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DATE

Thursday, May 28, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Ron Vachris
• Chief Financial Officer — Gary Millerchip

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TAKEAWAYS

• Net income -- $2.19 billion, or $4.93 per diluted share, up 15% from $1.9 billion, or $4.28 per diluted share in the fiscal third quarter ended May 10, 2026.
• Net sales -- $69.2 billion, an increase of 11.6% from $62 billion in the prior year.
• Comparable sales -- Up 9.8%, and up 6.6% adjusting for gas inflation and foreign exchange; digitally enabled comparable sales grew 21.5% (20.8% adjusting for FX).
• Membership fee income -- $1.37 billion, up 10.7%, with approximately a quarter of growth from the 2024 U.S. and Canada membership fee increase; paid executive memberships reached 41.2 million, up 9.6%.
• Total paid members -- 82.9 million, up 4.1%; total cardholders 149 million, up 4%.
• Renewal rates -- U.S. and Canada renewal rate at 92.2%, up 10 basis points sequentially; worldwide rate holding at 89.7%.
• Gross margin -- 11.04%, down 21 basis points; excluding gas, up 1 basis point; core-on-core margins decreased 9 basis points, driven by lower margins in fresh and food and sundries.
• SG&A rate -- 8.96%, a 20 basis point improvement; excluding gas inflation, improved by 2 basis points.
• Traffic (shopping frequency) -- Increased 2.4% worldwide; average transaction was up 7.3% worldwide and 4.2% excluding gas and FX.
• Digital engagement -- Site and app traffic up 37%; digitally enabled comp sales up 21.5%; personalized recommendations contributed nearly $5 billion in ecommerce sales.
• Capital expenditure -- $1.41 billion in the quarter; full-year estimate at approximately $6.5 billion to support warehouse and digital expansion.
• New warehouse openings -- Four net new warehouses opened this quarter (three U.S., one Canadian business center); adjusted outlook to 26 net new openings for the fiscal year, two fewer than prior guidance, with the shortfall to open in fiscal 2027.
• Section 301 tariff refunds -- Claims submitted to U.S. Customs and Border Protection expected to be processed and refunded over the next 2-3 months, with ultimate member return contingent on legal and timing outcomes.
• Gasoline volumes -- Set all-time company records for each 4-week period, with final 5 weeks the highest in company history; high member price sensitivity cited as the key driver.
• Ecommerce and same-day delivery -- Same-day delivery average under 45 minutes in the U.S., member satisfaction rating at 4.8 out of 5; service is outpacing the overall digital segment in growth and targets high-spending members.
• Fresh category comp sales -- Grew high single digits, led by meat and bakery; premium and lower-cost proteins, and seasonal bakery items, were standouts.
• Ancillary businesses comp sales -- Up in the mid-20% range, driven primarily by pharmacy share gains and high gasoline comps in the positive high 20% range.
• Price reductions on Kirkland Signature items -- Examples include KS Crispy Wings ($16.99 to $14.99), KS Milk Chocolate Almonds ($19.99 to $18.99), KS golf balls ($32.99 to $29.99), and KS king-size sheets ($89.99 to $79.99).
• AI-driven search growth -- Triple-digit growth in AI-sourced ecommerce traffic, with the highest conversion rate among all traffic sources; activity still low-volume but rapidly expanding.

RISKS

• Gross margin decrease driven by "slightly lower margins in fresh and food and sundries" and investments in lower prices for members; transportation costs increased due to higher gas prices.
• Membership growth slowed to 4.1%, which management described as a "more normal rate" without new market entries, indicating possible moderation in future same-store sales growth without additional drivers.
• Operating expense headwinds from higher healthcare costs and "a couple of small onetime items" offset core operational leverage in SG&A.
• Management is "closely monitoring the longer term inflationary impact of higher oil prices as well as the future impacts of tariffs" and anticipates further inflation in several nonfood categories as higher resin costs flow through the supply chain.

SUMMARY

Costco (COST 3.87%) delivered double-digit top- and bottom-line growth in the fiscal third quarter ended May 10, 2026, with notable sales increases across physical, digital, and ancillary businesses. Management highlighted record-breaking gasoline sales volumes amid macro volatility, alongside strong paid membership expansion, robust executive member adoption, and high member renewal rates. The company accelerated digital engagement and AI-enabled commerce, while also balancing margin pressure from cost inflation, investments in member value, and supply chain dynamics.

• Pharmacy drove exceptional ancillary growth, supported by increased GLP-1 demand, with management noting "significant market share gains" and expanded prescription offerings.
• Fresh and nonfoods segments both achieved high single-digit comparable sales growth, with meat, bakery, self-care, and wellness categories cited for outstanding performance.
• Management confirmed its intent to return Section 301 tariff refunds to members, but timing and amounts remain contingent upon legal developments and the pace of refund processing.
• The company completed four net new warehouse openings this quarter and revised its full-year opening target to 26 due to project timing shifts, reinforcing its long-term goal of 30+ net new warehouses annually.
• The introduction of Executive Membership in China outperformed initial expectations, signaling traction in international premium member adoption.
• Retail media and technology investments were characterized as "capital light" and accretive to operational productivity, particularly in digital personalization and checkout automation.
• Management described capital allocation priorities as focused first on growth investments, with special dividends considered when excess cash builds, though no specific plan was announced.
• The company reported personalized ecommerce recommendation tools achieving conversion rates three times higher than typical site averages, driving nearly $5 billion in ecommerce sales this quarter.

INDUSTRY GLOSSARY

• Kirkland Signature (KS): Costco’s private-label brand spanning multiple product categories, cited in pricing and innovation references.
• Section 301 tariffs: U.S. import tariffs imposed on certain goods, relevant to refund claims and potential future member price adjustments.
• Gross margin rate ex gas inflation: Costco-specific reporting metric excluding the effect of volatile fuel prices and currency on reported gross margin.
• GLP-1: A category of prescription medications, including drugs like Wegovy and Ozempic, contributing to higher pharmacy sales.
• LIFO: "Last-In, First-Out" inventory accounting method, referenced regarding inventory charges and margin impact.

Full Conference Call Transcript

Before we dive into our financial results, I am delighted to say that Ron Vachris is once again joining me for today's call. I will now hand over to Ron for some opening comments. Thank you, Gary.

Ron Vachris: Good afternoon, everybody, and thank you for joining us today. I will make a few comments on current events and provide a brief update on our strategic priorities before turning the call back over to Gary. Against the backdrop of ongoing macro uncertainty, our focus is providing quality goods and services at the lowest possible price continues to resonate strongly with our members. Nowhere has this been more apparent in the third quarter than our gas business, as events in The Middle East, have had a significant impact on product supply and gas prices, our focus, as always, is to be there for our members by staying in stock and offering the best value. The result was record breaking volumes.

All 3 4-week fiscal periods of the quarter set successive all-time company volume sales records, with the final 5 weeks of the quarter becoming our top 5 volume weeks ever. Our gas team performed exceptionally well to manage this unprecedented demand, which requires multiple daily gas deliveries to many locations. The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter. We believe this will drive even greater loyalty with these members in the future as members who use our gas stations typically spend more with us in the warehouse.

We are closely monitoring the longer term inflationary impact of higher oil prices as well as the future impacts of tariffs. Our buyers continue to demonstrate their ability to adapt, and are using their significant experience and expertise to try to reduce the impacts on prices for our members. Our goal is to be the first to lower prices and last to raise them. And Gary will share some examples later on the call where we lowered prices this quarter. We are also able to bring greater value to our members through many exciting new Signature items in the third quarter. On the topic of tariffs, we started submitting our refund claims for the Section 301 tariffs.

We are doing this through the process set up by the US Customs and Border Protection. These submissions will go in over what may be the next few months and based on what other claimants have experienced, should start receiving refunds on approved claims on a rolling basis over the following 2 to 3 months. As we have mentioned before, our plan is to return to our members in some form the portion of tariffs that were passed on to them. How much we return and when depends on a variety of factors. Including how much refund money we receive, and when it arrives, as well as developments in the lawsuit filed against the company regarding the return process.

Turning to progress with growth priorities. Our real estate operations team continues to focus on increasing our pipeline of new warehouses both domestically and internationally. As we target 30+ net new openings per year in the coming years. In the quarter, we opened 4 net new warehouses, including 3 in the U.S., and 1 additional Canadian business center. Those openings brought our total warehouse count to 928 worldwide. We currently expect to have 26 net new openings in fiscal year 20 down 2 buildings from the prior call with those 2 buildings now set to open in fiscal year 27.

So far this year, we have also completed 2 relocations with 1 more planned in Q4 as we continue to relocate select high volume warehouses to larger locations with more parking and expanded gas stations to provide a better member experience and drive more volumes in these warehouses. In digital, we are making meaningful strides to deliver a more seamless and convenient experience for our members across the warehouse and online. As a result of our investments in technology, the commitment from our employees to use this technology to deliver a great member experience, we are seeing a significant improvement in the speed of checkout.

The enhancements we have made include improvements to the mobile wallet, the introduction of digital membership card with quick access on the Costco app, and the rollout of our shopping cart prescan tool internationally. The pay station pilot I spoke about last quarter has also been successful, and we are now incorporating this technology into our new warehouse openings and high volume buildings. We are also enhancing the e commerce experience for members and recently rolled out same day delivery services in Spain and France. Same day delivery powered by our third party partners has become a highly effective way to deliver more convenience to our members.

Average same day delivery time in The US is now less than 45 minutes, and the average member satisfaction rating is 4.8 out of 5. This part of our business is growing at an even faster rate than our digital business overall. And is a strong driver of loyalty, as it is often our highest spending members who are using the service. Finally, as we learn more about how consumers are embracing AI in their shopping habits, we are working with the leading AI companies to improve the visibility of our values to current and potential future Costco members.

We believe AI is changing how consumers research products, and has a potential to be a significant opportunity for Costco given our pricing authority, and our focus on quality. With that, I will turn it back over to Gary to discuss the results for the quarter and I will jump back on during Q&A to field some questions.

Gary Millerchip: Thanks, Ron. In today's press release, we reported operating results for the third quarter of fiscal year 26, the 12 weeks ending May 10. As usual, we published a slide deck under Events and Presentations on our investor website with supplemental information to support today's press release. Net income for the third quarter came in at $2.19 billion or $4.93 per diluted share, up 15% from $1.9 billion or $4.28 per diluted share last year. Net sales for the third quarter were $69.2 billion, an increase of 11.6% from $62 billion in Q3 25. Comparable sales were up 9.8%, and 6.6% adjusted for gas price inflation and FX.

Excluding gas sales entirely, and adjusting for the impact of foreign exchange, comparable sales were also up 6.6%. Digitally enabled comparable sales were up 21.5%, 20.8% adjusting for FX. Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. In terms of Q3 comp sales metrics, FX positively impacted sales by approximately 1% while gas price inflation positively impacted sales by approximately 2.2%. Traffic or shopping frequency increased 2.4% worldwide. Our average transaction or ticket was up 7.3% worldwide, and 4.2% excluding gas price inflation and changes in FX. Moving down the income statement to membership fee income.

We reported membership fee income of $1.37 billion, an increase of $133 million or 10.7% year over year. Adjusting for FX, the increase was 9.9%. The September 2024 US and Canada membership fee increase accounted for a little more than 1/4 of membership income growth. Excluding the membership fee increase and FX, membership income grew 7% year over year. This was driven by continued growth in our membership base, and upgrades to executive memberships. At Q3 end, we had 41.2 million paid executive memberships, up 9.6% versus last year. This quarter, we launched our executive member program in China, and have seen strong early adoption in the market.

We ended the quarter with 82.9 million total paid members, up 4.1% versus last year, and a 149 million cardholders, up 4% year over year. In terms of renewal rates, at Q3 end, our US and Canada renewal rate was 92.2%. Up 10 basis points from last quarter. And the worldwide rate came in at 89.7% unchanged from last quarter. As previously shared, members who sign up online on average renew at a slightly lower rate than warehouse sign ups. And as this population has grown as a percentage of our total base, this creates some downward pressure on the overall renewal rate.

In Q3, it was pleasing to see that our focus on increasing the renewal rates of these members through targeted digital communications and retention strategies more than offset the negative impact from this mix change in our membership base. Turning to gross margin, Our reported rate was lower year over year by 21 basis points, coming in at 11.04% compared to 11.25% last year. Excluding gas inflation, the gross margin rate was higher by 1 basis point. Core was lower by 46 basis points and lower by 29 basis points excluding gas inflation. In terms of core margins on their own sales, our core-on-core margins were lower by 9 basis points.

This decrease was due to slightly lower margins in fresh and food and sundries. Where we invested in lower prices for our members on several everyday items. such as eggs and beef. Transportation costs were also a headwind in the quarter due to higher gas prices. The significant difference between reported core margins and core-on-core margins was primarily due to mix changes as we saw gas, e commerce and pharmacy sales grow at a faster pace than core merchandising sales. Ancillary and other businesses gross margin was higher by 9 basis points and 14 basis points excluding gas inflation. This was driven by higher sales penetration in e-commerce and pharmacy, partially offset by a lower gross margin rate in gas.

LIFO positively impacted the rate by 14 basis points both with and without gas inflation. We had a $44 million LIFO charge in Q3 this year, compared to $130 million charge in Q3 last year. This quarter's gross margin rate benefited 2 basis points from lapping the catch up accrual in Q3 last year for the increased employee vacation days included in our March 2025 employee agreement. Moving on to SG&A. Our reported SG&A rate was lower or better year over year by 20 basis points. Coming in at 8.96% compared to last year's 9.16%. Excluding gas inflation, SG&A was lower or better by 2 basis points year over year.

The operations component of SG&A was lower or better by 12 basis points. But worse or higher by 3 basis points excluding the impact of gas inflation. As underlying improvements in productivity were offset by higher healthcare costs. Central was lower or better by 3 basis points and lower by 1 basis point excluding the impact of gas inflation. Equity compensation was flat and higher or worse by 1 basis point excluding gas. This quarter, SG&A also benefited 5 basis points lapping the catch up accrual in Q3 last year for higher vacation days in our 2025 employee agreement.

Below the operating income line, interest expense was $32 million compared to $35 million last year, interest income was $130 million versus $95 million last year, driven by higher cash balances and FX and other was a $25 million benefit versus a $10 million loss last year largely due to changes in FX. In terms of income taxes, our tax rate in Q3 was 25.4% compared to 26.2% in Q3 last year. Turning now to some key items of note in the quarter.

Capital expenditure in Q3 was $1.41 billion We estimate CapEx for the full year will be approximately $6.5 billion as we continue to invest in building a larger pipeline of new warehouses, remodeling our existing warehouses to drive continued growth in high volume buildings, expanding our depot network to support operational efficiency, and in enhancing the member digital experience. In terms of merchandising highlights, as Ron mentioned in his opening comments, gas prices had a major impact on the quarter, with our members allocating a greater proportion of their total spend to gas. At the same time, we saw very robust comp sales results excluding gas. As our combination of merchandising quality, value and newness continues to resonate with members.

Fresh comparable sales were up in the high single digits in the quarter, led by meat and bakery. In meat, we saw strength in both premium cuts of beef and lower cost proteins such as ground beef and poultry. In bakery, we continue to see success with the launch of exciting new items including a variety of seasonal pastries and cookies. Non-foods comp sales were up in the high single digits in Q3, Top performing departments were gold and jewelry, small electrics, tires, home furnishings, majors, and health and beauty. Self care and wellness items performed extremely well during the quarter, including fragrances and hair and skin products in the health and beauty and small appliances departments.

We also saw members wanting to splurge on higher value self care items where the quality and value is compelling. For example, we experienced almost 50% sales growth in saunas and massage chairs during the quarter. In food and sundries, comp sales grew in the mid-single digits led by packaged foods and candy. While egg price deflation was a headwind to sales, this was partially offset by significant growth in other items such as protein snacks and protein bars. Kirkland Signature is also driving growth in food and sundries. We continue to innovate with new KS items, offering savings of at least 15% to 20% to the national brand equivalent with equal or better quality.

Q3 launches included our KS energy drink, KS ultra filtered milk, KS sea salt popcorn, and KS oven roasted chicken dog food. Our goal is to be the first to lower prices where we see opportunities to do so, and a few examples this quarter included KS Crispy Wings from $16.99 to $14.99, KS Milk Chocolate Almonds, from $19.99 to $18.99, KS golf balls from $32.99 to $29.99, and KS king-size sheets from $89.99 to $79.99. In ancillary businesses, comp sales were up in the mid-20s. Pharmacy led the way and saw significant market share gains in the quarter. In addition to our experienced pharmacists taking great care of our members, a number of factors are contributing to this growth.

These include increased GLP-1 demand, and inclusion of Wegovy and Ozempic in our Member Prescription Program, great value on pet medications, acceptance of Medicare D over-the-counter flex cards, and expansion of our mail order and specialty pharmacy offerings. Gas comps were in the positive high twenties,, driven by a price per gallon increase year over year as well as an acceleration in volumes. Turning now to inflation. Overall, inflation increased slightly in Q3, largely because of higher gas prices. This was offset by lower inflation in food and sundries and fresh, primarily due to deflation in produce, eggs, and dairy.

Inflation increased slightly in nonfoods, and we are anticipating further inflation in a number of nonfood categories as higher resin costs start to flow into cost of goods. As always, our buyers are working hard to mitigate the impact of cost increases. The supply chain is generally stable, and our merchants feel good about our inventory position heading into the summer. We have relatively low inventory exposure to shipping issues, stemming from the situation in The Middle East. But we continue to monitor the situation closely. In digital, we saw strong member engagement in Q3, with site and app traffic up 37%.

Pharmacy, gold and jewelry, home furnishings, tires, special events, housewares, and majors all grew double digits year over year. Delivering a more personalized experience for our members is a key focus, and we continue to make progress in this area. In Q3, our personalized product recommendation carousels delivered conversion rates 3x better than our typical conversion rates. And contributed just under $5 billion of e commerce sales. As Ron shared earlier on the call, with consumers increasingly using AI to research products and services, we believe this has the potential to be a significant sales opportunity for Costco.

We are now leveraging AI to enhance our product pages online, which in turn is increasing our relevance with the large language models. While the volume of traffic generated from AI search is still low, we saw triple digit growth in Q3, and this activity had the highest conversion rate of all traffic coming to our site. Finally, as we accelerate our digital capabilities, we are also broadening our reach and retail media. Q3 marked the launch of a new collaboration Google Commerce and Media and YouTube. Launching this partnership will make it easier for brands and agencies to collaborate with Costco retail media.

And is a significant milestone on our journey towards increasing our share of retail media revenue That concludes our prepared remarks. In terms of upcoming releases, we will announce our May sales results for the 4 weeks ending Sunday, May 31 on Wednesday, June 3 after market close. We will now open the line up for questions.

Operator: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to 1 question. Again, it is star 1 to join the queue. And our first question comes from the line of Michael Lasser with UBS. Your line is open.

Analyst (Michael Lasser): Good evening. Thank you so much for taking my question. Recognizing and fully understanding you do not provide guidance. But given that new membership growth, is a critical driver of your overall same store sales growth as these new customers ramp their usage of the warehouses And this metric has slowed to 4.1%, which is the lowest level in some time. Should we keep our expectations around your same store sales growth outlook for at least the near term pretty modest, especially when you consider that you will be lapping some of the changes to the club hours in the coming weeks. Thank you so much.

Gary Millerchip: Hi, Michael. Thanks for the question. I guess I will cover that in a couple of different parts. I think, first of all, maybe taking a step back on the main part of your question around membership and what we are seeing there in terms of growth. You know, overall, we were pleased with the results in the quarter. As I think you heard us say in the prepared remarks, we were when we look at membership growth, if you back out the fee increase and foreign exchange, we were up 7% overall. A big part of that was due to the continued engagement we see with executive members growing, and that was up over 9% during the quarter.

And so maybe that is the first point to tie to your comment around sales as you perhaps know when we see members who are at an executive level, they generally spend more with us and visit more frequently. So that is a really positive dynamic in terms of impact and potential for future health and growth in terms of membership spending. And then as you mentioned, we saw paid membership growth up just over 4%. So those 2 together were what combined to create the 7% growth in the membership rate.

We were also pleased to see that the renewal rate has sort of normalized if you like now as we started to now see the mix mature of digital members coming into the membership renewal rate and as we start to implement and see the benefits, I should say, of more targeted marketing and retention strategies driving, you know, a leveling out, if you like, of that membership renewal rate. And our goal, of course, is to continue to improve that rate as we execute more of those communication and targeting marketing efforts with our members. As you mentioned, we have seen some slowing in the year over year membership growth in recent quarters.

We attribute that to a number of factors. 1 would be we have been opening or we have not been opening new warehouses in major new markets. So if you think about some of the growth we have had in prior years, in Asia in particular, when we opened new warehouses in Japan, and in China as an example, we tend to see an outsized growth in membership. But often, the renewal rate on those members is much lower because we have a big element of new consumers coming into membership to really explore the experience and have a look at what we offer and often coming from a much longer distance and further away from the warehouse.

So we have not seen a major new opening in a new international market for a while, which definitely has an impact. And we are cycling some stronger growth from sign ups from a year ago as well. So we think the sort of the 4% to 5% is a more normal rate of growth when you do not have the benefit of a large increased that is linked to some kind of special event like COVID or a new market entry.

But overall, I would say with the renewal rate leveling out and with the year over year growth that we are seeing in new member sign ups, we feel good about the health of membership, and we think there is a lot of opportunity for continued growth in the future as well.

Analyst (Michael Lasser): And just as it relates to the same store sales growth given that is a critical pipeline, especially as you lap some of the big outsized drivers over the last few years? Thank you.

Gary Millerchip: Yeah. I mean, I think in general, would say, as you mentioned, we do not give guidance on what we expect future trends to look like. We do expect to continue to grow our market share as we deliver great value for members and continue to provide great quality items. I would say in broad terms, what we are seeing at the moment is it is just a continued a continuation, I should say, of the trends that we have seen in really the last year or so. Members being very willing and having the capacity to spend, but have very high expectations around quality, value, and newness.

And our value proposition seems to be resonating really well in that regard. As you know, we have been cycling some fairly major gift card programs and gold sales is now being cycled year over year. And yet, as you look at the recent results that we have seen in our sales, we continue to comp excluding gas in that. 6% to 7% range, and we have not really seen any variation from that performance as you look at membership spend and membership growth over the last year or so?

Analyst (Michael Lasser): Thank you very much, and good luck.

Operator: And our next question comes from the line Simeon Gutman with Morgan Stanley. Your line is open.

Analyst (Simeon Gutman): This is Pedro Gill here on for Simeon. Thank you for taking our question. I would like to ask you first about the core-on-core margin, which was down 9 basis points as you are lapping against some of the very strong gains that started 4 quarters ago, more or less Should we recognize this as a sign that you are taking strategically a more aggressive value posture to gain share and on some of the trends in the consumer out there? And are you seeing something similar from the competition?

Gary Millerchip: Yes. Thanks for the question. I would probably take a step back as we shared before on gross margin when we talk about the rate year over year. We look at it overall. I look at the quarter and focus for us is really on the gross margin rate ex gas inflation or deflation. And during the quarter, we saw a 1 basis point improvement in the results. If you recall, and you mentioned a moment ago, we are actually cycling 2 years worth of I think, the highest growth we have seen in gross margin rate in fiscal year 2025 and 2020 in Q3 in particular.

But as we shared previously, while we provide detailed breakdown of our gross margin rate, we really do tend to focus on that measure of gross margin overall, ex-gas inflation or deflation because we tend to manage the business more holistically than looking at 1 individual component of the gross margin. You know, with that being said, there were a lot of moving parts during the current quarter. First of all, we had higher top line growth overall, but that came with a significant shift in the composition of sales. We had higher sales in gas and added to ecommerce and pharmacy, that did create a fairly significant shift in the mix.

So that has an impact on the core rate overall. In terms of core-on-core, we knew we were cycling in the quarter a fairly large LIFO charge from last year, we saw it as an opportunity recognizing that members were dealing with higher gas prices to really invest in increasing value to the member partly through the widening of our value in gas in the market to drive volume growth and more gallons and traffic to our gas stations, but also in everyday prices as I mentioned in prepared remarks, with eggs and meat in particular, really keeping the value very strong for our members.

So we saw the option to do that because of the benefit that we were cycling from the prior year and we felt it was the right thing to do to continue to drive top line growth in the business. And deliver value for our members. I would say in general to the final part of your question, you know, we tend to view ourselves as our toughest competitor.

So, really, the majority of the price investments that we are making are because we really want to ensure that we are delivering that great value for our members and we have the opportunities to invest to drive top line growth while continuing to sustain our gross margins, then we look for the opportunities to do that.

Analyst (Simeon Gutman): And as a follow-up, if I could ask you about the Compass of your comp between traffic and ticket. The ticket component is particularly meaningful. If you could parse out for us how much of that is same SKU, comparable pricing versus mix, versus larger baskets, that would be very helpful.

Gary Millerchip: Yeah. it is really a combination of all of the above. We are we are seeing an increased number of items in the basket. We are seeing some inflation in the basket. But remember, us, part of the inflation is moving items to higher bigger sized items or better quality items or higher value. So we do not tend to pass out the individual elements, but it would be a combination of both. Okay. Great. Thank you.

Operator: And our next question comes from the line of Christopher Horvers with JPMorgan. Your line is open.

Analyst (Christopher Horvers): Thanks. Good evening, guys. So I wanted to pick up the pricing thread You mentioned in prepared remarks, running prices lower ahead of expected cost declines 1 of your peers talked about sort of eating some tariffs maybe passing through the price earlier even though they had pre tariff inventory So my big question is there a change in the rationality of the overall market or is this simply just something opportunistic in a moment in time given the backdrop that we are sitting in?

Gary Millerchip: Yeah. I think, Christopher, I would answer the question a couple of ways, and Ron may wanna add some color commentary as well. I think maybe taking a step back and talk about the competitive landscape, we think of the market as being very rational currently. You know, we tend to be our own biggest competitor. With our goal being always to maintain that pricing authority and to be there for our members.

And as I mentioned a moment ago, because of the impact of higher gas prices, we felt it was important to continue to deliver more value for our members Really, maybe the broader comment I would make too is around as you think about the impact on gross margin for us, I think I have shared this in a couple of prior when we were seeing higher core on core margin improvement. You know, the rate for us will flow fluctuate quarter to quarter. We really would encourage you not to get too fixated on 1 individual quarter or 1 element of gross margin.

We tend to manage it more holistically and look at how can we keep investing and driving value and driving top line for our members. You know, this quarter, as I mentioned, we invested more in some everyday items like beef and eggs because we have the opportunity to do that with the LIFO charge that we are cycling. And we are also able to widen our gaps in gas. But overall, when we look at the trajectory of our gross margin rate, over the last sort of 12 to 24 months, generally, it is been stable.

I am talking about the gross margin rate ex gas inflation or deflation. it is generally been stable with a slight improvement, sort of in the mid single digit range. And really, our Q3 result was very much in line with that trajectory, and we have the opportunity to have that capacity to be able to invest more in value for our members as we were seeing the impact for them on gas prices.

Ron Vachris: And this is Ron. And to add to what Gary said, you know, the moves that we have made on pricing were strategic, not reactionary. I mean, these are things that we will see. 1 of your examples was you saw some inventory that we had during higher tariffs. Now we are getting the lower priced goods in. We may go down earlier in those to get into those lower priced goods quicker We are down quick on eggs when those that commodity started dropping. So we do we just use this as a lever We have always talked long-standingly that we are the first to come down and the last to go up.

And this period was a good example of that is getting into lower cost goods where we can. And lowering prices for our members.

Analyst (Christopher Horvers): That makes sense. And then as a historically, we have thought about you know, a total comp of 4% to 5% to start to see core leverage. On SG&A, you know, you did something like a 9, I think, and because FX helps. But you actually delevered 3 basis points. So is there something changing there? You mentioned health care costs You know, to what extent maybe freight. Impacted that flow through, and any commentary about how we think about the future? Thanks very much.

Gary Millerchip: Yes. Just briefly on SG&A, I would not say anything has really changed in our view of that. If you look at the key components in operations, we were probably about mid single digit leverage in core operations, but with the healthcare cost increases and a couple of small onetime items, they more than offset that impact. And then in central, also had a couple of legal settlements and reserves that would have impacted the central numbers as well.

So, of course, there is always the possibility that these items can occur unexpectedly each quarter, but outside of those, we would have seen a reasonable amount of leverage during quarter and more consistent with that idea of mid single digit comps delivering level of leverage. To your point, it would be excluding gas, of course. We typically do not see the same level of leverage on gas, but on the core operations, that is what we would expect to see.

Analyst (Christopher Horvers): Makes sense. Thanks very much.

Operator: Our next question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Analyst (Oliver Chen): Ron and Gary. Gary, as we think about retail media, your business model is quite different with the SKU efficiency from other players. What are the parameters and or guardrails you are thinking of in balancing the member satisfaction against the big opportunity, and it sounds like you are at a nice turning point with that opportunity. Also, Ron, as you continue to push for innovation and being your own best enemy against, great multiyear performance. What are the trade-offs in terms of expenditures or not really? it is very capital light in terms of improving the checkout and automation, as well as implementing AI to further make customers happier, yet using technology and distribution and speed. Thank you.

Gary Millerchip: Oliver. On the retail media question, I think for us, it is fairly simple and the member always comes first. So it is 1 of the reasons why our focus with retail media, first and foremost, was to build more of the personalization capabilities to be able to deliver more relevant messaging to members that help improve the experience to save our members time and money. And as we are starting to implement those capabilities, we were also parallel introducing some media activity on third party sites to really build the capability and to show our CPG partners what was possible with Costco and retail media.

As we are now sort of scaling up those personalization capabilities we will continue to look at retail media through that lens. So how does retail media help us deliver more value more relevant experiences for our members, and how can our CPG partners participate in that to deliver a better investment, a better return on their marketing spend. So as we are introducing more of those capabilities, we would expect Retail Media to ramp up and increase the value we generate there, but it would definitely be through the lens of the member experience and member value. And, of course, everything we do, you know, 80-90% of that value is reinvested in the member.

To deliver more value for them and better pricing so we can drive top line sales.

Ron Vachris: And, again, on my question about the technology spend, you know, I would consider it capital light from what we are seeing. We are seeing great returns on the investments. Gary spoke about the sales that we are leveraging on e-commerce. there is a cost to that AI, but it is being offset by greater sales and great leverage that we are seeing there as well. In the operations side of things, the technology we are using on the front ends, has been very accretive to higher productivity.

I think his points on the SG&A leverage is a good reflection of the benefits we are seeing with shorter lines, faster throughput for our members, and in turn lowering our payrolls in these areas as well. So we see it is not as any heavy lift for us in capital at this point Thank you. Thank you.

Operator: And our next question comes from the line of Chuck Grom with Gordon Haskett.

Analyst (Chuck Grom): Hi, Ron. Hi, Gary. So about $45 in cash per share on the balance sheet. Can you zoom out and help us think about capital allocation, including plans for a special dividend and also how you may look to deploy future tariff refunds?

Gary Millerchip: Sure. Thanks, Chuck. Yeah. On the capital and sort of financial strategy, really very consistent in our mind. Our number 1 priority, of course, is to keep investing in the business to drive growth. And you heard me share in the prepared remarks, we are really focused on accelerating new warehouses, remodeling warehouses where we have the opportunity to really expand capacity and support continued growth particularly in those capital-constrained-- sorry, those capacity-constrained locations expanding the depot network. We are also doing some investments in manufacturing capabilities where they can support KS growth, things like expanding hot dog capacity and coffee roasting some of these areas.

And then, of course, digital member engagement and investing in capabilities there to enhance the member experience. As we make those investments, as that is being the top priority, we are also growing the regular dividend over time, as you know, and we sort of continue to buy back stock at a level that avoids dilution from the executive stock grants that we issue each year.

We are in a position as you mentioned where we continue to generate excess cash beyond those priorities, and we believe that at our current valuation, special dividend is typically the most effective way to return excess cash without giving up the flexibility to keep investing in growth where we see opportunities to do that. Our cash balances continue to grow, and we will obviously evaluate what we think is the appropriate timing and approach to deal with that situation. it is important to remember the last time we did a special dividend, the stock price was materially lower than it is today.

So to be at a similar yield, I should say, our cash would need to be at a higher level than it was at the last special dividend But we will continue to review those options with our board. But no plan to share at the present time. But obviously, we will keep investors posted as we continue to evaluate.

Analyst (Chuck Grom): Okay. Great. Fair enough. And then just on real estate, you talked about, I think, relocating 3 stores this quarter or maybe this year. Can you just help us think about the opportunities set and just remind us what the threshold from a sales volume you typically do when you wanna relocate a club.

Ron Vachris: You know, it is really based on the existing facility. And we have some that are you know, our earlier price club locations in the Northeast that were smaller facilities with 500 parks. When they hit when they hit a threshold of the average volume of the warehouse, that we are seeing in The US, it is triggering the time that we see opportunities to grow the sales in that market. So it is hard to say there is any $1 amount around the world that we use to trigger that.

It truly is the size of the business, and the size of the facility and how we are servicing our members in the gas stations, parking lots, and the traffic inside the warehouse. So it is a it is a moving target as we see.

Analyst (Chuck Grom): Great. Thanks, guys. Thank you. Thanks, Chuck.

Operator: And our next question comes from the line of Scot Ciccarelli with Truist. Your line is open.

Analyst (Scot Ciccarelli): Hi, guys. Thanks for the time. It seems like 2 of your biggest competitors, worldwide, but certainly in The US, Walmart and Amazon, continue to ratchet up the competitive bar, if you will, and delivery speeds. Given that fact and the potential increase in Agenta Commerce, it seems like delivery capabilities and speed will become even more important over time. So do you think Costco will ultimately need to build out your own 1P delivery? Do you think you can fully rely on third party partners to compete in that kind of environment? Thanks.

Ron Vachris: You know, I think that we will continue to look at that. As you know, a few years back in 2020, we went ahead and made an acquisition to get into the big and bulky delivery because we felt that there was a significant opportunity in shortening the delivery times there. That has been very productive for the company, and we deliver a great example as far as that goes. Currently, now on our same day delivery process, we have great have very good third party partners.

That are as I as I spoke to on the opening comments, are high satisfaction of our members and we are averaging 45 minutes or less should a member require something to be delivered that quickly. So at the current time, we are happy with the partners that we have. We continue to evaluate that and look at you know, how we can improve delivery times across the network and across the world. So that will be continued to be reviewed if we need to get further vertically integrated in that business.

Analyst (Scot Ciccarelli): Understood. Thank you. Thank you.

Operator: And our next question comes from the line of Zihan Ma with Bernstein.

Analyst (Zhihan Ma): Hi. Thank you for taking my question. I have 1 on traffic. Understanding there was a lot of calendar shift in Q3, but it looks like traffic was kind of below the historical trend at least for the first part of Q3 and then started growing into April. Can you help us understand, 1, how much of the April acceleration was benefiting from the gas inflation and driving more traffic? Into stores. And 2, is there a structural way to further improve traffic especially given a lot of your stores may already be at capacity, so you may not physically be able to attract more traffic growth from here. Thank you.

Gary Millerchip: Sure. Yeah. Thanks for the question. On traffic, would say it is important to sort of think in our minds, take a step back and look at the last 12 months or so because we have seen you know, a mix change over time. If you think back year or so ago, we were sort of flat to slightly negative on basket size and we have seen an increase in basket and we were in traffic, we were probably up mid single digits.

What we have seen is the continuation of the same overall comp trend that we were seeing then, but we have seen as we cycled some of those lower average basket size, we have seen basket sizes increase, and we have seen traffic continue to grow up a couple of 2.2% roughly, I think, average if you look at recent monthly results compared to that 5%. So still growing healthily, but definitely a little bit lower than it was and sort of normalization, if you like, over 2 years. Of those 2 numbers looking more close together. it is a little bit difficult to look at individual months and try and piece too much together from those.

I do think there is a lot of work that we have done over recent quarters to create more opportunity for members to visit more frequently, whether it was the extended hours for our gas stations, before the recent growth in gas that we have seen with higher prices. The extended operating hours in our warehouses that we launched just under a year ago as well, the work Ron mentioned earlier around remodeling and expanding warehouses to create more capacity whether it is the parking lots or the gas stations and more capacity there as well.

So I think there is a lot of focus to make sure that we maintain that trajectory in traffic, but I do think there are going to be puts and takes in individual months just because of the different dynamics as you mentioned around members, you know, changing behavior, and I think at the period you were talking about as an example, we definitely had a period of time where members were stocking up on items as they were concerned about the impacts of what tariffs might mean on costs. I think you see some of that showing up in the individual month to month data.

Analyst: But overall, we feel good about the traffic growth that we are seeing when we look at it on a 2 year basis and on an individual year basis as well.

Ron Vachris: To add to what Gary is saying, as he spoke about in our capital expenditures, acquisitions of adjacent properties to our warehouses expanding parking lots, The technology throughput is also a key driver of traffic. If we can get members processed through much quicker, we are turning parking spaces much faster. That is resulting in better traffic in those high volume warehouses And then we strategically look at infill locations We have proven that when we open a building in an existing market, our build back in the existing buildings when we relieve the pressure comes very nicely.

And so we see great build back of traffic in those warehouses that are relieved of the volume as we infill strategically around the world.

Gary Millerchip: Maybe just mention too, you asked about gas. Just to confirm, you did not say this, but wanted to make sure I clarified. Gas traffic is not included in our traffic number. I would say that, generally speaking, a little less than half of our members are visiting the warehouse when they visit the gas station. I would not say we have seen a dramatic change when you look at our results in the third quarter around traffic overall as a result of that. We think partly because a lot of members are increasing their frequency.

Visiting the gas station to top up in between would have normally been a gap between getting the tank to empty because of the concern about what might the gas price be tomorrow. But we do think over time, it is a great way to build loyalty when we look at our members that are engaged in gas with us, they are generally visiting more frequently overall. They are spending more with us overall, and they are also renewing at a higher rate. So we do think it is a good healthy barometer of long term growth for the business as we continue to drive engagement in gas.

Analyst (Zhihan Ma): that is very helpful. Thank you.

Operator: And our next question comes from the line of Peter Benedict with Baird. Your line is open.

Analyst (Peter Benedict): Oh, hey, guys. Thanks for thanks for taking the question. I know we are gonna get the main numbers in next week, but just curious if you would comment on kind of any behavioral changes or changes in trend that maybe you have seen thus far obviously dynamic environment out there, so everybody's kind of attuned to that. And as related to that, maybe a bigger picture question around GLP ones. You talked about it in the prepared remarks. I am curious how it is influencing either any category performance that you have got or maybe how you are thinking about leaning into different categories as you think out over the next several months and years. Thanks so much.

Gary Millerchip: Yeah. Thanks, Peter. You know, I as you mentioned, we will release sales next week, so I will not get into any sort of short term trends. But I will maybe just bridge back to a couple of comments I made earlier is we are we are generally really not seeing any major change in members' behavior. I certainly well, I will I will caveat that with gas, of course.

You know, gas prices are very much on members' minds and we they have had a major impact on our overall growth in gas and have also for sure, become a bigger percentage of a member's total spend in the month because of the higher prices of gas that are the market today. We have widened our gaps in terms of price to make sure we are there for our members, but we know that is something that is very high on our members' minds. But in terms of core merchandising, really, very, very consistent.

I think that quality value, and newness are extremely important, and the things that our buyers are focused on every day, and we continue to see that combination of items that offer every day every day great value are doing really well. And items that are bringing newness and excitement are doing really well. Know, a couple of examples of that in it is across all 3 of our non foods, foods and some fresh, I would say, in nonfoods, you know, the everyday shows up in tires, and majors and health and beauty where we have great value for our members that they can take advantage of every day.

And on the excitement side, finding new gold items for members to take advantage of, special events, I mentioned some of the self care items that we are selling in health and beauty and small appliances. They are really the areas where I see, you know, members taking advantage of some opportunities to treat themselves at great values. But similar things in fresh as well with you know, premium meat still doing extremely well. Because of the value and quality that we offer. But unit growth, extremely strong in ground beef and poultry as well. With the everyday value that we are offering.

I think in terms of GLP ones, know, that the biggest thing we are seeing, of course, is that our value that we are offering in our pharmacy is really helping members take advantage of those drugs in a very cost effective way. I think I called out in our prepared remarks 1 of the things that we are seeing in food and sundries where we are really leaning in is kinda anything protein right now is doing extremely well. So protein snacks, protein bars, beef sticks, we launched our own Kirkland Signature Beef Stick that is doing tremendous volume and offering tremendous value to our members.

So that is an example of an area where we really leaning into those items because of what we are seeing with our members and the value and quality they are looking for.

Ron Vachris: And on the merchandising front, I have had an opportunity this last quarter to meet with several of the larger CPGs with Sarah, our head merchant, And I gotta tell you that they are making some nice pivots based on the needs of the GLP customer and Gary mentioned proteins. We just we just launched the Kirkland Signature Ultra filtered protein milk in our dairy that has just taken off extremely, extremely strong.

Things with fiber, magnesium, So I think our buyers are right on top of the halo effect of GLPs and the needs of the members And I am quite impressed with what I am seeing from the CPGs, the rather big ones, and how they are pivoting to the future potential opportunities there. So there is quite a potential opportunity and, I feel we are on the front side of that.

Analyst (Peter Benedict): that is good to hear. Thanks so much. Thanks, Peter.

Operator: And our next question comes from the line of Rupesh Parikh with Oppenheimer.

Analyst (Rupesh Parikh): So just going back to your commentary on AI search, I was just curious if you are seeing any benefits in particular in any particular categories or services in terms of the traffic and conversion?

Gary Millerchip: I think it is pretty broad spread, Rupesh. it is it is I am as we mentioned earlier, it is still very early days for us, but as we have started to work on updating product pages to ensure that they are reflecting and translating through those large language models to allow value and our quality showing up as you can imagine with the commitment we have to being great value for our members and with the commitment to quality, so member reviews and feedback generally the products that we are selling is relatively positive compared to alternatives. Those generally resonate well with those large language models.

And so I would say it is, you know, it is it is kind of when our members are searching for those items, we are showing up more consistently and have plans to ensure that we show up more consistently in the future. And we think it is a opportunity in as we continue to evolve our strategy there, to ensure that we are getting at least our fair share of that activity as members change behavior.

Ron Vachris: Good example categories would be like appliances. Our we have got a good value on appliances, a very good everyday value, but our real big value is in an all in pricing. That our prices include delivery, installation, holloway. Regular search did not show all that value. Now with these large language models, they are able to look at the entire value such as tires that installations included, road hazards included, nitrogen included. So we feel we are very bullish on this AI search and the strength that is gonna bring to telling the whole Costco story about the true value of what we offer.

Analyst (Rupesh Parikh): Greg. And then my follow-up question, just on the fuel business. So you guys have seen a significant increase in volumes. How do you think about opportunities to increase throughput? What may be going forward as maybe more of a permanent increase in your fuel bondage related to recent changes in behavior.

Gary Millerchip: Yeah. Thanks, Rupesh. it is a little bit difficult to predict, obviously, what is gonna happen with gas prices. I think we believe that by widening our gaps and delivering more value for our members, I mentioned it a little bit earlier on the call, we see on over time, members that engage with us in gas are generally visiting more frequently, shopping more, buying more, and also renewing at a higher rate.

So we think the fact that we have got more members visiting gas stations more consistently and even Ron mentioned in some of his prepared remarks, we are seeing some members that have been members for some time that are using the gas stations for the first time. We think that is also encouraging time sign for a long term loyalty. So I think it on gas itself, a little bit more difficult to predict because often what we find is when gas prices are higher, members are willing to either travel a little bit further or recognize that it might take them a little bit longer to fill up because of how busy our gas pumps are.

So we can see that change over time based on how prices change on gas, but we believe that members engaging with gas with us is a great reminder and of the overall value that we offer and is likely to drive long term loyalty based on what we have seen historically with members that buy gas from us versus those that do not.

Analyst (Rupesh Parikh): Greg. Thank you. Thanks, Rupesh.

Operator: And our next question comes from the line of Gregory Melich with Evercore ISI. Your line is open.

Analyst (Greg Melich): I would love to unpack a little bit more on disinflation and inflation.

Gary Millerchip: I Is it still running roughly 1% across the box Gary? Is a fair estimate? Because you said there were some good guys and some bad guys in the quarter. Yeah.

Analyst (Greg Melich): It was a little bit higher in the quarter.

Gary Millerchip: Gregory. So, you know, sort of low to mid single digits is what we have kind of shared in the past. But really most of the increase, if not all the increase, in the inflation rate, we include gas in that number, and gas was for sure, as you might imagine, the largest part of the inflation. If I break it down a little bit more for you between some of the categories and items, I mentioned in prepared remarks, fresh and food and sundries were a bit lower during the quarter. That was largely on the back of produce, eggs, and dairy all being deflationary. We are still seeing inflation in beef, deli, and areas like candy.

So there is definitely puts and takes in food and sundries, but the net impact was slight reduction in fresh and food and sundries during the quarter. Non-foods was a little bit higher during the quarter. Some of that was really as we are seeing higher cost of memory chips in computers having an impact on the sort of cost of items in majors. Now we took the opportunity to buy forward some items there to try and mitigate and minimize the impact for our members, but that is definitely something that we are seeing in the cost of the items.

And then secondary nonfoods that we see, particularly if oil prices remain to elevate remain at elevated levels is likely to see some increases in items that have sort of plastic components or polyester or cotton because of the impact of higher resin costs?

Analyst (Greg Melich): Got it. And then maybe a follow-up on gas. You said you widened your price gaps in gasoline. Did the $0 profit slip as part of that? Or was it basically just as everybody took prices up, you guys took it up less?

Gary Millerchip: Our profit was a little bit higher year over year. But as the rate of sales, obviously, was significantly lower.

Analyst (Greg Melich): Got it and good luck. Thanks, Gregory.

Operator: And our next question comes from the line of John Heinbockel with Guggenheim Partners. Your line is open.

Analyst (John Heinbockel): Hey, guys. Maybe Ron. 2 related questions. What does the club pipeline look? And I know it is multiyear. Club pipeline look like in Europe and Asia. Let's say, over the next 3 years? Right? And you know, where is there the sort of the greatest you know, backlog of clubs coming And then secondly, when you think about capacity in Canada, right, where you have got some very high AUVs, I you have adding clubs What is the capacity, dynamic look like in that country?

Ron Vachris: Yeah. Okay. In Canada, yes, we have a lot of upside potential. We have got some clubs. We have got the next 3 to 5 years charted out. So we see consistent strong growth in Canada for at least the next 5 years, and then we will have to come back and evaluate where we are going. In Asia, you know, great opportunities remain in China. In Korea, and in Japan. Taiwan, we do see opportunity for a few more locations in that region, but we think primarily those are the 3 big countries have the greatest potential for us as well. Europe, we are still very young in France, and we see that coming.

Spain has got the shorter leeway that we see significant growth in Spain over the next 3 years as well. And The UK has been very strong for us the last 3 years So I think we see some very good things coming in The UK as well. So we see very strong international expansion over the next 5 to 10 years. And those countries would probably be the leaders outside of North America.

Analyst (John Heinbockel): Okay. Thank you.

Operator: And our final question comes from the line of Christopher Nardone with Bank of America. Your line is open.

Analyst: Greg. Thank you, guys. So, on the executive membership strength relative to recent trends, are you seeing more customers trade up from gold into executive? Or is there recent strength more driven by new customers choosing the higher tier membership? And then just as a related follow-up with the spike in gas prices, are you seeing new membership acquisition improve as you move through the spring season?

Gary Millerchip: Yeah. Thanks for the questions, Christopher. On the executive membership, it is a combination of both. So we are definitely seeing increase in membership upgrades. From gold membership, but we are also seeing a higher penetration of new members signing up for executive membership with the extra benefits that we offered particularly the extended opening hours and the $10 per month on Instacart if you spend over a certain level. Sorry. What was the second part of the question? I was sign up. Yeah. We I you know, I do not know we could attribute to any individual factor, but we are certainly seeing year over year growth in new member sign-ups as mentioned earlier on the call.

So we are pleased with that momentum, and obviously, we were cycling some higher growth last year as well as I as I referred to. So we are encouraged by the growth that we are seeing there. We I would not necessarily say we would attribute it to 1 individual factor, but definitely seeing continued growth in new member sign-ups year over year. Okay. And then just the China executive rollout, how is that going relative to your expectations And if you could just remind us where you could still roll out this program in some of your other international markets over time. Yeah. Overall, we have been very pleased. I think it is ahead of our expectations in China.

We obviously launched with high expectation believing it would be a great value for our members, but we have seen a higher level of activity than we did initially have expected. You know, I would say today, we are with China, we have executive membership in most of our markets where we have a sort of a sort of a level of warehouses over sort of the 7 number that we have in China. There are some individual countries where we would not have executive membership today and certainly over time, if we grow that presence, that may make sense.

But I think at the moment, we feel like we have got the executive membership in the markets where it makes sense.

Analyst: Thank you.

Operator: And ladies and gentlemen, that concludes our and answer session and today's conference call. We thank you for your participation, and you may now disconnect.