Costco Wholesale (COST) Q3 2023 Earnings Call Transcript

For the period ending May 7, 2023

May 25, 2023 5:00 p.m. ET

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Costco Wholesale Corporation's Fiscal Q3 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Richard Galanti, CFO, you may begin your conference.

A - Richard Galanti

Thank you, Josh, and good afternoon to everyone. I will start by stating that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law.

In today's press release, we reported operating results for the third quarter of fiscal 2023, the 12 weeks ended this past May 7. Reported net income for the quarter was $1.30 billion or $2.93 per diluted share as compared to $1.35 billion or $3.04 per diluted share a year ago in third quarter. This year's results included a non-recurring charge to merchandise costs of $298 million pretax or $0.50 per share, primarily for the discontinuation of our charter shipping activities. Last year's results included a non-recurring $77 million pretax charge or $0.13 per share for incremental employee benefits.

As many of you know, two years ago, we initially leased three ships and thousands of containers to help mitigate some of the significant overseas freight challenges that we were experiencing. Later, we added four additional vessels and several 1,000 additional containers with commitments made for up to -- then three additional years. Procuring these ships and containers was integral to us being able to stay in stock for our members during those challenging times. It also allowed us to do so initially at a lower cost in the market rates at that time. Shipping and freight markets have improved dramatically since that time, which led us to reevaluate our position.

As you recall, in fiscal second -- first quarter of this fiscal year, we took a charge to downsize by two vessels, our charter shipping activities. Since then shipping and container rates have continued to fall and then in the third quarter -- this third quarter, we concluded that would be appropriate to completely discontinue the remainder of our charter shipping activities. As a result of this decision, we recorded an impairment charge for all remaining charter assets. This decision allows our merchandising teams to take full advantage of the current shipping market rates as opposed to much higher contracted charter rates, in turn, this allows us to do what we do best and lower prices for our members.