we opened up only 1 more, 12 total, 6 were international, and international tend to have higher preopening.

Overall, higher year over preopening cost is -- again, it's a higher -- really a reflection of higher penetration from international.

All told, operating income in Q4 came in at $1,450,000,000, up $259 million or 22% higher year-over-year than last year's results.

Below the operating income line, reported net interest expense came in at $53 million as compared to $39 million last year, primarily a result of the incremental new debt offering we did this past May in conjunction with the special dividend, which was discussed in last quarter's earnings call, plus there's 1 extra week in Q4 this year than last year.

Interest income and other was lower year-over-year by $7 million, coming in at $22 million this year compared to $29 million last year.

Within that number, actual interest income for the quarter was better year-over-year by $5 million.

However, it was more than offset by that minus $12 million of FX-related items I discussed at the beginning of the call.

Overall, pretax income was higher by 20% or $238 million higher in Q4, coming in at $1,419,000,000 this year.

In terms of income taxes, our tax rate in Q4 '17 came in at 34.3% for the quarter compared to 33.6% last year.

Again, as I mentioned earlier in the call, we benefited from the 2 positive discrete items -- tax items in both fourth quarters but are -- but more last year than this year.

Our effective rate for the entire fiscal year that we just ended came in at 35.36%.

With that, reported net income was higher by 18% or coming in at $919 million this year compared to $779 million in net income reported last year in Q4.

For now for a quick rundown of other topics.

The balance sheet is included in today's press release; a couple of balance sheet info items.

Depreciation and amortization in Q4 totaled $441 million, so for the entire year, depreciation of $1,370,000,000.

Our accounts payable ratio, if you recall last year, we were converting in IT our accounting system.

So we paid an extra week of invoices early to make sure we weren't going to run into any snafus with that conversion on day 1 of the fiscal year that just ended.

But adjusting for that, our -- last year, our accounts payable as a percent of inventories was 104%.

Reported was 85% but 104% taking that adjustment out, down at -- it came down to 98% at the end of this fiscal year.

If you take construction payables out there and other types of payables that are not merchandise, last year's normalized number at year-end was 91%, a little down at 89%, roughly 90% in both year-ends of last year on a merchandise-only basis and normalized for that -- paying the bills out early.

In terms of average inventory per warehouse, this year at fourth quarter-end, it was about $12.28 million per location; last year, $11.85 million, so up about $430,000 per location.

There is -- that's at the warehouse level.

We've broken out this time the increase in inventories elsewhere because we have quite a bit of expanded inventory with our expansion of e-commerce fulfillment locations and activities as well as some of the vertical integration things we're doing in those businesses.

In terms of CapEx.

In Q4, we spent -- we expended $779 million, which, for all of 2017, would put us right at $2.5 billion, which is about the same as fiscal '16.

We'd anticipate spending to be a little higher in fiscal '18 not only as it relates to the net increase -- relates to the sum of everything we do, not only openings but also some manufacturing businesses that we're expanding as well as e-commerce and some other things.

Next, in terms of e-commerce, we're, of course, in the U.S., Canada, U.K., Mexico, Korea and Taiwan.

You should expect additional countries to be open over the next year, 1.5 years.

Total e-commerce sales in fiscal 2017 came in at $4.6 billion, up 15% from -- right at $4 billion at the end of -- for fiscal '16.

For Q4, sales were -- profits were, of course, up.

Total e-commerce sales were up 27% in the quarter.

Of course, that includes an extra week, 17 versus 16 weeks, and up 21% on a comp sales basis with a trending positive during the roughly 4 months of the quarter.

As discussed over the past few quarters, much of our efforts over the past year focused on improving the functionality of our site.

We improved search, streamlined the checkout process, improved our members' ability to track their orders, and automated much of the returns process.

And we also improved our online merchandising efforts by adding high-end and well-known brand names, a few examples of late, Marmot, Spyder, ExOfficio, GE Appliances and Jiffy Lube services.

We've expanded our KS offerings.

We're providing new hot buys, limited-time offers with extra discounts.

We're also -- we've started doing what we call Buyer's Picks and unique offerings through our partnership -- Buyer's Picks; and lastly, some unique offerings through partnerships with Citi Visa, where we're offering in the cases of -- we've done it with Samsung Electronics.

We've done it with tires and a few other things where you buy it at Costco and you use your Citi Visa card.

On top of all the other great savings, there's anywhere from a 10% to 15% cash offer.

And leveraging.

As well, we're leveraging our global brick-and-mortar buying power to expand and improve our online value proposition by lowering prices even further.

Lastly, we continue to build awareness of our site with Costco members through warehouse signage, special offers and targeted e-mails.

I expect us to discuss some of those activities more in 2018.

We feel that all these efforts, which are ongoing, result in increased traffic in sales, both online and in-store during the past couple of quarters in particular.

Looking forward, we'll continue to expand these types of activities to drive our businesses.

You'll hear more from us in the coming quarters about driving online sales with ongoing site improvements, improved online marketing activities and, of course, along with great products and services at fantastic prices.

That's what we do.

In terms of what's new.

3 days ago, we rolled out 2 new online delivery-related offerings: the first, CostcoGrocery, which is -- which consists of nonperishable food and sundries items.

This offers 2-day delivery on dry grocery; and a second, an expanded white-label, same-day grocery delivery offering through our partnership with Instacart that includes both dry and fresh grocery.

You can find both sites by going to costco.com and then clicking on the grocery tab.

You'll then be taken to a page offering and explaining both of these new online delivery options.

A few details about each option.

As it relates to CostcoGrocery, just under 500 dry grocery SKUs; again, no fresh; free delivery with orders over $75; 2-day or less delivery throughout the Continental United States.

The boxes are up to 40-pound shipment through UPS.

Orders are fulfilled at several of our business delivery centers.

These offer very competitive pricing and value proposition, in fact, significantly better pricing than even we had at costco.com on many of these items.

We'd expect to expand these offerings over time.

The second option I mentioned, Instacart white label.

This is currently offered at 376 of our U.S. locations -- are live with it.

And we -- there'll be a number of additional U.S. locations planned added between now and the end of calendar '18 as our partnership expands.

There are approximately 1,700 SKUs, both dry and fresh, that are offered and can be fulfilled through the Instacart white-label option.

Again, I mentioned it's same-day delivery.

It's same-day delivery.

It's also a very competitive pricing value proposition, better than before.

And again, Costco members will now have access to our promotional pricing like on MVMs as well.

Costco Executive Members will also receive the 2% Reward, and members utilizing the cobranded Costco Visa card will now earn that 2% on these purchases, similar to in-store purchases; just starting this week and stay tuned.

Next on the discussion list here, warehouse expansion.

For fiscal '17, we opened 26 net new units, about 3.5% square footage growth.

For fiscal '18, we'd expect to open about 25 net new warehouses, a little under 2/3 of them in the U.S. and about 1/3 internationally.

As well, we plan to relocate 6 warehouses to better located and larger facilities.

That compares to 2 to 3 relos in each of the last several years.

At -- as of Q4-end, total warehouse square footage stood at 107.3 million square feet.

In terms of stock buybacks, in the first 3 fiscal quarters of 2017, over these 36 weeks, we expended $233 million to buy just under 1.5 million shares at an average price of $156.51.

In Q4, these 17 weeks, we expended a little more than that $233 million.

We expended $240 million for about 1.5 million shares at an average price of $159.21 a share; so for the year, $473 million on stock repurchases, 2.998 million shares repurchased at an average price of $157.87.

In terms of dividends, our current dividend stands at $0.50 per share per quarter.

That's up 11% from the previous quarterly amount.

This yearly $2 per share annualized dividend represents a total payout from the company of approximately $880 million.

Finally, before I turn it back for Q&A, I'll discuss September sales results.

For September, which is the 5 weeks ended this past Sunday, sales for the 5-week month were $12.4 billion, up 12.1% from the comparable 5-week period last year of $11.06 billion.

They were up -- sorry, yes, they were up 12.1%.

On a reported comp basis, September comp sales were up 8.9% and 6.2% after accounting for fluctuation in gas prices and FX.

For September, our reported 8.9% comp was a combination of an average transaction increase of 4.1%.

And again, that 4.1%, of course, includes the benefits from FX and gas; and an average shopping frequency of 4.7% worldwide, and within the 4.7%, a 5.4% in the U.S.

Gasoline price inflation and FX both contributed positively in the month.

Gas added 160 basis points, while FX was favorable in the month by 110 basis points.

Cannibalization impacted Canada in September by 325 basis points.

As you know, we opened, I believe, 6 or 7 locations on a base of 90 -- in the low 90s this year, so a lot of cannibalization going out there, while the U.S. was negatively impacted by 60 basis points and Other International by 155; so total company 110 basis points of impact in cannibalization.

And I -- as -- I'm not sure if I mentioned early, e-commerce, comp sales in the month were up 30%.

In terms of sales by geographic region, Texas and Midwest, both low double digits, were strongest with California and the Southeast regions being in the 7% range.

Internationally, in local currencies, better performing countries were Japan, Mexico and the U.K.

In terms of merchandise categories for September, within food and sundries, tobacco, candy and cooler were the leaders.

Tobacco, of course, we've anniversaried back in June some of the big declines, and we're seeing strength since that point.

For hardlines, which was up low double digits, strongest department results were lawn and garden, automotive, tires, consumer electronics and toys.

Softlines, which were up in the mid-single digits, housewares, small appliance, domestics and apparel showed strong results -- strongest results.

And in fresh foods, comp sales, which were in the mid-single digits, again consistent pretty much across most -- all 4 main categories.

Within ancillary, gasoline again had very strong comps in the month, driven by both high -- both price inflation and the cost of gallon of gas as well as strong comp gallon growth.

In addition, hearing aids were up in the teens, and optical was not far behind.

Lastly, before I turn it back for Q&A, our fiscal '18 first quarter scheduled earnings release date for the 12 weeks, first quarter ending on November 26.

These will be reported after market close on Thursday, December 14, with the earnings call that afternoon at 2:00 Pacific time.

With that, I'll be happy to answer questions, and I'll turn it over back to Christy.

(Operator Instructions) First question comes from the line of Simon Gutman from Morgan Stanley.

It's Simeon.

The first -- I wanted to ask one on membership and I want to ask another on gross margins.

So first on membership, the renewal rates have been moderating a little bit, and there's been some explanation behind it.

I think there was some credit card friction.

And then regarding -- and I'm just curious if that's still the case.

Or what's going on there?

And then -- and as part of that, the membership growth, can you talk to the composition in the U.S. versus international?

Yes.

Again, in terms of renewal rate, we believe the biggest issue is the auto bill.

When I -- when we look back at Canada, which occurred 1.5, 2 years prior, the conversion up there, from its peak renewal rate, I think, all the way back to early fiscal '15, if I looked out 6 quarters, it came down about a full percentage point.

It's now actually 0.1% above where it was a year -- that year earlier at its peak.

So -- and when I look at the -- we're now 4 to 5 -- 4.5 quarters into it, not 6, and it's down -- again, it was down a full percentage point in the U.S. And recognize it's a little bit different scenario with conversion, but it's down about 0.7%.

So we believe that's what it is.

We don't -- when we look at -- we talked to the membership marketing people, and we ask them about what are the reasons when somebody doesn't renew.

We get consistent answers of what they've heard for the last several years.

So our view at this point is that we're not seeing -- we're not concerned about it.

We'll have to see what happens over the next couple quarters if after that it doesn't change, but we assume it will at this point.

And I'm sorry, the second...

And then the membership.

If you just look at the overall membership, trying to dissect what the U.S. run rate is or how are -- I guess, same unit membership trends, I guess if you can try to take out cannibalization, just the direction and what the trend line's been in the U.S.

Well, in the U.S. and Canada, which again, is 80% of our company, 80-plus percent of our company, it was 4. We just did that because we're getting the question every day.

We can look at it.

I don't have enough -- we didn't do that.

We -- actually, we're trying to respond to some of the many questions.

I think internationally, particularly since you've got newer units internationally particularly in Asia and Australia, which is where you're impacted, less so in Mexico and U.K. where it's older, my sense is you'll see the same thing.

It'll be positive but greatly affected by cannibalization.

When you've got -- in a city in Taiwan where you've got 2 very high-volume units, which -- with well over 60,000 members per warehouse and you open up a new one, you're still going to get a lot of new openings -- not a lot of new members relative to what we see here, but my guess it's still -- that's going to cause it to come down.

So again, it has more to do with timing than any -- cannibalization than anything.

I just don't have beyond that.

Canada is -- and the U.S. are pretty similar.

Okay.

And then my follow-up was on gross margin.

And I don't expect you to give a clear answer because I don't think you give a lot on the outlook.

But trying to think of price investment in particular, right, there's been a pretty favorable trend up until this quarter.

And I think you said down 3 ex fuel.

So I guess, how do you think of the price investment?

I know it's constant for the business, but you'll have some tough compares as you head into next year both on a gross margin and an overall EBIT growth perspective.

So how do you think of that as the next several quarters play out?

Well, I mean, in a couple of words, we're fine.

I think what we saw this fiscal quarter in terms of sales growth cures a lot of things and driving it with value.

We've had a good fortune of having better-than-expected economics from our new credit card, and we certainly -- we just -- are just starting the benefit, if you will, to the membership fee line item, which will start -- continue over the next 20-ish quarters -- 20-ish months as the fee increase in the U.S. and Canada.

That is -- again, that's a fee increase that's about $240 million peaking 12 months after we started.

It takes 23 months because of deferred accounting get in there.

So there's plenty to go around, and our view is that we can do both and we feel quite good.

Oh, let me add one last comment on that, I forgot to mention.

A big chunk of it also is penetration of gas.

Gas -- while gas was great year-over-year, profitability was great, it's a much lower-margin business.

It's 9% or -- 9% to 10% -- 9-plus percent of our total sales at 500 to 700 less margin -- basis points of margin.

So when you've got huge, increasing sales price per gallon and 10-plus percent sales growth on 10% of your business, that ate into it as well.

I'll take that lower-margin percentage every day for $40 extra million of profits in the quarter.

The next question comes from the line of Michael Lasser from UBS.

Richard, on the metric you provided about 4% membership per club growth ex cannibalization in the U.S. and Canada.

Is it just a coincidence that that's kind of in line with where your traffic has been trending over the last couple of quarters?

Or should we think about it as your traffic growth is highly correlated to that membership growth ex cannibalization?

I don't think -- I think they're separate.

I mean, a lot of times -- I'll give you a simple example here in the Seattle region.

We have 3 locations on the east side of the lake: Issaquah, which is across the street from where I am; Kirkland, which is where we used to be; and Woodinville.

All 3 kind of align north to south on the east side of this Puget Sound.

Last November, we opened Redmond, which is where, of course, Microsoft is headquartered.

And basically, we -- I think we had, as of opening, less than 1,000 new sign-ups at the Redmond location because we have close to 80% market household penetration in the Puget Sound, which is extreme.

This is where we're headquartered and we've been forever.

We've taken the average number of members per location down from the mid-60s to the low 50s by just adding a new unit, but we'll add $80 million to $100 million in sales in the first year in this market.

So you -- when you've got locations that are doing 250 to 300-plus per unit, you've got to cannibalize them.

So I mean, that's an example of that.

So I don't think the 2 are correlated.

Okay.

Just thinking about the comp frequency or the frequency component of your comp, it would seem some of your most longstanding members are probably going to Costco about as much as they can.

So is it that the newer members are building their frequency and that's where the bulk of the frequency across your population is growing?

Or are you seeing growth in frequency across your entire population of members?

I think it's over the entire population.

First of all, new members -- every new member is going to presumably be more frequent every year for several years.

I believe that some of the things we're doing -- I didn't give any example on the call here, but we've done several e-mail initiatives to members to drive them in store.

We did it over the holidays with New York strip steaks at $6.99.

We did it with Copper River salmon over just a very limited, I think, a 10-or-so day period.

These are little things, little anecdotal things, but we think that we keep doing things that drive you in more frequently as well.

So I would bet that most of it, the bulk of our sales come from the members that are more than 1 year, more than 2 years or more than 3 years.

We're getting them in as well -- a little more frequent.

My follow-up question is on September's frequency growth of 5.4% that there's obviously a lot of moving pieces within the landscape in September between the hurricanes.

You also had Amazon close on its acquisition of Whole Foods, and there was a lot of noise around that.

If you look at this -- your clubs around Whole Foods, was there any impact?

And what do you think drove such strong frequency growth in September?

Mel Brooks once said it's merchandising.

It's value and merchandising and some of the other little things we're doing here.

We -- as it relates to the tragic things of the hurricanes in Texas and Florida and Puerto Rico, frankly, you get a -- whenever there's a pending tragedy that's on the news everyday with this pending tragedy like a hurricane, you get a build-up in sales leading up to it.

You're closed for a few days perhaps or more in a couple locations.

But when we look at -- as I think I mentioned, the comp sales in Texas in September were one of the stronger regions.

Now that's partly because the entire state wasn't impacted by it.

So we don't think that was a big impact at all.

As it relates to the publicity and the news and the noise around Amazon-Whole Foods, all we can do is perform.

When we look at the value proposition, our view is our value propositions got better.

You read about Whole Foods having a giant increase in member shops or customer shops that first week.

I would hope they do and I would expect them to.

There's a lot of news out there.

There's a lot of things.

When we've done our own -- we've read about the price changes, the lowering of prices, gives us more confidence that our value was even greater.

So we'll have to wait and see.

Nobody can predict everything.

All we know is that our brick-and-mortar is strong -- as strong as it's ever been and trending in the right direction even a bit from there.

And we know we've done a lot of -- there's 100 different things you do every day.

I gave you a couple of the soundbites, the example.

So again, at this point, we feel pretty good about what we're doing.

We feel good that we've got a few delivery options for our members that frankly are better than the ones they were doing the day before with us or with Instacart or with anybody else.

So we feel that to the extent somebody wants to choose to use that route, they'll be able to, and we'll be able to generate the sales from it.

The next question comes from the line of John Heinbockel with Guggenheim Securities.

So Richard, I just want to start on SG&A leverage, right.

So both operations in Central, this was about as good a quarter as you've had in a long time.

Extra week play any role in that?

And maybe a little more detail on particularly operations because -- that you're down 27.

You think about wages, benefits...?

The only benefit is it's 1/16 more of earnings number.

I mean, I guess, you could take the 208 and divide it by 17 weeks, but there's nothing -- there's not a week with no rent expense in it because we prorate that daily.

Yes.

So if you -- I mean, if you think about it, you sort of -- you think about a sea change here, right, because you've typically been up in Central and now down.

And again, you were down quite a bit more than the third quarter.

What is different -- or what was different, the fourth quarter versus third?

I'm just curious of what was different, how sustainable that is?

Well, it's sales.

I mean, we hope it's sustainable.

We've got a lot of good things going on, but we're only a little bit better predictor than you guys are at that.

We feel good about the initiatives we've got going on.

We feel good about the monies we have to invest in price and to still drive the other line items of our income statement and...

Okay, all right.

And then just on the openings, right.

So it sounds like maybe 8 or 9, 7 or 8 outside the U.S. Is that sort of 2 Canada and maybe 6 or 7 Other International?

And then where in Other International?

I'll tell you.

(inaudible) yes, I mean, basically, a couple in Canada, 2 or 3, a couple, 4, 5 between the 3 countries in Asia, another 1 probably in Australia.

That's generally where they are.

Okay.

And then just -- and then one last thing.

When you think about your delivery options here, what's your sense as to how customers will use those and alter their behavior, right.

So you think about the nonperishable food and sundries on the 2-day, do people simply get -- do you think they'll get those delivered at home and then come in to buy fresh and nonfood, some of the treasure hunt items and not have their cards loaded with some of those sundries?

How do you sort of -- you get comfort about the impact on traffic to what you're doing?

Well, needless to say, we have to continue to watch that.

We've had some limited experience with our relationship with Google starting a few years ago and with Instacart over the last couple years.

What we found so far is it's more fill-in than replacement of a shop.

And the key is, is you come down a couple or 3 shops a year, one way, you add several more shops as fill-in or alternatives occasionally.

That's what we saw, but we have very little time and data to feel comfortable about where it'll go.

We have to keep getting you -- we want to do both, of course, but we have to keep getting you in store because you're going to buy more and you're going to see more even if we have everything online, but we don't, of course.

And one of the things I mentioned was how do we get you in store?

We were just literally scratching the surface of any type of targeted internet, e-mail marketing initiatives.

We have a very -- as you know, a very loyal -- hopefully, you're one of them, loyal member, and we're just scratching the surface with figuring out how to get you in stores well more often.

And on the few examples -- on the several examples that we tried, it's great, and we'll have to see how that goes.

I guess, the one question that none of us know is, is everybody going to sit home and order stuff, recognizing you've got to pay for it?

And no matter who ultimately -- and there'll be several of the lowest-cost supplier/provider delivering to you at home, there are people that actually want to go out.

There are people that actually want to go touch their fresh foods and decide, pick it themselves.

And it's going to change over time.

There's going to be an increasing percentage of online and online delivery.

And the question is, is in brick-and-mortar, we've been asked for years, well, how can you drive sales if you're not offering as many alternatives and -- or whatever else?

We've done it with value, and our case value, first and foremost, is quality and low price.

Over time, the percentage of delivery of fresh will change.

How much so?

We'll have to wait and see.

Next question comes from the line of Chris Horvers from JPMorgan.

So first question, just on the SG&A front, can you talk about -- the IT headwind was small from a basis point perspective, but of course, the overall top line has accelerated.

So as you think about the IT modernization, that debt central expense line, the underlying dollars, is that dollar growth year-over-year decelerating at this point?

Or when do you think that dollar growth actually decelerates?

Basically, I think we're in the middle of that.

I think it was a quarter or 2 ago where we -- actually, it was lower year-over-year by a basis point.

And I said don't -- that's not an inflection point.

Certainly, even this 1 or 0 basis point this quarter was helped greatly by sales growth.

It' going to still increase.

I think part of it is, is we're right at or about to enter our fifth year of, "modernization." So that line will start getting fuzzier and fuzzier.

We certainly added things to what we're modernizing, taking major systems and doing that we had not contemplated at first.

And so my guess is in the next year, assuming regular decent sales.

As a percent of sales, a lot of these systems, you spend $60 million or $100 million on 1 system, it's kind of like building a building.

It starts depreciating the day you open or the day you turn it on.

And it was probably 3 to 4 years ago that we started turning a system on in that regard as we complete them.

So it'll be another year before we've got, if you will, the plate full with these bigger expenses that then amortize over generally 5 to 7 years.

But as sales rose, the denominator in this calculation grows, that'll be an offset to it.

So I'm shooting from the hip here and it's a guess, but all things being equal, sometime in the next year, there's maybe an inflection point.

But it's going to be in the 1 or 2 basis points either way, hopefully.

And at some point here, we'll stop talking about it.

Okay.

And then you said on the Visa benefits, the gross margin and SG&A, you said the word -- used the term moderate but not go away.

So I think last quarter, you talked about that sort of we're going to start to lap that, guys, and that's going to go away.

So is it just moderation?

Or does it go away?

And is that...?

Well, it's Moderation with a capital M. I think in the first 3 quarters this fiscal year, the sum of the benefit of improvement in SG&A and margin was 37 or 38 basis points.

The aggregate in Q4 was 22.

Now mind you, a year ago in Q4, you had a lot of things happening.

You were getting off the old program, and there was some detriment to that in those last several weeks anyway, the first 5 weeks of Q4.

Then you had it, but there was also some noise and friction around getting the conversion done for 2 or 3 weeks.

So my guess is, is it'll be a much -- it should improve because we're seeing increased penetration of usage.

We're seeing increased revenue share from people seeing the value of this card and not only at Costco but their top of wallet.

I forget if I mentioned it on my part of this call, but using travel as an example.

We just added Costco Travel to the Executive Member, first of all, effective September 1. So you get 2% on travel, which you hadn't gotten before.

On top of that, if you use our Costco cobranded Visa Anywhere card -- Citi Visa card, you get another 3% by using that on travel.

So there's a 5% off unbelievable prices.

Understood.

And then the last thing is you did do -- you talked about the timing in the Groupon, January or earlier and then in August.

Can you talk about what the rationale was to do it in August?

I think a lot of people look out there and say, hey, they see this growth in membership slowing, so sort of a desperation pass for the end zone to buffer the numbers into the print.

So maybe just talk about what the genesis of that was.

What -- does it make you -- is it an expression that you're concerned about Millennial retention or Millennial customer acquisition?

Just talk broadly about that.

No, I mean, I think -- first of all, we did it because it works.

We don't do it every month or every 6 months because we don't want to get people comfortable waiting for the next online offering with added value it would give back -- give to them.

We want them to sign up as a member and pay for it.

And so it works.

The timing difference is simply we have a lot going on.

I believe, if I recall -- if I look back, we did the fee increase effective June 1, and we didn't want to do it over that month or 2 period of time, so we pushed it out a little bit.

And then just from what you've seen in terms of the millennial customer from a renewal rate perspective on these deals going back in time.

Yes, yes.

Going back to your question though, you were asking if we do it because we're concerned about Millennial.

I don't think we're smart enough to understand that.

The fact is we do it just to drive membership.

We recognize that it has a good Millennial benefit.

I don't have the one on the one that we just did, but the one we did 1.5 years ago and the one we did like 2.5, 3 years ago versus a walk-in, a higher percentage of people that sign up on these LivingSocial or Groupon offers are millennials, not as much as you'd expect.

I think in walking in, if I recall correctly, is like mid- to...

39%.

39% of those that walk in this last one were Millennials.

I think I go back to the previous one, it was 36% of walk-ins were Millennials, whereas, Millennials under this program, it was like in the mid- to high 40s.

So about 10 extra percentage points.

So not a huge distortion or a difference between those 2. But it helps.

Next question comes from the line of Karen Short with Barclays.

Actually, just since we're on the subject of Millennials, I'm wondering, can you maybe just give us an update a little bit on the average age of your membership?

I know you kind of give that periodically.

It seems to have been trending down.

Any color you can give on that.

I don't have any [view] in front of me.

I know that when we did it a couple -- not a couple years, about a year ago, it was looking at U.S. members.

It was 52 years versus 54 years across the U.S., not -- the entire population of U.S. adults, which was about -- so we were 2 years older instead of a few years earlier than that, we were 4 years older.

I have not seen anything since that.

If I have it, you can ask me.

I'll find out.

But I don't recall.

Okay.

And then one of the questions I think you were asked and I didn't catch the answer if you gave it, but do you have any color just specifically on the performance of your stores that are in close proximity to Whole Foods since the price reductions took place at Whole Foods?

Any color you could give.

Yes.

We essentially overlap everywhere.

And I'm not trying to be cute, but other than reading about it on the news, in the paper, on Wall Street, we have not -- and we recognize -- I read yesterday that there's some specialties, brick-and-mortars, retail stores that are impacted more than others.

We don't believe we've seen an impact from it.

(inaudible) at all, I guess.

And then I guess on the online grocery, I just want to clarify, you gave 1,700 SKUs.

And I think what you said was that possibly the price points would possibly be cheaper than Costco.

Did I catch that right?

And then maybe you were...

No, no, it'll be lower -- currently, you can go to certain other parties, Google Express, Instacart, as it was before October 1, costco.com, Costco Business Center, unlimited delivery within 40- or 70-mile radius of those 15 locations shipped down in the Southeast, I believe, boxed.

I'm sure there's some others out there that I'm missing.

When we look at the pricing that anybody, both a member and a nonmember, as the case may be, depending on each one and how they price their goods, what they ultimately have -- what their delivery price is, this is better, including on some of the items which you could buy at great value and better value than those areas on costco.com already.

Got it.

And then just the last question.

There seems to have been some rumblings that you are looking to expand into China.

I don't know if you could comment on that a little bit.

It's the 20-year discussion is we're looking.

As a rule, until we have permits to do something -- building permits to do something, we don't announce, whether it's in Alabama or China.

But we are looking, and at some point, we'll announce something.

Next question comes from the line of Matt Fassler with Goldman Sachs.

Richard, my first question relates to the line item that talks about core margin categories on their own sales.

And I guess that line item, this is inclusive of gas.

And I might not have caught the number, ex gas, had been up for the first...

It's exclusive of gas.

Okay.

So only in core categories.

That number had been up, I think, each quarter of the year, and in fact, I think it'd been up something like 11 straight quarters.

Last time it was down, I think, was in -- 10 straight quarters, second quarter of fiscal '15.

And I know it was flat this quarter.

And the differences are not very big, but it was a bit of a break in the pattern.

So was there any particular area where you invested in price?

And was there a concerted effort to invest to a greater degree in price that would have led to the increases in that line item abating here?

Well, yes.

But again, we don't sit -- honestly, we don't sit down.

We decide like here's a bucket of money, if you will, and how we're going to use it.

And we don't do a bunch of sensitivity analyses.

I mean we're merchants and -- I'm not, but they are -- here.

And we look at what are the things that drive business in retail grocery or retail nonfood, as the case may be.

And certainly on key items, I think I mentioned -- I used the example of New York strip steaks where we were $7 and $8.99 and we went down to $6.99.

And by the way, we did that and still had a decent margin because of how we bought it in on -- we're a giant buyer of this stuff.

We've done it on several items and it works.

So I think the comment you made, the point you made though is -- while it's not a lot directionally, it's different.

That's fine.

We're really not concerned about that.

Fair enough.

And then secondly, so Instacart, I know, is a prominent delivery partner.

I know that prior to Amazon acquiring Whole Foods, Whole Foods had made an equity investment in Instacart.

Does that have any impact on that partnership on the future of -- and obviously, you're not the only partner Instacart has and it's probably a question a lot of their business partners are having.

Is that a relevant consideration at all as we think about the forward 8 for Instacart?

No.

In fact, when we announced -- when we started -- when we initiated this week, our discussion is both before and after that.

Both before and after June 15 or 16.

Great.

And then finally, so the e-commerce business, I know, has accelerated over the past few months.

And you spoke about -- you spoke in the past couple of quarters about some of the changes that you made replatforming, et cetera, and the capacity you have.

Are there any particular categories where you're seeing that acceleration to the extent that you've kind of more than doubled the pace of growth in e-commerce?

I know you're not to refresh that, obviously, and you're expanding your e-commerce efforts with some of these brand-new initiatives.

But anywhere in particular where the business is taking off?

Well, on the nonfood side, I think we mentioned 1 quarter or 2 ago appliances is a big area.

Apparel -- on the nonfood area, (inaudible) apparel and sundries.

So we continue, I think, to do a better job and then added foods on the food and sundries side -- on the dry food and sundries side and some big ticket items.

And then I look at 2 examples.

Again, it was only for, what, a 1- or 2-week period, the Samsung deal using the Citi Visa card.

On top of great pricing on the TV to start with and white-glove service if you want it, it was a -- you've got our great price.

And if you're an Executive Member, you've got 2%.

And if you use the Citi Visa card, you've not only got a 2% -- you've got that 2% because you bought it at Costco.

But on top of that, you've got a 15% Cash Card.

And that impacted sales both in line, in store and as well as online.

So these are soundbites but there's lots of them because there's lots that we haven't done yet.

Next question comes from the line of Paul Trussell with Deutsche Bank.

First, on membership.

I believe the last LivingSocial deal that you ran in 2016, you signed up approximately 200,000, 250,000 new members through that program-or-so.

Could you discuss what the more recent program led to in terms of sign-ups?

And then also, the number you gave earlier on the call in terms of the 4% growth in U.S. and Canada ex cannibalization, what would that number be all-in even if we included the club that did see some cannibalization?

So just kind of overall U.S. maybe versus international growth in membership per club.

Yes, I don't have it.

Again, I was trying to be helpful to the -- one thing I guess I want to warn, we're not going to start doing this new calculation every quarter.

We try to be helpful here.

But we know based on our discussions every day at the budget meeting that we felt that we're fine when the question has been asked about the average number of members.

(inaudible) seems to be going down.

The new -- total new member sign-ups seems to be -- the rate of growth seems to be slowing a little bit.

Again, hopefully, the data points I gave you allay those concerns.

But I don't have the detail beyond that.

What we did is we took -- let's take all the cannibalized units.

We know that's a big impact, and we -- all the new units, many of them are in small markets.

That's an impact.

That's going to impact it.

Understood.

And on the LivingSocial sign-ups?

It was a little better than the one 18 months earlier.

Fair enough.

And then just on gross margins, you mentioned at the beginning of the call the benefit -- the pretax benefit that I think netted out to about $10 million-or-so.

What line item within gross margins did that impact?

And also, just wanted to inquire what, if any, margin impact you are assuming from the new Costco grocery rollout?

And then...

On the first one, I think it was a separate line item called other.

That was the 2 basis points.

And as it relates to the impact of the new thing, it's going to be so small to start with, we don't even know yet.

Got it.

And then just so on that point, as we think about gross margins over the near term, is it fair that we should think that there could -- maybe flat to slightly down will be kind of the near-term run rate just given the investments in price that you've made and the moderating contribution from Visa?

Well, we don't guide.

Visa will be moderating, but moderating still has a plus sign in front of it, even if it's small.

I look back though is we still have a chunk of those monies.

We still have -- we have the new membership fee increase that started in June with -- again ultimately, it's $240 million.

That increase is just the U.S. and Canada that'll hit the P&L, but the total hit to the -- the total benefit to the P&L line won't be for 23 months from June.

So that's May of '19.

But there's plenty of money out there to do both, to be able to -- whether margins go up or down a little bit, again, I get back to it, it is merchandising.

We feel we've got plenty of capacity.

I think the salient point is, is any of this related to competitive issues out there?

For the most part, no.

It's us.

Next question comes from the line of Charles Grom with Gordon Haskett.

Could you just remind us the profitability of your digital business relative to the club segment and also the SKU overlap between both and what you think the long-term opportunity is for the SKU count on the digital side?

E-commerce profitability is a higher percentage of pretax earnings and percent of sales than the brick-and-mortar.

But there are a lot of things like that.

Some of the ancillary businesses are that way.

But it has continued.

If it's come down a little, it's simply because we've invested in price.

And I would say whatever investment on price is, that number of basis points is less than the reduction in the profitability in e-commerce because we've driven e-commerce profitability.

Okay.

And is that mostly on the merch margin side?

Or is it on the SG&A side?

A little bit is SG&A, and a little bit's margin.

Okay.

And then just a follow-up on Chris' question earlier about the millennials.

Could you speak to membership trends and renewal rates for that category or for that cohort of individuals?

I don't have any new data on that other than I think what I shared last quarter.

Millennials, new members tend -- new members generally renew at a lower rate.

Every year, you're stuck around your renew at a better, higher rate until you're really old.

And millennials generally renew at about the same rate.

And like that's always -- it's all first year members.

Yes, in fact, I remember -- I don't have the detail on the one we just did.

But the one we did 18 months ago versus walk-in, we saw those that sign up on LivingSocial renewed at like a percentage point higher rate in that first year of renewal.

But again, that's plus or minus a little.

Okay.

And then just my last question is obviously the compression in your renewal rates and the timing of the Amazon-Whole Foods deal has sort of given a lot of people concern and is obviously a focal point on the call.

And I wanted to circle back to Simeon's question earlier and your answer to his question with regards to Canada because I think it gives you a good proxy for sort of halfway for the renewal rate subsequent to the change in tender.

So could you just remind us and just go over that again?

You said the peak to trough was around 100 basis points from the time you rolled out that new credit card.

And what was the recovery time?

And therefore, you think it's going to be another quarter or 2 before your renewal rates ticked up.

Can you just kind of discuss that?

Because I think it's pretty important.

Yes.

And mind you, there's still some differences and nuanced differences between Canada and the U.S. But notwithstanding those differences, Canada, I think we did the transition in early fiscal '15.

September of '14.

September of '14, which was Q1 of '15.

And we were in Canada.

And then if I looked out 6 months later, it dropped -- it continued to drop for 1, 2, 3, 4, 5 -- 6 quarters.

And it dropped exact -- I mean, I'm rounding to 0.1%, but it dropped 1.0 percentage points.

The next couple of quarters it picked up half of the delta, and it took another couple quarters to pick up all of the delta.

Another quarter-plus to pick up the rest of the delta.

This year, we did -- we converted in Q4 of '16.

So we're now in the fourth quarter past that, whereas, I saw the trough in Canada, albeit some differences and nuances, 6 quarters out.

So that will tell me it's probably a couple more quarters.

But that's about as much analysis as we've done.

Next question comes from the line of Oliver Chen with Cowen and [Ford] Company.

Richard, as you do think about e-commerce and you become much more aggressive and considerate about what your strategies are, what are your thoughts about the framework for balancing e-commerce and the convenience factor against margins and cost control from a CapEx and expense perspective?

What's your framework for how you're thinking about evaluating where you should allocate ROIC for the long term?

And our second question was just about the value proposition story, which continues to be very compelling.

How are you triangulating the value proposition against core merchandise margin and also working through with vendors in terms of maximizing it for the whole system and sharing and passing on some savings to customers?

And that's also a little bit related to the multi-vendor mailer and where you are with that project.

It's all of the above.

First of all, in terms of allocation, I mean, with -- first of all, the base e-commerce as we've gone to more fulfillment centers, frankly, it's been a net positive because we've driven down transportation costs, freight costs.

We've driven down time to get it to you.

The improvements -- the costs of the improvements to the site are de minimis.

It's just that perhaps we were a little stubborn for a long time and we haven't done it.

It wasn't our focus.

But improving search, improving the site itself, expanding distribution points, those are small pieces of a $2.5 billion CapEx budget.

So I don't really see that -- we've got more than enough money to do it.

As it relates to driving business, some of these things are tests, clearly.

Someone else earlier asked the question, what if this thing with grocery is really successful?

Well, really successful is 2 things.

It's really successful as a business and how does it impact people coming into -- walking into Costco because we know we're going to -- they're going to buy really a lot more stuff when they walk in.

So we have to do that and we think we can manage that by using e-mail to drive people in store as well and the couponing and things like that.

So again, time will tell, and we'll have to see where it goes.

As it relates to working with vendors, it's pretty simple.

Based on the volume and the efficiencies that we bring to purchasing product from a vendor, we better get the best price.

And we all hear and sometimes we read and sometimes somebody accidentally us something.

But we all hear about all the special deals or what one retailer, whether brick-and-mortar or someone else, I think like all of us out there, we have to keep our options open.

But we feel pretty good about we're getting money.

Some of the successes we've had, whether it's these special deals or examples of special deals, working with vendors on hot items and buyers' picks, what I spoke about last February or early March in the second quarter earnings call about, in some cases tweaking, sometimes significantly tweaking how we use the MVM and what items go in it, how we drive greater value and sometimes partnering with a vendor to do that.

All those things are part of the equation.

I think it's a lot easier for us to do it when we're trying to manage a few thousand items and the enormity of purchasing power we have within those items and the availability of sourcing those items for many people.

So I think we feel pretty good about what we're doing and how we're getting the monies and how we're spending them.

There's a lot going on.

We'll have to wait and see.

We're gratified that the things we're doing are driving brick-and-mortar traffic and comps.

And we're gratified by some of these things that we were telling you over the last few quarters of earnings calls about improving the site, adding a few things, have started coming to fruition on e-commerce.

When we think some of these new things, we're excited about it, but there's a lot of unknowns yet.

A comment somebody in the room here mentioned.

I think appliance is a great example.

It used to be we sold some appliances in store and other big-ticket items like furniture.

And if you -- no, we don't deliver, and go get your U-Haul or your friend's pickup truck.

Well, that's not happening today.

By displaying some items in store, we're driving more business.

We're doing very well online with furniture with patio furniture with regular furniture with lawn and garden type big-ticket items with electronics, including white-glove service and now with appliances.

We think appliances, part of it also is brands, having partnerships with GE and LG and Samsung, among others, which are relatively new in the way we're doing it.

We think literally in 3-or-so years, we can add $1 billion of sales, which we started doing about 8 months ago.

Next question comes from the line of Peter Benedict from Robert Baird.

Richard, just a quick one.

You mentioned the manufacturing facilities during your prepared remarks.

Can you talk a little bit more just about what you've done there and what kind the strategy is and some of the benefits you see when you start to take some of that stuff in-house?

Well, that's a continuation of some of the things we've done.

Years ago, we opened our first ground beef plant.

I think it was originally in Tracy, California.

And the intention was -- is to: one, assure supply; and two, by definition, have great quality, but then two, lower the price per pound of landed ground beef to our locations.

We did that and more.

We now have a plant in California that supplies us.

It's our plant, 4-plus million pounds a week of half a dozen SKUs.

We're building a second plant on the East Coast right now because this one has been beyond capacity for a few years, but we now can accommodate one on East Coast and, by the way, reduce some freight costs along the way, so we'll get more efficiencies from that.

The $300 million we're spending on a chicken plant in Nebraska just broke ground 1 month or 2 ago.

We need over 400 million birds in the U.S. every year.

This will be less than -- about 100 million, so just under 1/4 of our need.

More importantly, we've got 2 other plants run by other well-known suppliers where we -- we call them dedicated facilities.

We had them retrofit them, greatly reduce the number of SKUs they're supplying and manufacturing to supermarkets, restaurants and us and other clubs, and driving, guess what, if you greatly reduce the SKUs and you make the manufacturing more efficient, you can, save -- given the week and given what happens with all the byproduct in the markets themselves, we can guarantee sourcing and lower our costs by anywhere from $0.10 to $0.35 a bird depending on what month and what's going on out there in the markets.

So it has worked well for us.

We're looking to do that in other things.

The fact that we source produce from 44 countries, it is what makes us who we are, but we're sourcing 30 SKUs-or-so, not 150 SKUs.

We're building a -- in Canada, we built a commissary for baking needs.

We've got -- so we'll continue to do that, but I think the biggest single commitment we made is this new chicken plant, but it's not like we've gone from 0 to $300 million in this example, we've done a lot of things.

Next question comes from the line of Scott Mushkin with Wolfe Research.

I wanted to just kind of attack the elephant in the room.

We've had a lot of questions on kind of memberships, and I think the elephant in the room, basically, it's the old Peter Lynch of investing, invest in what you know.

And I think a lot of people in the investment community have seen -- if they're Costco members, maybe have seen that their shopping frequency to Costco dropped as Amazon's come in with things like Subscribe & Save and other programs that they've done.

So Richard, what I wanted to -- I mean, clearly, your sales are just amazing, like, they speed up and they speed up and they speed up and your frequency.

What are we missing in the investment community where, again, it's the old Peter Lynch thing, kind of invest in what you know, where our experience is, I think, collectively, and I hear it from a lot of investors, but I also have experienced it myself in my own household, we're going to Costco less, and yet your sales are so darn strong.

What are we missing?

And why do you think we're missing it?

I wish I -- it was an easy explanation.

We don't see it.

That's not a good -- it's a good answer from the standpoint that we don't see it and that's good to the numbers.

To the extent -- clearly, you've done some sampling, yourself, Scott.

Others have as well.

Some of that sampling shows what you just suggested that it appears that, including your family.

Others, it doesn't show that.

I don't know why.

What we know is, is that we feel good -- well, certainly, we feel good about comps and frequency and renewal rates subject to the -- to some of the credit card stuff.

We feel good about some of the things we're getting ready to offer.

If this stuff is being sold out there at higher prices, and now we're going to -- those prices are going to be even lowered further by us with 1- and 2-day delivery or with the first -- 1 day, the same-day delivery with Fresh.

We have to figure out how to communicate that to everybody, but it should -- that should continue to drive our business.

We'll see.

I don't have a good answer for that one.

I think part of it is if you take -- using the -- grocery industry, the roughly, whatever it is, $900 billion or $1 trillion industry, everybody out there on this call and elsewhere will have their estimate of what delivery and online will be as a percentage of the total.

Whatever it is today, it'll be more tomorrow, and it'll be more the next day.

I think everybody, even though has extreme assumption, is it's not going to be 100% ever.

The question is, is it going to go from, I'm making these numbers up, from 5 to 10 and then slow down?

Is it going to go from 20 or 25?

Is it going to 40.

Who the (expletive) knows?

Whatever it's going to be, we should have a piece of it.

But clearly, whatever that brick-and-mortar or people actually drive somewhere and get it themselves, I think we're going to keep taking pieces of that.

An extreme example is, not even groceries, on apparel, we have a $6-plus billion apparel business that's compounded for 3.5 years at 9-plus percent while the brick-and-mortar apparel is down.

I know why, and we've explained why.

So for every point, there seems to be a counterpoint.

Within grocery itself, part of it's the unique items, whether it's Kirkland Signature items or some of the things we do uniquely ourselves, all those things, hopefully, we get it.

If we can't get you to come in for it, we'll at least get you to come in occasionally by some of the things we do to drive you in like the Strip Steaks or like the Copper River Salmon or like organics.

And to the extent you want to pay a little more, that little more will be a lot less more than it was the day before, even through us.

So that's what we're going to do.

Yes, I mean, I think, right now, it seems like with the strength of the business that our experience maybe on the investment community is a little different than what's going on in -- for a lot of people.

I had just one last one on the $75 free delivery.

I've been on the site during the call.

Is that -- if you sell items and you deliver for free for over $75 of the order size, are the profits equivalent there with going to the store?

Repeat the question, somebody was mentioning something.

Yes.

So I mean, basically, if it's $75, the delivery is free.

What -- is that -- is the profit equivalent, if I go over $75 and I buy on this Costco grocery, is the profit equivalent there versus the store?

Yes.

And part of that, by the way, is what we do.

I mean, it's this huge volume that we're doing, like any deliverer out there, including some of the ones that deliver our stuff and that are doing stuff third party with us, it's all about getting more things in the box.

If we get you to maximize that shipment, that goes a big way.

If we get the volume that we can bring to the table when third-party shippers are also looking for more volume or to spread that volume, that's all good for us and our member.

Next question comes from the line of Dan Binder with Jeffries.

It's Dan Binder.

On the topic of e-commerce, you talked about the higher profitability of an online sale.

I'm just curious.

If you would take $1 of sales out of the club and transfer it to online, does the better profit online completely offset the deleverage of pulling that $1 out of the club?

Look, it's going to be a long time before we figure that out.

At the end of the day, if all we're doing is substituting and taking sales out of brick-and-mortar and doing it online, that's a loss.

That's a money-losing proposition.

The fact of the matter is, is if we're going to lose it, a, we should lose it to ourselves.

And b, can we drive more business any way, both in-store and online.

The fact that you can get under this Costco grocery dry items throughout the entire Continental United States within 1 year, and 90% of it already starting 2 days ago, that includes lots of geographies where there's not a Costco within 150, 200 miles.

So we think that we're going to drive some business outside of our existing members and, by the way, they're going to need to become a member to do this.

So they're already doing it, despite ourselves, online with the limited amount of things we had at a higher price.

So we think that -- will be some -- will somebody stop becoming a Costco member?

Sure, there's going to be somebody.

Will somebody shop less in-store because they're now in-filling or fulfilling some of that with buying direct?

Yes.

But will there be new people that didn't do it before?

Absolutely.

And will we figure out how to get you in the store, even if you don't want to drive to the store?

Yes.

And we've been pleasantly surprised by some little things we've done to do that.

People like deals, and we do deals better than anybody.

second question was around renewal rates.

You talked about the next couple of quarters, possibly before you see that inflection.

If I go back far enough, I can recall cycles where you had membership fee increases where the renewal rate would come off a little bit, not a lot.

I don't -- I think the last cycle, you didn't see that.

I'm just curious, as you look -- because you just raised membership fees, is it possible that, that renewal rate takes a little bit longer than just a couple of quarters until you lap that fee increase next year?

I think it's possible.

I think what you're talking about originally though is when we do an increase, you'd see an almost an immediate drop in renewal rate for about 1 year and then it catch back up and it continue on.

I think it's been like at least 2 if not 3 cycles, so 10 to 15 years prior to that where we saw that.

Recognizing there's other things that made you want to renew your membership, having gas stations, having fresh foods, becoming the Executive Member, all those things have helped that as well.

So it's hard to dissect it in that regard.

Anecdotally, what we hear from -- again, from membership and from membership when they survey members that have dropped, that it has nothing to -- virtually nothing to do with raising the fee.

Okay.

Just 2 other questions.

On the promotional front.

If I go back a couple quarters ago, it looked like you were pulling back on the MVM, hit the sales a little bit.

But over the years, you've gotten a little bit more business on promotion, maybe a little less on EDLP.

There's been a little bit of a shift.

And now, I'm just listening to the call today, it sounds like you're going to be more active online.

So I guess, just in terms of how it fits into the message of the customer about everyday low price and whether they should wait for that promotion, do you feel like you have the right balance today?

Or do you think there'll be further tweaks, as you do more online, take away some of the MVM in the club?

Well, first of all, the letter E means every day.

What we talked about -- what we've changed back in February-ish, we continued.

What I mentioned.

Did we -- I gave a couple of examples what we've done online of late.

So it's not substituting something else.

The view is, our collective view is, is that there's -- we have the ability to do all the above, and we're doing it.

Okay.

And then my last question was just around traffic.

Both, I think, in September and the quarter, and I think actually for quite a while, the U.S. traffic -- or at least a couple of quarters, the U.S. traffic has been better than international.

I was just curious, with a younger international store base, why would that traffic be softer?

Is it strictly cannibalization?

Or is it something more than that as you compare it to the U.S. traffic growth?

It's 2 things.

It's cannibalization and the newness of the -- it's cannibalization and new members in any state or any country, and that first renewal is less than the second year renewal is less than the third year's.

Every time they renew, they're more likely to renew the next year at a higher rate than the previous year class, if you will.

And so we've got newer market units, and we have cannibalization.

Next question comes from the line of Kelly Bania from BMO.

Just a couple more questions on the 2 new online initiatives.

I guess, first, how will the prices compare for each of them to the stores in the club?

I believe Instacart has 2 different models, one where the prices actually match the in-store prices, but I believe there's a margin impact for that for the retailer.

So just any comments on how we should expect or what the message to members will be on how prices will be on the online versus in the club?

And then are there any plans in terms of testing some more auto replenishment-type programs along with this and any plans to market or advertise this in a meaningful way?

On the latter part, I believe there's something already on the site in terms of auto replenishment.

That's on there?

I'm sorry, it doesn't replenish but it comes up with a list based on what you bought before.

And again, yes, that'll be tweaked, but that was first order of business to get out there.

First of all, in terms of Instacart having 2 different models, the same prices in-store or not, I think they only had one model with us currently, prior to this week, and which included however they charge for delivery or they mark up our goods.

So this will be lower when you go on to Instacart and even lower when you go on to Costco grocery or Costco -- the fresh Costco e-commerce.

Did I answer that?

Next question comes from the line of Chuck Cerankosky with Northcoast Research.

When you're looking at the various reasons people shop the Costco clubs, are you able to look at just how much they enjoy that shopping experience?

You've got great sales numbers, and there's a lot of reasons for being in the store, but is there just a factor that indicates people enjoy being in the club?

Well, I'm biased, but of course.

And we all enjoy being in a club.

What was the first part of your question?

Well, you've got various reasons like saving money to go to a Costco club and high quality.

But is there just flat out simply an experiential reason to be in the clubs that is driving traffic numbers that are better than a lot of other brick-and-mortar retail?

Well, I think it's several -- look, Chuck, and again I am biased.

It's several things.

The gas stations help, fresh foods is second to none, and in our view, that's even gotten -- the motor [oil data] has gotten bigger not smaller since June.

There's Kirkland Signature items.

There's treasure hunt, fresh.

There's organics.

So I mean, I think that's where we do.

When I look -- when I go to the budget meetings every 4 weeks and I look at even some of the things we've got coming in for the various holidays, whether it's outerwear apparel for the winter or some of the holidays like Thanksgiving and Christmas, just -- I think our members are -- should be as excited as ever about some of the exciting new things we have.

They keep driving that value proposition.

And all the fees I mentioned earlier in the call, the tweaking the MVM, the -- using the e-mails to get you in to buy it.

When everybody out there was at $8.99 to $10.99 on choice New York strip steaks, we went from $7.99 to $6.99.

That not only drives business and takes it away from chicken and ground beef, it drives traffic.

And we know how to do that kind of stuff pretty well.

Going back to membership.

Our work has been showing that household formations are looking a little better than the census numbers, which are about 1 million new households per year right now.

Are you seeing that in membership sign-ups in the U.S.?

New households?

I don't know.

If you want to e-mail me the question, I can find out.

Next question comes from the line of Scot Ciccarelli with RBC Capital Markets.

Rob Iannarone on for Scot Ciccarelli.

Just one housekeeping item.

Organic sales, can you tell us how much that was for the year?

Organic?

It was up a little over 20% and about $5.5 billion.

Great.

And one follow-up also food-related here.

Anything you're seeing changing in either inflation, deflation?

Has the tone of the conversation changed with any suppliers you talk to?

It's pretty stable.

I mean, everybody's hoping for a little -- well, we're not hoping for inflation.

Everybody's hoping for inflation.

They can't -- it doesn't hurt us.

But it's been pretty stable.

I mean, if I look at LIFO indices or any type of those metrics, we've gone from deflation to flat or, literally, low single-digit basis points up on a basket.

Taking -- not taking gas out of the equation, which is quite inflationary right now.

Next question comes from the line of Joe Feldman with Telsey Advisory Group.

Two quick ones.

Pickup in-store, I know we've talked about this before with you guys but just curious if you've changed your thinking on it at all or if there's any potential to do a test like a buy online, pick up in store situation?

Yes.

We look at it, but at this point, we're not prepared to do it.

We do it with tires.

You can order them online and schedule your appointment.

Got it.

Is it a space issue or a labor issue, you think?

Well, it's, first of all, to tell you the truth, in our view, and maybe we're stubborn, it's a commonsense issue.

You order and then you got -- we have to separate it into dry, refrigerated, frozen and wait for you.

And it's clearly a space issue.

I mean, we're doing literally twice the volume of some others out there -- 2 to 3x the volume versus our 2 direct competitors.

And I'm sure at some point, we'll try it, but it's not on the agenda in the next couple of months.

Got it.

And then the other topic, I think you said the store mix for this year, new stores was 2/3 U.S., 1/3 international.

I feel like that you were trying to push more towards 50-50 the past couple years.

Just anything to do that you can mention there?

We're still trying.

It's just that there's a longer pipeline, and we've had a lot going on.

So there's -- we will get there.

I look at it.

I think the good news is if you'd asked me 5, 6, 7 years ago, I don't think we'd have as many opportunities in the U.S. as we still think we have.

I mean, saturation continues, but that -- the time with saturation ultimately occurs for new locations keeps being pushed out a little bit further.

Why don't we take 2 last questions?

The next question comes from the line of Brian Nagel with Oppenheimer.

This is David Bellinger on for Brian.

So my first question is on the price investments you detailed earlier.

Just to be clear, did those step up in Q4 versus the trend over the first 3 quarters of the year?

And if so, was that in some way a reaction to the Amazon-Whole Foods deal?

No, they didn't, other than there's more weeks -- there's 17 weeks versus the first 3 quarters that had 12 weeks.

And it had absolutely nothing to do with that.

I mean, we price Whole Foods twice a week in many, many markets around the country, and we're kind of scratching our head.

We did that before the announcement of the acquisition, by the way.

They come down in prices of some items.

Sure.

Overall, and some of you have done your own price baskets while we read about up to 43%, it's a lot closer to 0 than it is 43%.

And even with something dramatic, others out there are going to be impacted a lot more than we are, other than people wanting to have stuff delivered, and we're providing that option based on how we do stuff.

Got it.

And then as my follow-up, can you just give us any comments around the recent trajectory of food price deflation and what your expectations are going into 2018.

We -- it's pretty flat right now.

And within fresh, you're going to see variations like meat has come down a little bit.

It was way up for 1 year.

That can be seasonal.

Produce depends on crops, recent events.

Oil -- gasoline depends on recent events, the hurricanes, but other than that -- taking some of those things out, it's pretty flat.

The next question comes from the -- the last question comes from the line of Mark Astrachan with Stifel.

I wanted to ask, can you give the percentage of sales that Kirkland Signature represents?

And I'm just curious if you think about the margins relative to what else is in-store, given increasing competition out there and, obviously, the favorability of the KS products, would you think about increasing the offerings there going forward to help sort of fund and offer uniqueness within the store?

Yes.

Well, percentage-wise, ex gasoline, even though it says Kirkland Signature, gasoline is about 24%, 25% of our total sales -- our non-gas sales.

We'll continue to add items as they make sense.

We're not really working towards the number.

We think the number will keep going up a little bit because we do like it, but we've also -- we remind ourselves and our head of merchandising reminds our buyers every day, don't fall in love with it because it has your name on it and, each year, which items, even Kirkland Signature, we just continue because the brand does better.

Maybe ours is a better value in our minds and it -- maybe it is a better value, but we're still not successful with it.

And by the way, part of the focus of our buyers probably before that is to find more brands.

We want more brands.

Got it.

And then just lastly, you'd previously talked about e-commerce expansion being done organically.

Curious if that's still the case.

Or would you potentially take a look at other things, whether it's an actual retailer, whether it's a logistics provider, something that could help sort of bridge what you're doing externally now with something internally?

And related to that sort of views on competitive dynamics, meaning you buy something that isn't necessarily something you want but something that somebody else may want that ultimately could negatively impact your business.

I think of the latter part of that, no.

That's going to be the last thing.

I always joke we're not smart enough to figure that one out.

I think we're more likely to, first of all, look for partnerships and ventures to jointly venture something rather than to buy something.

As you might expect, we, along with other large (inaudible) retailers, get calls every day about everything, whether it's delivery services, food-related meal stuff, all kinds of stuff.

And we're fortunate in the sense that, one, we've got some good relationships like the recent expansion of what we're doing with Instacart.

That helped.

So I don't see us doing that.

That being said, we'll be open-minded to anything, but we'll have to wait and see on that one.

We've got a lot going on right now with some of the things we're doing that we're excited about.

And every time -- when we tried something -- I keep bringing up the steak idea or the steak example or the Copper River Salmon answer, then we figure out what else can we do.

And there's a lot of those what elses.

And so we've got our plate pretty full of those kind of things.

And we've got -- look, we just rolled this thing out.

It's an -- what we rolled out 3 days ago was a soft opening, if you will.

There's no publicity out there for it.

We'll have to see how it goes, what it does first.

Thank you, everyone.

Have a good day.

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