Costco Wholesale Corporation
Q3 2006 Earnings Call Transcript

Published: 31 May 2006

[Operator:]

Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation's conference call to discuss Q3 earnings and May sales results. Operator instructions. I will now turn the conference over to Mr. Richard Galanti, Chief Financial Officer. Please go ahead, sir.

[Richard Galanti:]

Thank you, Crystal. Good morning to everyone. As with every conference call, I’ll start by stating that these discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. And that 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 press release as well as other risks identified from time to time in the Company’s public statements, and reports filed with the SEC. This morning as usual, I would like to review with you several items. To begin with, our 12-week Q3 FY2006 operating results. Briefly, we came in at $0.49 per share for the 12 weeks ended May 7th, 2006, up 14% or $0.06 per share over last year's Q3 EPS figure $0.43. These results were 1% below the top end of the range of EPS guidance I provided you in March and of course First Call throughout the quarter remained at $0.50, so $0.01 below that figure. As I will discuss with you in a few moments, a pretty good result given weak gasoline profitability and a higher than estimated tax rate. In terms of sales for the quarter, our 12-week comp sales figures showed an increase of 7%. In terms of the three retail reporting months most closely aligned with the quarter - February, March and April - our reporting comps were 8%, 7% and 7% respectively. Which brings me of course to the strong 4-week May comp sales figures we reported this morning of 10%. I will speak more to that figure in a few minutes. Other topics of interest that I'll review this morning are recent openings - we've opened a total of 17 locations since the beginning of the fiscal year, last August 29th. 13 of these are in the US, including one relo, so 12 net new openings in the US to date. Four new locations in Canada, including one relo, so net of three in Canada. We now have 68 in Canada. One new location in the UK, our 17th, one new location in Mexico, our 28th. The latter in Mexico of course, we account for on an equity basis. For the remaining 14 weeks of this fiscal year, we expect to open 12 more locations, including one relo and one in Mexico. All told, this would put us at net new locations excluding the two in Mexico, of 26 for the fiscal year, plus those two, of course, in Mexico. The 26, by the way, reflects two openings planned for August that have slipped into early September, the first month of FY2007. I will also discuss this morning our ancillary business results, our online results, membership trends, our balance sheet, update on recent stock repurchases, and lastly provide you with a little updated direction and guidance both for Q4 and FY2006 overall as well as our expansion plans for 2007, which should be in the mid-30s. So with that said, sales for the year, as I mentioned

[Operator:]

Operator instructions. Your first question comes from Debra Weinswig.

[Debra Weinswig, Citigroup:]

Good morning, Richard. In terms of the inflationary or deflationary categories in the quarter, can you go through those and also the total impact on the top line?

[Richard Galanti:]

When you add it all up, it's basically zero. In terms of anecdotal stuff, the biggest increase is looking down the list of the top 20 increases for the last four weeks. I mean crazy things, gasoline of course is about 20% up both leaded and unleaded. Tuna was up 14%. I'm just going down the list here and give you some of the big ones. A few of the nut categories like walnuts and pine nuts up in the low 20s. Coffee up slightly a few percentage points. You know, really it is all over the board, nothing major. Canned salmon, 20%, olive oil, 35%, pistachios, 31%. So just a potpourri of things. Nothing that stands out big. Again, the biggest impact was clearly gasoline and the two gasoline, leaded and unleaded, regular and premium unleaded gasoline. In terms of deflation, nearly the whole darn list is electronics. You know, things like the little 1Gb media disks, memory disks, you know. In terms of deflation, YoverY down 40%+. TV's, certain specific TV's down 20 to 25%. Again, nothing really earth shattering there other than the big categories are consumer electronics. But again, the overall impact to the company, you look at it even with inflation, despite the fact that you have significant deflation in at lot consumer electronic categories, consumer electronics comps, total sales comps are up in the mid to high teens the last several months. Again, that's a function of more availability and even though the price points on a given item are down, there's more items with higher price points like plasma and LCD TV's, 1Gb memory chips instead of 512Mb or whatever it was.

[Debra Weinswig, Citigroup:]

OK. With regards to, can you update us in terms of where you are on global sourcing right now either percent penetration or where you are from a benefit standpoint and with the opportunities still remains?

[Richard Galanti:]

You know, I don't have an exact number, Debra, to give you. We're doing a lot of it. I am not trying to be vague or cute. I don't have an exact number for you. We're doing some of these I've mentioned in the past several quarters, certainly we've seen big impact in things like produce. We've seen impact in things like certain branded items in Japan that we got certain Japanese manufacturers attention. I am not talking about electronics, I'm talking even some food, basic food items when we indicated we'd be interested in selling some of those items in key west coast markets in the US so it greatly expanded the availability of those.

[Operator:]

Your next question is from the line of Charles Grom.

[Charles Grom, JP Morgan:]

Good morning, Richard. On gross profit margins for Q4, assuming gas stays where it is today, which I realize is a big leap of faith, would you expect the merchandise component of your GPM to improve YoverY, given the easy compare you have from last year?

[Richard Galanti:]

Given those assumptions, yes, but we've got that built into our numbers with a little cautious optimism. Hopefully we can do a little better. But yeah, given what you just said, sure.

[Charles Grom, JP Morgan:]

OK. Second question is on pricing. We haven't seen a lot of material price investment from either BJ's or Sam's. Is this consistent with what you guys have seen and are you anticipating more competitive pressures in the near-term?

[Richard Galanti:]

Well, you know, it's hard and I know you and others as well do pricing studies and certainly we do pricing studies every week in every market. A couple three years ago particularly with respect to Sam's, with their changes over there in management and strategies, you know, we all seen a higher level of competitor pricing. Its remained at a high level. I think what we've shown is we can do both. We can improve margins while being very competitive. What I've said and, of course, what Jim Sinegal has said for twenty years is we're never going to be anything to compromise our competitiveness. I stand by that, and I don't think we've seen any big changes either way. You know, the fact that we're opening more units in existing markets clearly existing markets have a little better margin versus the Company average than new markets. That helps you a little. More of my view comes from buying better and perhaps a little bit from private label as well. I've given a couple of examples in the past of even things like taking half of our diaper business, disposable diaper business and going to private label or Gatorade a couple years ago. The athletic drinks, not Gatorade, but the private label athletic drink, the increase in health and beauty aids and things like vitamins and analgesics and things. So all those things help, and certainly, in our view distinguishing what we do versus our competition in terms of higher end items and new and exciting items. The one thing I don't lose a lot of sleep over at night is there are merchants continue to be out there on the offensive.

[Charles Grom, JP Morgan:]

And then just one last one to clarify, the 10 openings in Q4, that's going to be 10 that you're going to actually open, those do not include the two that are going to roll into September, correct?

[Richard Galanti:]

That's correct.

[Operator:]

Your next question comes from the line of Bob Drbul.

[Bob Drbul, Lehman Brothers:]

Good morning, Richard. Can you talk on the May sales, can you talk a little bit about any trends that you saw sort of week-to-week? I was wondering if you could just elaborate in terms of utility costs and how that's playing into your business at all right now?

[Richard Galanti:]

We try to get away from giving daily and weekly numbers because it drives us crazy and it drives you guys more crazy. Week one was the weakest of the three with all the other three weeks being quite strong, and talking to the head of merchandising, Craig Jelnick, he pointed out two things. There was a little bit of timing of a couple of mailers that we had done. He felt the bigger impact also was from a switch in Mother's Day, just in terms of how that fell from one week to the next YoverY, again, not a big difference but, clearly, pretty good numbers for the quarter, for the month rather. I'm sorry, what was the second question?

[Bob Drbul, Lehman Brothers:]

Utility costs like how you're managing utility costs and how it's impacting your business overall right now?

[Richard Galanti:]

For the quarter it hit us, the core warehouse businesses, utilities and telephone which is mostly utilities, was higher YoverY by 2bps, so that was an impact negatively to SG&A.

[Bob Drbul, Lehman Brothers:]

Can you talk a little bit about the profitability levels of your Canadian business?

[Richard Galanti:]

Well, that's actually something that is in our segment analysis, our segmentation footnote because Canada is big enough that it's a separate entity. I think we have US, Canada, other international. It's pretty much in line as percent of sales with the US. I don't think there's any big dramatic difference. Canada just I think might be just ever so slightly lower percentage, but it's to minimize(?) that difference.

[Operator:]

Your next question comes from the line of Christine Augustine. Christine, your line is open.

[Christine Augustine, Bear Stearns:]

Can you please talk about private label penetration, where you think that might go kind of 2007, 2008, and are you able at all to discuss some of the new markets that you might be targeting for club openings? Thank you.

[Richard Galanti:]

In terms of private label, it's kind of the same old story for the last 10 years. Today it's about 16-17%. We think it will continue to grow gradually as a natural progression. Five, eight years ago when it was at 8%, we said over the next five or ten years it probably will grow into the mid teens. Now that it is in the mid, or slightly high teens we're saying it will grow probably to 20 or a little over 20. We still want to be a supplier of branded goods where our customers can see and compare and compete on those items. Certainly there's some items that we're not going to do, but I think what we have found even on something as loyal as a branded high quality disposable diaper that we think there's a market where we can find it. So we'll continue to expand it. Again, I am not trying to be cute, but the tea leaves would say that a number that's currently in the mid to slightly high teens will probably have a two in front over it, I don't know whether it is two years or four or five years from now, but over the next few years. In terms of new markets, really, what we're, if I had to look at the list over the next 50 locations over the next year-and-a-half, my guess is there's probably less than two or three that are in a brand new market. Probably another half a dozen that are in kind of new markets whereas we're opening a second unit in a mid-west city where we already have one. Not a lot there. In terms of international, my hope would be that two years from now we'll be looking at a couple countries right now and my hope would be that we might can have something open, but it's probably two or three years away given how things take over there.

[Operator:]

Your next question comes from the line of Adrianne Shapira.

[Adrianne Shapira, Goldman Sachs:]

Richard, can you just touch on cannibalization? It seems like it's inching higher and given the ramped up expansion plans, where would you expect it to maybe level off and what level would you be comfortable with?

[Richard Galanti:]

As you know, we're comfortable with wherever it is. My best guess a year ago when it was in the mid-50bps range, that we thought it might get up towards 100, maybe a little over 100. We're certainly doing more of it. It could get to - I'm pulling a number out of the air - but if you get to 150, 200, and that would be just fine with us. 250 would be fine if it means that we're expanding the market. The net benefit of doing it in terms of return on, incremental return on investment is still quite positive for us even though it impacts that number. We asked ourselves that same question yesterday, and we kind of look at it as yet it as yes, it's up significantly from a year ago, but even net of that comps are up and net of cannibalization and net of FX and everything else our comps are showing improvement. We're completely comfortable wherever it lands. When we look at every new opening, even net of the impact to nearby locations, it's a net positive. We view it as a net positive.

[Adrianne Shapira, Goldman Sachs:]

OK. You're clearly growing through so it makes sense. Just maybe talk about the mailers. We've noticed kind of ramped-up mailings in between the wallet programs. Talk about how important they are and are you noticing they're getting a little bit more important in the current environment?

[Richard Galanti:]

You know, it's been an ongoing effort probably since we did our first summer passport, gosh, eight, ten years ago, seven, eight, nine years ago, whenever it was. I think more of it is a reflection of the vendors like it as well, and sometimes mailers, you may see different mailers in different regions. Some of it's based on regional items, some of it is based on the pool of money that's available for a given program. I think probably we've gotten better and smarter over the years as well a understanding, while ideally we would want everything to be, every day low price at netted(?) landed cost, take everything out, co-op dollars, slotting allowances, volume and term discounts, you name it, there are different pools of monies that different vendors have, and sometimes you don't get it unless you use it in the way that they want as well. But it's all over the board both ways and so I think it has improved. It has helped us gradually. I don't think it's that big of a deal on a YoverY incremental basis. In the quarter, certainly, I think it helped a little as I mentioned in weeks two, three and four versus one, but so did Mother's Day.

[Operator:]

Your next question comes from the line of Mark Husson.

[Mark Husson, HSBC Investment Bank:]

I just wanted to follow-up on that cannibalization question. You said that you get an incremental return on capital. Are you talking about incremental dollars in the market or incremental percentages?

[Richard Galanti:]

We look at it two ways. One is, of course, what that unit's going to do in terms of a cash-on-cash ROI but also, what is the impact of it net of cannibalization. So as an example, in an existing market if we do a new unit and it does 110 million in its first 52 weeks, that's great and wonderful and it's an existing market, and we probably have a little higher than average gross margin versus the company. It opens up pretty healthy. Take that 110 million and subtract 20 to 30, you know, of cannibalization out of it so maybe it's net of 80. That net of 80 is still quite a good return compared to a new market unit that might do a net of 55 or 60 in the first 52 weeks arguably with a little lower than average margin on average.

[Mark Husson, HSBC Investment Bank:]

And is it the lower return on capital which means that the new markets are such a small part of your opening program?

[Richard Galanti:]

I think it's more the fact that, first of all, some of what we used to call new markets or existing markets, you know, if you just put out a dart board out there with a map of North America on it if you will, we're in a lot of the markets that we're in, and over the last, starting in late '96 to probably '04, we went from I think 23 or 4 states in the US to 37 states. Chicago for a few years was a new market. Now Chicago, probably the oldest unit in Chicago is four plus years old and we have, I think, 12 or 13 units. It's no longer a new market. I think it's more the fact of there is that as well as the fact that we see, we continue to see more - we continue to appreciate the ability that in-fill's work and that there's more opportunity. Many of you have known us for awhile, you know, a powerpoint slide that I used to have a few years ago was the example of the greater Los Angeles market where Costco and Price Company merged in late 1993, combined we had 31 units in that larger, greater LA area. At the time of the merger we felt there was probably two or three locations we were going to close because there was a Price Club and a Costco within a mile or two of each other. That wasn't first order of business the day after the merger, a year later they're all growing. They all have a couple hundred plus employees, and keep them open. Today we have 42-43 locations there, and we think there's another 10-15 to go over the next five plus years. I'm hoping five plus years from now we've done 10-12 and we think there's another 10 then. So I think just the market penetration of our concept, not just for us but for our industry, is still positive.

[Mark Husson, HSBC Investment Bank:]

OK. Just one quick sort of follow-up then. If you look at the next 50 stores in your pipeline, do you think you can open them all without hurting overall group return on invested capital?

[Richard Galanti:]

Given that we're probably hurting it a little this year because of the ramp-up from 16 net units to 26.

[Mark Husson, HSBC Investment Bank:]

It's going to hurt a bit.

[Richard Galanti:]

That's 26 to next year 33 or whatever, maybe it hurts a little bit, but I think we got a lot of good things going on now. I don't know yet. We're just starting a few weeks ago we just started the detailed bottoms up six or seven iteration process. At the end of the day I'd be cautious and say it's going to hurt a little bit.

[Operator:]

Your next question comes from the line of Daniel Binder.

[Daniel Binder, Buckingham Research Group:]

Good morning. Just had a couple of questions. First, I guess just on the gas business historically one other retailers have seen softer traffic trends because of rising gas prices. I suspect you have benefited because you're offering a compelling offer. I'm just wondering, are you still seeing sort of that customer reaction at the gas pump in terms of the traffic as the prices shoots up or are you primarily just getting the benefit in gas from the inflation? That's the first question. Second question was related to consumer electronics. Just wondering, I think in prior calls you've talked about how that business has impacted the gross margin negatively because of a lot of open box returns that you get and the no hassle return policy. Just curious if you're doing anything on that front by holidays to mitigate that impact? And then the last question was maybe if you could just give us an update on some of your other formats, what you're doing with them, Home Store I think you have the Pro Store, too, as well. Just kind of directionally where you see those businesses going.

[Richard Galanti:]

The gas business, first of all, anecdotally absolutely we continue to see a positive there. It comes in different levels. If you go back to September with the hurricanes last year when prices spiked nationwide dramatically, we were in the news every day and every market it seemed like. That certainly helped. Over the last several weeks and, again, anecdotally, I've heard the same thing from the operators, not to that extreme but to the fact that Costco's the place to buy gas when in virtually every news account about it. I know anecdotally I hear that all the time from people telling me the lines are so big but they're still standing in them. That helps, but it helps not just there as you're standing in line and you call home and you go in and pick up dinner and you buy a few other things on the way out the door. In terms of electronics, you're right. I did mention both in Q1 and Q2 recognizing Q1 ends in late November, so you've got the first four, six weeks of the Christmas season, selling season, and then Q2, of course, is late November through mid February so you've got the first four or five weeks of Q2 is the last four or five weeks prior to Christmas and during that Christmas selling season. We did see an impact because of our favorable return policy, and again that has been mitigated somewhat. The things we have done, first in our business we put signage out saying warning this picture may not look as good as home if you don't have the right hook-up and the right availability with HD. So our success in TV is both availability from suppliers as well as a much better quality picture being fed into our locations through HD satellite feeds created our own problem in that way, if you will, recognizing that it's not just bringing home the TV and screwing in the little cable thing. It's making sure have you the right box in the basement and making sure you know how to use it. The second thing we did, which I believe is now rolled out, we have a, on all the screens in our locations a, basically a 60-minute feed which is really 20 three-minute feeds and every three minutes, for about one of each of those three minutes, the TV screen splits in half and it shows you, again, compares this with what it will look like if you're HD ready. One half shows what HD compatible TV will look like and the other shows what it will look like if you're not. It shows the customer the difference, and again, to remind them that they need to have proper installation and call their service provider to make sure they have the right box, if you will, in the basement. The third thing we're doing, and I'm not sure where and when, I know it's in the next few months, it may be tested already in one market on a small basis. We're testing with some outside service providers on installation ability as well which we part of one of the offerings that we have that at Costco. We already have that at costco.com where it's essentially a white glove installed service. We think, again, we've seen improvement in the markdowns related to returns from just what we've done so far, and we'll keep working it. It's a great business for us mitigated by returns, not nearly as extreme as the impact that we saw like on computers a few years ago when we had a change of return policy. At this juncture we have no plans to change our return policy. That could be different a year or two from now, but at this point the answer is a clear and concise no. The other formats, I think we have five Costco business centers and four Costco business centers and two Costco homes. We plan to open a third home this calendar year, and it may be a couple months later, but in the next twelve months for sure, and we, I think have plans to open, Bob, do we have one more home, one more business center next year? I'll call it zero to one at this point. I think they're working on one. Again, they're good concepts. We take things slow, as you know. Our primary focus is figuring out even with these two concepts they are profitable with regard to Costco Home even though we've been open as long as about two years in the first one a little over a year in the second one, we want to make sure it has legs a couple three years out. Secondly, again, the primary focus on both of them is see what we can learn from it to bring into our 477 Costco's worldwide. We did open, by the way, our first car wash last month here in Seattle. But no plans yet. We'll see how it goes.

[Operator:]

Your next question comes from the line of Dan Geiman.

[Dan Geiman, McAdams Wright Ragan:]

Good morning. Can you talk a little bit more about our Hillsborough, Oregon store, some of the things you're doing there and also some of the things you might be applying to the rest of the stores in your chain?

[Richard Galanti:]

The Hillsborough, Oregon is a 205 or 6,000-foot unit so it's a 55,000 feet bigger than the current prototype. We did that purposely. It's near home, here in Seattle, about 20,000 feet is devoted to increased presence of furniture and home furnishings. Another 10,000+ is devoted to expanded fresh foods, expanded floral, both consumer and commercial floral, so as an example a caterer, or a hotel or a wedding planner can come in and buy a box of, I don't know how they come, three dozen uncut roses in a waxed refrigerator box, if you will, ready to process themselves. And so we're just testing new stuff. Certainly, the thing that has been exciting from the late 80s has been fresh foods. We've got a lot of, we've got expanded whole meal replacement items, expanded pastries, expanded cooked items so it's, if you will, kind of the R&D kitchen for us as well for some expansion there. It's going fine. Again, it's one unit. We'll see how it goes. Don't expect us to start opening 205,000-foot units any time soon. Just doing what we thought.

[Operator:]

Your next question comes from the line of Mark Husson.

[Mark Husson, HSBC Investment Bank:]

Just a quick follow-up. In so far as you can tell in the US, is there any difference between the velocity of sales growth for people who are buying primarily for themselves and their families relative to your people buying primarily for businesses? Is one healthier than the other right now?

[Richard Galanti:]

Just looking at the daily sales sheet of mix, not a big delta there lately. Clearly, Executive Membership tends to be more business occupied, if you will, and when people do convert to Executive Member, we see a spike in their sales growth, their purchasing growth. My guess is that benefit is over, though, because we're now into year five of the Executive Membership program so probably more of the Executive sign-ups today, I mean I'm guessing here, are Gold Star versus Business a little bit. So the answer probably would be no.

[Operator:]

Your next question comes from the line of Robert Toomey.

[Robert Toomey, EK Riley Investments:]

Good morning. A question, Richard, regarding industry retail square footage trends, one large retailer I think has recently indicated it may be slowing its retail square footage growth. Yours, you've been running 6 to 7% a year, seems pretty stable and moderate. I just wondered if you could talk about your view right now on retail square footage growth and how that might impact your business?

[Richard Galanti:]

You know, not to sound sharps here or have blinders on, but we feel kind of very strong about our business and the ramp up that we're doing in it. It took a couple years here to get off the ground with changes arguably out there in terms of availability of large sites, zoning, traffic mitigation issues and building up our own pipeline and expansion of our real estate efforts. If you think about from 16 net new in 2005 to 26 this year to clearly something in the low to mid 30s next year, if Jim were sitting here, I'm sure he would say 40 in 2008. So clearly, and I would then temper it a little bit. But clearly, that trend would be that percentage might grow a little, but certainly in that six to seven range, and I don't know if it averages up to seven and eight. Certainly we feel good about our growth over the next few years. And we've got a lot more in the pipeline to do so.

[Robert Toomey, EK Riley Investments:]

What about the industry trends, though, Richard? Is there anything going on there that when you look out at your competition, you know, some of the large big box retailers, is there anything going on there that is worrisome or positive for you?

[Richard Galanti:]

You know, with respect to Sam's, I think, as you know, Wal-Mart of all probably a year ago publicly indicated that they're ramping up all their expansion, again, for concerns of what's going on in communities around the country as it relates to traffic mitigation and zoning. We see some of that, too. My guess is we see a little less of it than they do for other reasons, but again, I hate to sound like I have blinders on. We're more focused on looking at our own growth and feeling that we've got a lot of market potential still. To the extent that doesn't bode well for other retailers outside of the warehouse club business or even our competitors, so be it. And again, I'm not trying to be cute, we are singularly focused on ramping up our own growth and we do have a lot in the pipeline.

[Robert Toomey, EK Riley Investments:]

OK. One other question I have relates to, I think you mentioned earlier in the call that there was a question pertaining to gross margin, and you felt that ex the impact of gasoline that there could be some increase in gross margin in 2007. Do you think most of that would come from an anniversarying of the gasoline or would there be other factors that might have an impact on that?

[Richard Galanti:]

Well, clearly, again, I can answer this a few weeks ago to someone. Over the last year starting with the hurricanes back in the fall and more recently the last couple months, we've seen these unprecedented increases in gas prices. Who knows. A year from now we might be talking about hopefully gas will come back below $4. You really don't know what's going to happen. Over the next several years we may have two or three more unprecedented moves in gas. Certainly each time that happens it causes a little consternation with our gas P&L numbers. I'm hopeful that if there's at least a little slow down in it, recognizing that it has impacted us negatively now for three quarters because of this continuing rise in gas prices, that a little slowdown of that will help us. And certainly the increased sales penetration of private label, the global sourcing that we talked about a minute ago, just our buying power out there and the constant aggressiveness on innovative new items where you get a little higher margin because it's a more unique item, are all things that are net positive. So that's a very vague way of saying I'm cautiously optimistic.

[Operator:]

Your next question comes from the line of Neil Currie.

[Neil Currie, UBS Warburg:]

Sorry to beat on the drum about gas prices but within your comments about fourth quarter and your comfort with First Call number out there or that being the high-end of your range, does that include an assumption on rising gas continued rising in gas prices or what assumptions have you made about gas prices over the summer?

[Richard Galanti:]

Basically, it assumes that they weren't going to fall, and again, I don't want to be cute here, but doing a very bottom up approach, and recognizing every four weeks we do a rolling update for the next three, four-week periods, this is where the numbers fall out. My guess is it includes an assumption that they're going to remain high, but relatively speaking not go up another $0.20-0.30 a gallon. They've actually gone up a little in the last couple of weeks until yesterday I think a little bit, but, so again, we'll just have to see. I would say that there's a little caution in the numbers but not a lot.

[Operator:]

At this time, there are no further questions.

[Richard Galanti:]

Thank you, everyone, and Jeff, Bob and I are here to answer any questions. By the way, the Q&A will be out later today which will include the cash flow as well, about 11

[Operator:]

This concludes today's Costco Wholesale Corporation's conference call to discussion third quarter earnings and May sales results. You may now disconnect.