Corey Tarlowe: Hi. Good afternoon. Thank you for taking the questions. Richard, you mentioned about the wage increases that you’ve taken recently. I’m curious to get your thoughts about the wage increases that you’ve taken within the context of now the lower inflation that you’re seeing as well as what could be potential deflation further ahead. So curious about the ability for Costco to maybe maintain a more nimble margin structure amid what could be some volatility on the pricing side.
Richard Galanti: Frankly, we look at the wages in a vacuum, and we want to do as much as we can for our employees. And certainly, there were several increases starting with the frontline worker premium during the initial year of COVID. We kept half of that in there, which we kept $1 of those $2 now in there, which was like $400 million a year. Again, we’ve also benefited from stronger sales and productivity so we’re able to afford that. But we look at them independently and we’ll continue to do that to look at it. To the extent inflationary pressures are down, that means there’s probably a little less inflationary pressure on wages. But we give — over half of our employees are top of scale and they’re getting increases irrespective of some of the extra things we talked about every March. And then as you go from a new employee over the first 9,000 or 10,000 hours, you’re getting constant increases that are more — significantly more.
Corey Tarlowe: Understood. And then just piggybacking off of that, and I understand it may be difficult to attribute a cause and effect relationship to this. But do you think that perhaps the moderating inflation that we’ve seen in the need-based categories like fresh and food and sundries may have unlocked a little bit of extra wallet to spend in the non-food category? And they have driven some of the momentum that you’ve seen in categories like TVs and others?
Richard Galanti: I think it can’t hurt even with gas prices have come down a little bit. That’s top of mind every week when somebody fills up their tank. So those things help. I think I’m sure on a macro basis, that’s the case but it’s a guess on our part.
Corey Tarlowe: Understood. Great. Thank you very much and best of luck.
Richard Galanti: Thank you.
Operator: We’ll take our next question from Dean Rosenblum with Bernstein.
Dean Rosenblum: Hey, Richard, guys. Thanks for taking my questions. There’s really two big debates that clients are asking us about. First one is on gross margins, and in particular, the potential for a gross margin impact from mix shift back toward things like appliances and TVs, which are notoriously lower gross margin, at least in the marketplace versus fresh and food and sundries. As you see the sort of big ticket discretionary starting to come back a little bit, do you expect any overall impact on gross margins from that mix shift away from food and sundries to big ticket discretionary?
Richard Galanti: First of all, our margin range is so much more compacted than traditional retail, different categories of traditional retail. I mean, if you think about it, we have, what, 12%, 13% gross margin, 11%. I’m thinking markup, and in theory, it ranges from 0% to 15%. In reality, it’s — there’s very few things that are below 5% and a lot of things hover around the 8% to 12% range. And so I don’t think it’s as big of an impact to us in terms of those mix changes. And I got to say it’s always all saying it’s always something. There’s always something that hurts you and there’s another thing that helps you. And it’s a really — it’s a mixture.
Dean Rosenblum: True. And then the other big debate that’s contrasting about is the relative profitability of new stores versus existing stores. There’s sort of two themes there. One is new U.S. versus existing U.S. and then the relative profitability of new stores internationally. I was wondering if you could speak to that a bit.
Richard Galanti: Well, first of all, when you look at like at an ROI, the eye on the denominator on an older building is a lower eye (ph). If 10 years ago, the typical building in the United States property equipment and building fixtures, I’m shooting from the hip here, was $30 million to $35 million and now it’s $45 million to $50 million. So you’ve got a different eye. But generally speaking, when we look at the ROI of each of our eight U.S. regions, our two Canadian regions, new units come in, start a little lower and get up there over time. You’ll have some outliers because of some units that are 30- and 40-years-old even with eye (ph) increase because we expanded the unit and upgraded it and remodeled it. The fact of the matter is the higher volume is really shine through there.
On an international standpoint, we’ve always, I think, talked about the fact that there’s a few different things that the ROIs in some of these other countries tend to be a little higher. The return on sales tends to be even more — even higher than that in some of these countries because a combination very little related to gross margin, some related to membership fees, some related to wages and some related to benefits, health benefits. U.S. health care costs dwarf every other country that we’re in.
Dean Rosenblum: Got it. Thanks so much. Appreciate it. Good holidays and thanks for the pie.
Richard Galanti: Thank you.
Operator: We’ll take our next question from Joe Feldman with Telsey Advisory Group.
Joseph Feldman: Hey, guys. Thanks for taking the question. Wanted to first ask on Executive member penetration seems like it continues to inch higher. And I was just wondering how you guys think about that. And like how high should that be? I mean presumably, you want everybody to be an Executive member. But is there like kind of a natural level where you think it can still go from here beyond the 46%?
Richard Galanti: I think — well, there’s always going to be another country or two we add. You need a certain number. In our view, we’ve always done it after there’s 15 or so warehouses in the country. So that will add to it a little bit. But no, I think some of the increase — it’s kind of like getting up to that asymptotic line when you — one of the things that drove it in the last few years, one, we’ve done a better job in the last several years of selling it to you as well as auto renewal. When people come in now or sign up online, they’re signing up to they want to put their credit or debit card in there and they can opt in to doing it online — doing other renewal. So I think those things have pushed it along with us being so wonderful. But I think you’ll still see it come up a little bit but probably that rate of increase will slow over time.
