Costco Wholesale Corp (COST) — Q1 2023 Earnings Call Transcript

Thank you, Bo, and good afternoon to everyone. I want to begin by noting that our discussions today will include forward-looking statements that involve risks and uncertainties which may lead to actual results differing significantly from what we indicate. These risks are outlined in today's call and also in our public statements and SEC filings. Forward-looking statements are only valid as of their date, and the company does not take responsibility for updating them unless legally obligated. In our press release today, we disclosed operating results for the first quarter of fiscal 2023, covering the 12 weeks that ended on November 20. We reported net income for the quarter of $1.364 billion, or $3.07 per diluted share, compared to $1.324 billion or $2.98 a share from the previous year. This year's results incorporated a pre-tax charge of $93 million, or $0.15 per share, mainly due to reducing our charter shipping operations alongside a tax benefit of $53 million, or $0.12 per diluted share, related to stock-based compensation. The previous year's results included an asset write-off of $118 million, or $0.20 per diluted share, and a tax benefit of $91 million, or $0.21 a share, from stock-based compensation. Furthermore, the strength of the U.S. dollar led to a decrease in our foreign earnings when converted to U.S. dollars, affecting our earnings negatively by about $0.12 per share, given that 25% to 30% of our earnings typically come from outside the United States. Regarding sales, net sales for the first quarter rose by 8.1% to $53.44 billion, compared to $49.42 billion a year ago. On a comparable sales basis for the first quarter, U.S. sales increased by 9.3% over the 12 weeks, with increases of 6.5% after excluding gas inflation and foreign exchange effects; Canada saw a rise of 2.4%, while other international sales reported a decrease of 3.1%, but when excluding gas inflation and FX, an increase of 9.1%. Overall, the company reported a 6.6% increase, with a 7.1% rise after excluding gas inflation and FX. Our e-commerce segment experienced a decrease of 3.7%, or a dip of 2% when excluding FX. During the first quarter, our metrics for comparable sales showed a global traffic increase of 3.9% and a 2.2% increase in traffic in the U.S. The average transaction size rose by 2.6% globally and 6.9% in the U.S. Additionally, foreign currencies negatively impacted sales by just over 3%, while gasoline price inflation positively contributed 2.5%. Looking at the income statement, our membership fee income reached $1 billion this quarter, reflecting a 5.7% increase from last year's reported $946 million. Excluding the impact of foreign currency fluctuations, we estimate that the membership fee income growth would have been about 9% year-over-year. Our U.S. and Canada renewal rates stood at 92.5% by the end of the first quarter, slightly up from 92.4% the previous quarter, while the worldwide rate remained steady at 90.4%. At the end of the first quarter, we had 66.9 million paying household members and 120.9 million cardholders, both representing a 7% increase compared to last year. We added about 22 new units over the last year, accounting for nearly a 3% increase. Our paid executive memberships totaled approximately 30 million, growing by 904,000 over the 12 weeks, averaging about 75,000 new memberships each week. Executive members now constitute 45% of our paid membership and nearly 73% of worldwide sales. Moving to gross margin, we reported a decline of 45 basis points year-over-year, which when excluding gas inflation, decreased by 21 basis points. Without the $93 million pre-tax charge, the gross margin, excluding gas inflation, would have only dropped by 3 basis points. Here are some key figures: on a core merchandise basis, we saw a decline of 52 basis points; excluding gas inflation, it was down 31 basis points. Our ancillary and other business saw a gross margin increase of 23 basis points reported and 30 basis points when excluding gas inflation. The 2% reward program had a reported decline of 2% and a decrease of 5% when excluding gas inflation. LIFO showed a slight increase of 3 basis points, reflecting a minor LIFO charge this year. The other category, which includes the $93 million charge linked to downsizing our charter shipping activities, recorded a decline of 17 basis points on a reported basis and 18 basis points excluding gas inflation. Regarding our shipping operations, it’s worth noting that over the last year, we managed to control nearly 50,000 containers, mitigating delays and achieving significant cost savings. With shipping times improving and costs decreasing, it was prudent to reduce our commitments to provide better prices for our members. In terms of SG&A, we reported an improvement of 35 basis points year-over-year, with current figures at 920 compared to 955 last year. Looking at the details, core operations showed a decrease of 8 basis points reported, but if we exclude the impact of gas inflation, it indicates a slight increase of 9 basis points. Stock compensation showed a decline as a percentage, benefiting our overall improvement. Interest expense this year was $34 million, down from $39 million last year, while interest income rose to $53 million from $42 million. Pre-tax income for the quarter increased by 4% to $1.77 billion, and when excluding previous charges, the growth was around 3%. For taxes, our current tax rate stands at 23.0%, up from 20.7% last year, with both years being positively affected by stock-based compensation. We anticipate that the effective tax rate for fiscal 2023, excluding discrete items, will fall between 26% and 27%. Looking ahead, we plan to open a net of 24 new warehouses this year, including 27 openings with some relocations already accounted for. In the first quarter alone, we opened seven new locations across the U.S., Korea, New Zealand, and Sweden, with plans for additional openings throughout the year. Our capital expenditures for the first quarter reached approximately $1.06 billion, with a forecast for total expenditures this fiscal year to be between $3.8 billion and $4.0 billion. Concerning e-commerce, during the quarter, we reported a year-over-year sales decline of 3.7% and 2% when excluding FX. However, if we accounted for sales through same-day delivery partners, the e-commerce compares would have shown a modest increase. We saw stronger year-over-year growth in categories such as tickets, gift cards, and health and beauty aids, although consumer electronics and appliances, which make up a significant portion of e-commerce sales, experienced a downturn. Finally, with respect to inflation, we have observed slight improvements in some areas. Year-over-year price inflation was estimated at about 8% last quarter, and we now estimate it to be between 6% and 7% for the first quarter. Overall, while there are ongoing costs pressures, many commodity prices are beginning to stabilize or decrease, and we will continue to monitor these trends. Our inventory levels saw improvement, with a year-over-year increase limited to 10% by the end of the first quarter, aided by inflation and unit growth. We will report our December sales results for the five weeks ending January 1 on January 5 after market close. With that, I will open the floor to questions and turn it back over to Bo. Thank you.

Richard, I want to start with the short-term question. November, the slowdown in the stacks. Is there anything tip of the iceberg there, macro merchandising? Is there something obvious? I mean you were living in pretty rarefied air, but curious if there's anything notable.

No, I think the biggest thing, as I've said a couple of times in a quiet way, it rains on all of us during these tougher times, particularly with bigger ticket discretionary items. We're comparing against some huge increases a year ago, frankly, over the last two or three years, as you know. And that's where we've seen some of the slowdown. As I mentioned, e-comm consumer electronics and appliances, as I mentioned, was down high singles. I think in line was also down some amount. So that's where a big chunk of it is. When we look at food and sundries, that actually tends to be relatively strong for us. So overall, I think it's impacting us a little bit with what's going on out there. I think it is a combination of compared to very strong stuff a year ago as well as the fact that big ticket discretionary has a little bit of weakness.

Okay. And maybe just a two-part follow-up. One is just related to that answer. Does those two couple of days, I don't know if you can judge enough from it, does it bring you back to some type of trend line? Or it sounds like your tone is there's still some pressure? And then the real follow-up is on gas gross profits. If you just think about the movement of the lap throughout this fiscal year, does it progressively get harder through the year in terms of the lap? And then can you highlight to us which quarter has the highest cents per gallon lap throughout the rest of the year?

Yes, I see a few people in the room smiling. While I can't share all the details, I'll highlight some points. First, if you check our reported numbers for November, you’ll notice those two peak days for e-commerce were in the last week. Keep in mind that e-commerce still accounts for just under 10% of our total company, but those days contributed positively to our recent performance. Overall, we are optimistic about our strategies to drive sales. As I mentioned, as we move past significant holiday spending on discretionary items, we anticipate a higher demand for other categories. Regarding gas, we’ve been discussing our profitability in this area for several quarters now, and we believe that our competitors at other major gas chains have earned more from gas sales. This enables us to maintain competitive pricing in some areas. The future is uncertain, but currently, gas sales are more profitable than they have been historically. We’ve noted strong gallon sales and are gaining market share. While U.S. gallon sales are mostly stable, we are seeing growth in the 10% to 15% range. This influx is bringing more customers into our parking lots, and the profitability of gas sales is benefiting us. There will always be factors that help us, alongside challenges.

My question is on the LIFO charge. It looks like if it's a few basis points of a hit, that would back into about $30 million to $40 million. And I'm curious, I know you don't provide guidance, but knowing what you know now and if inflation holds at that, say, 6% level, would that be a good proxy for the charge, at least over the next couple of quarters?

LIFO showed a slight increase, but the dollar amount was less than the $14 million from last year in the same quarter. If this trend continues, it would be positive and likely result in a lower charge than $423 million, especially since the significant impact was felt in Q3. Most of the major effects occurred in Q3 and Q4 when we began to see inflation rise. If inflation remains stable, theoretically, there wouldn't be any significant additional charges. Should inflation decrease from its peak, there could be some LIFO income, although part of that may be allocated to pricing adjustments as is typical for us.

Yes. Okay. So what would you do to have the absolute dollar amount for the LIFO charge in the quarter for us?

Yes. It was less than $1 million.

Less than $1 million. Okay, great. And then on the ancillary line, you've had real good success there in back-to-back quarters and you outlined gas profitability, e-comm, food court. Is there one that's been more outsized over the past couple of quarters and that maybe we could think about over the next few quarters because it's been a nice improvement?

Gasoline is a significant part of our business, representing the largest segment for several years. Last year, out of approximately $220 billion in sales, gasoline accounted for just over $30 billion. It remains the most substantial contributor among our various lines.

Richard, considering the 31 basis point decline in core-on-core gross margin and the decision to sacrifice some shipping capacity for better pricing for members, is Costco planning to increase price investments to capture more market share as the economy faces tougher times?

I believe we are staying competitive. When asked who our biggest competitor is, we look at ourselves and acknowledge that it's us. As we work to increase market share, part of that is because we remain very competitive. I don't think that has changed. Regardless of our financial results, we always strive to lower prices or moderate price increases. A recent example is fresh foods, where we've managed to keep prices steady on certain items despite rising costs, particularly in proteins and somewhat in bakery products.

And Richard, you've long talked about, the Costco model is driven, first and foremost, by sales, and the need to drive at least the mid-single-digit comp in order for the other parts of the P&L to work. So is the economy entering a softer period where discretionary sales can be a little weaker and Costco's overall sales are going to be a little softer, should we be modeling and prognosticating just a lower overall earnings growth for Costco during this time as when we go to these factors?

Good news is that's your job to model it. At the end of the day, I think my comment about big-ticket discretionary items is important. We include things like furniture, lawn and garden, and patio, which aren't necessarily seasonal right now. However, there is currently a higher proportion of big-ticket discretionary items. Fortunately, a significant part of our business consists of fresh foods and sundries, which people need to buy. As I mentioned, that segment has remained strong throughout this period. Overall, we will likely maintain a positive and somewhat aggressive outlook. When discussing top line sales, if they dip slightly, we must consider what’s needed to prevent SG&A from rising as a percentage of sales. Historically, the consensus has been that we need to see comp growth in the 4% to 5% range. If growth falls below that, it could pose challenges for SG&A. That said, we're practical and know how to manage our margins effectively. Therefore, we will continue focusing on driving top line sales with a long-term perspective. We are not significantly reducing orders at this time, even if we face some challenges with big-ticket discretionary items. Any decrease would be minor. We feel optimistic about certain aspects of our business despite external conditions. We believe we are gaining market share, as demonstrated by our performance in gas and food and sundries, and this is reflected in our membership growth.

Your answer was a lot better than my questions.

So regarding the core-on-core decline of 31 basis points, could you provide more details about what is causing that decline in the non-foods category? Also, concerning the pressure on fresh foods, I understand you have now surpassed some of last year's results. Fresh foods continue to pose a challenge. When do you expect to overcome some of the efficiencies that were gained during the pandemic, as I know those have been lost in recent quarters? I'm trying to understand when that pressure might ease.

I’m not sure exactly. I believe if we’re three quarters of a year in, we’ve discussed in the last two or three quarters that fresh items have been a factor, and it's likely worsened right now because we’re trying to maintain prices on certain products that we believe are boosting our sales. Beyond that, I can’t recall the first part of the question now.

Just on non-foods, any more color on...

Oh, yes. I think that fundamentally, it's fresh overall and then some non-foods. Some of this relates to big ticket items. If you have been online, you may have seen our promotions during the week of Thanksgiving and Cyber Monday, where we offered discounts ranging from $100 to $500 on purchases of $3,000 or more. We managed to reduce our year-over-year inventory increase from 26% to 10% by clearing out items that were in deep freeze and those that had delayed shipping due to supply chain issues. We took more markdowns than usual to help this process. I hope this won't be a pressure point moving forward, and I don't believe it will be. There are many variables at play in this situation. I wish it were simpler to explain each detail, but overall, we feel confident about our competitive position. We recognize that big ticket discretionary items have shown some weakness, partly due to our strong performance from a year ago and partly due to economic conditions. The good news is that significant portions of our business are in fresh foods, food and sundries, health and beauty aids, and gas. Additionally, travel has rebounded strongly after a significant downturn a couple of years ago.

Great. And then maybe just one additional question just on the membership fee hike. If we are in a weaker economic backdrop next year, does that at all impact how you guys are thinking about the timing of the membership fee hike?

Well, it certainly goes into the thought process. We're still not even to the average of the last three increases in terms of timing between the last one and the next one. What we've said again, and I'll say again, is that our view is all the parameters, as it relates to member loyalty and value proposition that we've improved to our member we have no problem thinking about doing it and doing it ultimately. So it's a question of when, not if. But we feel that we're in a very strong competitive position right now. And if we have to wait a few months or several months, that's fine. And I'll be purposely coy on when that might be.

It's Brandon Cheatham on for Paul. First one, I wanted to dig into the decision on holding the price on fresh. Are you seeing competitors do the same and that's why you reacted there? Or are you kind of trying to lead the charge there? And just curious like why make that decision since it seems like the consumer has been happy to take increased price, especially in fresh?

The last point you made is precisely why we decided to take additional steps in that area. Our goal is to remain highly competitive while driving significant volume, and we are focused on the long term. Fresh products are unique because prices for many of them change almost weekly, if not more frequently. Our buyers consistently monitor supermarket and warehouse club pricing to adjust accordingly. Additionally, we have deliberately kept the price of chicken at $4.99 and maintained pricing on hot dogs, among other items, as part of our strategy. We recognize that these price points can significantly impact our business. We have excellent fresh offerings, and customers do notice price differences.

And just a quick follow-up. You have a large competitor that's been talking about increased members in the $100,000-plus income cohort. Obviously, it's not impacting your membership numbers, but I'm just wondering, do you see any impact on share of wallet or any thoughts there? Do you look at how many of your members might have additional memberships as well?

We are seeing an increase in average household incomes among our members. Many of our executive business members likely have both cards and have always used them. We are aware of the market dynamics, and we closely monitor our performance. Our data shows that we have been able to attract higher income members during this period.

Before you ask a question, I want to mention that we have not engaged in many promotional activities with our membership and do not plan to do so. While this approach may help increase membership in the short term, we typically don’t focus on that. Please go ahead, Oliver.

Regarding e-commerce and going forward, what are your thoughts? You're up against some tough compares, but as we model it on a longer-term basis, how should the growth rates evolve? And then as we think about non-food, you talked about it a lot, but do you expect the non-food percentage mix to change from the past? Or it will more normalize? And lastly, on the higher income consumer and gains there, would love for you to elaborate on what's happening? And if you're getting more luxury consumers in terms of higher income folks joining in the club?

Sure. I noted the non-food aspect and regarding the new normal, we are still uncertain about what that entails. However, I do believe we have identified ways to enhance total sales. During the past two and a half years of COVID, customers have been purchasing items for their homes, including indoor and outdoor furniture, exercise equipment, electronics, and appliances. Our acquisition in April 2020 of the last mile delivery and installation service from Sears has significantly contributed to this. While we are unsure how much of our performance is a result of comparing against strong past numbers versus any minor weaknesses, we estimate it skews slightly positive. Our goal is always to drive sales in all areas, particularly non-food items, as we don't require additional space for this. Fresh food turnover can reach 50 to 60 times a year, while some non-food categories are turning just 8 times a year. Incrementally improving from 8 to 10 is feasible without expanding our facilities. We aim to grow both segments of our business, and we believe we are performing well in this regard. We will have a clearer picture a year from now. As for the other question, could you please remind me?

Yes. I think of Costco is a luxury company, too. So what are your thoughts on getting the higher income consumers? And anything you're seeing with your existing consumers in terms of behavior because everybody is under a little bit of pressure as well?

We’ve observed that there is a slightly higher percentage of higher-income customers visiting us, even though we typically attract a larger percentage of those consumers to begin with. Our goal is to offer you higher-value merchandise, and we prefer selling larger items with more features. This is our merchandising approach, and we have no plans to change it at this time.

Richard, I'd like to discuss the traffic, which appears to be growing closer to 2% in the U.S. Is there something specific driving that change? Or should we just accept it as we adapt to lower gas prices and deal with the slower traffic?

We still believe that anything in the low single digits is impressive. Over the past year, we have clearly seen benefits from an increase in membership sign-ups, with more people joining and the gas business contributing to that. During COVID, we experienced a notable rise in new member sign-ups, which is likely returning to more typical levels now. However, we feel very confident about our renewal rates and the loyalty our members show. We're consistently seeking ways to encourage them to engage with us. For instance, we send out emails highlighting exclusive in-store hot items. These are the strategies we continue to implement.

Got it. Could you update us on any private label extra gains that you're getting in this environment or trade down perhaps between proteins or anything like that worth calling out?

We didn't observe any significant trade down last quarter. I mentioned before that we had noticed strength in canned chicken and tuna, particularly in light of rising prices for some fresh proteins. Currently, we don't see much trade down in fresh products. Prices for several items have begun to decline as commodity costs have decreased slightly. Our KS penetration has increased, and our critical senior metric has also risen, likely nearing an increase of about one percentage point, which is notable compared to the past few years when it was around half a percentage point. So, it's probably up a bit more than usual. Recently, someone asked if we were seeing any trade down to private label, and we clarified that it's actually a trade up. Yes. It's a moving target, honestly. It's based on rates, frankly, and rates right now have come down dramatically. So that would be a year, it could be a little longer than a year or a little less than a year, depending on what happens tomorrow.

Hey, Richard. Just on new member sign-ups, you kind of mentioned it a little bit there in response to Greg's question. But just maybe talk about new member sign-up trends. Holistically, what you're seeing, anything U.S. versus maybe some of these international markets you've been entering. Just interested in your latest thoughts there.

I believe the key factor is that we perform better when members sign up in the countries where we offer executive membership, which accounts for about 85% to 90% of our operations, leaving out some smaller markets. In the U.S. and Canada, we excel at encouraging individuals to become executive members from the get-go. We also effectively promote auto-renewal through credit card entry. These strategies contribute positively. Executive members generally purchase more frequently throughout the year compared to non-members. Those with a co-branded credit card tend to shop even more often and spend more. When you combine being an executive member with having a credit card, that significantly boosts their engagement. We've observed these trends persist over the past few years. Notably, in the last year, our new member sign-ups have exceeded historical levels, likely influenced by the impacts of COVID and the favorable shopping environment we provided.

Sure. That makes sense. As my last question, I'm interested in understanding the components of interest income and other. Can you tell us what the interest income was in the quarter? I believe it was around $8 million last year, and I'm sure it increased significantly this quarter. Could you provide us with the figure for the first quarter?

Yes, I can provide that information. I wasn't aware it was in the Q, which hasn't been released yet. What you have is a significant increase in interest income and a notable increase in foreign exchange losses. Out of the $53 million, about $54 million is due to interest income, while there's a negative $1 million recorded as other, a substantial part of which is from foreign exchange. Last year, we reported $8 million in interest income and $34 million in other, with foreign exchange being the largest component, totaling $42 million. This year, the $53 million consists of $54 million in interest income and a subtraction of $1 million in other.

Richard, I had a question about elasticity and then another one regarding the big ticket. Regarding elasticity, have you observed any changes in how your members respond to your pricing adjustments when you lower prices?

I think that if you asked the buyers overall, there is slightly less elasticity than there used to be for certain items. This observation stems from my earlier comments regarding big-ticket discretionary items. We have invested more funds in this area, which has effectively cleared our excess inventory, particularly in categories like furniture. However, I believe that a year or two ago, we might have predicted stronger performance in this regard. This ties back to the overarching concerns about the economy affecting big-ticket discretionary items. There is still some elasticity present; for instance, when we implement temporary price reductions or send out our MVM mailers, we observe a positive response. Nonetheless, for larger ticket items, the impact is not as significant as it once was.

That's helpful. And then just a follow-up again on the big ticket. What percent of your sales would you say are big ticket, maybe it ebbs and flows with the seasons, but just in general? And do you see that members are pretty broad-based in pulling back meaning across income levels, Executive, Gold Star, et cetera?

Online sales are a little over 40, but they only account for 9% of our overall sales. In-store, I don't have the exact number right now, but a good estimate would be around 10. This includes furniture as well, which falls into the big-ticket discretionary category, alongside jewelry.

So following up on that, on the TV side, how much of the decline is due to fewer units sold versus price reductions? Are you noticing any differences between purchases of larger and smaller screen sizes?

Yes, unit sales are actually increasing. There's typical deflation in TV electronics, but we are noticing that smaller sizes are decreasing a bit. Not everyone is interested in an 85-inch television, which is where we tend to focus on higher ticket items. However, we are observing actual unit sales on the rise.

Units are up, particularly in smaller sizes.

Yes. Yes.

Got it. I have a couple of broader questions regarding consumer behavior. Are you noticing that some mid- to low-income consumers are hesitant to purchase the 18-pack of Bounty? Do you think this could be causing a loss in market share as they try to cut costs? Additionally, can you discuss the regional differences? There seems to be some weakness in specific housing markets and cities, and since you have significant exposure to California, where layoffs in the tech industry are increasing and there's some population migration happening, what trends are you observing in different regions where you're seeing strengths or weaknesses?

We're experiencing strength in sundries, which we consider part of our food and sundries category. This includes items like canned beverages, crackers, and cereal, as well as paper goods and cleaning supplies. While these areas are performing well, they are counterbalanced by some weaknesses on the non-food side. Regarding regional performance, we don’t notice significant differences; monthly variations in strength or weakness in different regions tend to relate more to weather conditions than anything else. I can't provide definitive insights about specific regions since they are all relatively similar.

Within 1.5 points or 2 points.

Bob is saying here, they're within a couple of points of comp.

Got it. I have one follow-up question regarding the inventory. You mentioned specific areas where you made adjustments. It seems like you've addressed the furniture and electronics categories. Can you clarify where those areas are? Additionally, how much inventory is related to holiday items, decor, toys, or other categories that might be considered more at risk during December?

The good news is our merchants are present, and holiday decor is in good shape. For example, we have a limited amount of air conditioners and fans because it was a hot summer, and we performed well in that category. There were some delays due to supply chain challenges, and some items didn't arrive until September. As a result, we won't put those on display and mark them down when there isn’t demand for air conditioning units in September. That illustrates the situation with a few items. We still have some furniture, but the inventory is significantly lower than before, making it very manageable. Beyond that, there's nothing major to report. The key concern at this moment would be regarding Christmas items and toys, and we believe we are in a solid position for that.

I have another question about gross margins. If consumables keep outpacing discretionary goods based on current economic trends, should we anticipate a slight compression in gross margins due to this mix? Or do you have enough strategies, considering the existing price differences across most categories, to maintain relatively stable gross margins? How should we consider the impact of this mix?

We'll inform you next quarter. We have various strategies to consider, as you noted. We're also proactive with pricing, particularly in the fresh foods segment I mentioned earlier. Currently, we're fortunate to have better margins in certain categories, like gas. Overall, there are different factors at play, but we feel this quarter is relatively normal. If inflation remains stable, even if it doesn't decrease from current levels, we are well-positioned to significantly enhance our margin related to the LIFO charge, especially in the third and fourth quarters when we saw over $100 million and over $200 million, respectively. However, we will have to wait and see.

So just as a follow-up on that, Richard, like fair to say that we're going to see lower freight rates starting to flow through the P&L and let's call it, less markdown pressure because the inventories are cleaned up a bit more than the last few quarters?

That should help you a little bit. But as you might expect, one of the reasons we took this charge is to alleviate any concern for buyers about higher costs if rates have decreased since we contracted. We want to alleviate some of that pressure, but we're still working through it. Additionally, as rates decrease, our prices for items will also come down. Why don't we take two more questions?

I hope you all have a great holiday season ahead. I would like to clarify a couple of points. In the past, when traffic trends have weakened slightly, this has often prompted higher membership rate increases. I'm curious if that approach has changed at all now, especially since your comparisons are shifting or slowing. I would also like to know about the timing of a special dividend announcement, considering the available cash on your balance sheet and that your Board meeting is set for mid-January.

We hold one every quarter. We've discussed both topics. Regarding the fee increase, over the years, we've typically implemented them when our performance was particularly strong. The positive aspect is that renewal rates have always been robust and have even improved. We constantly evaluate our value proposition and believe it has strengthened. That said, I recall a time during the Great Recession when we were asked if we would postpone a fee increase. Our perspective then was that despite the weaker performance for a couple of quarters, we would likely proceed because it would help us enhance our pricing strategy. We've probably raised fees during both stronger and weaker periods, regardless of the economic climate. With the current discussions around a potential recession and inflation, we don’t feel any urgency. Historically, such increases have averaged about 5 years and 7 months between adjustments. I mentioned previously that this doesn’t guarantee it will happen in January 2023, but it’s more about timing rather than a possibility. At this point, we’ll have to wait and see. There’s not much more I can share, as we don’t have a specific analytical process aside from feeling confident about our member loyalty and overall strength. We could implement changes at any time if we chose to. Regarding the special dividend, it's an option we've successfully utilized before. We've executed four special dividends, with the last one occurring a couple of years ago and we definitely have cash on hand. It's important to note that about half of our cash is in the U.S. and not liquid equivalents. We have the capacity to distribute a dividend at some point, but we prefer to monitor ongoing developments first. This is also likely a matter of timing, not if it will happen. You’ll be among the first to hear our decision after we make it.

It will be a real quick one, Richard. Can you just remind us, you're back to 15 net stores in the U.S., but what has to happen to go back to kind of the years where you would open kind of a net 25 a year in the U.S. and maybe relieve some of the pressure on the over-productive clubs in the U.S. right now?

Yes, I believe it's been a few years since we opened with a net of 27 or 28 stores, possibly in the low 20s around 22 or 23. Recently, we've been at around 16 or 17 out of 23. If you were to ask Craig, who is not here, but if you did, he would tell you that if we're planning to open a net of 24 this year, I would say our goal five and ten years down the line is likely to bring that number closer to 30 net. I also think that in five years, the split between the U.S. and other regions will probably be 50-50. This is consistent with what I mentioned five years ago about the distribution. We aim to add five to that 24 over the next few years to increase that figure a bit more. We certainly have a lot of ongoing activity. Okay. With that, everyone, I'll thank you. Have a good holiday, and we're around to answer questions.

Thank you.