Costco Wholesale Corp

NASDAQ:COST

Earnings Call Analysis

Strong Q3 Performance with Key Growth Highlights

Costco reported a 29.1% increase in net income for Q3, reaching $1.68 billion. Net sales grew by 9.1% to $57.39 billion, with U.S. comp sales up 6.2%. Membership fees rose by 7.6%, maintaining a 93% renewal rate in the U.S. and Canada. E-commerce grew significantly, with a 20.7% increase. The company continues to expand, planning 30 new locations this fiscal year. Capital expenditure for the year is forecasted at $4.3-$4.5 billion. Costco's focus remains on delivering value, evidenced by strategic price reductions and new product offerings.

Strong Financial Performance

In the third quarter of fiscal 2024, Costco demonstrated robust financial health. Net income soared by 29.1% year-over-year to $1.68 billion, representing $3.78 per diluted share. Excluding a one-time charge from the previous year related to the discontinuation of charter shipping activities, net income was up by 10.3%. Net sales also grew by 9.1%, reaching $57.39 billion compared to $52.6 billion a year ago.

Solid Comparable Sales Performance

Costco experienced strong comparable sales growth across various regions. In the U.S., comparable sales rose by 6.2%, and by 6% when adjusted for gas inflation and foreign exchange. Canada saw a 7.7% increase, or 7.4% adjusted, while Other International regions reported a 7.7% increase, rising to 8.5% when adjusted. Notably, e-commerce sales witnessed impressive growth, surging by 20.7%.

Expanding Membership and Renewal Rates

Membership fee income increased by 7.6% year-over-year to $1.123 billion. The renewal rates remained strong, with a slight uptick in the U.S. and Canada rate to 93%. Overall, Costco ended the quarter with 74.5 million paid households and 133.9 million cardholders, marking increases of 7.8% and 7.4%, respectively. Notably, 46% of paid members are executive members, who now account for 73.1% of worldwide sales.

Warehouse Expansion and Capital Expenditure

Costco continued its strategic expansion, opening four new warehouses in the third quarter, including two in the U.S. and one in China. Plans are in place to open 12 additional locations in fiscal 2024, bringing the total to 30 new warehouses for the year. Capital expenditure for Q3 was around $1.06 billion, with a full-year forecast between $4.3 billion and $4.5 billion.

Management Transition and Future Outlook

The leadership transition to Gary Millerchip as the new CFO has been smooth. Costco remains optimistic about its growth prospects, emphasizing value delivery and member satisfaction. Plans for future growth include enhancing digital and logistical capabilities, continuing international expansion, and focusing on strategic categories and member engagement.

Maintaining Value and Price Competitiveness

Costco's core strategy revolves around maintaining price competitiveness and delivering value to members. The company reported that inflation across core merchandise was flat, thanks to a balance of slight inflation in food and deflation in non-food categories. New Kirkland Signature products have been introduced successfully, while existing items saw price reductions to enhance member value.

Operational Improvements and Efficiencies

Operational efficiency was a highlight, with the SG&A (Selling, General, and Administrative expenses) rate improving by 15 basis points year-over-year. This improvement was driven by higher labor productivity and disciplined cost management,despite rising warehouse wages. Costco’s continuous focus on enhancing operational efficiency and member value remained evident.

Strong Ancillary and E-commerce Sales

In the ancillary businesses, the food court showed strong performance, bolstered by popular new items. Deflation in non-foods categories, mainly from hardware, sporting goods, and furniture, benefited from lower freight costs. E-commerce saw growth in gold and silver bullion, gift cards, and appliances, with deliveries through Costco Logistics up 28% in the quarter.

Looking Ahead

Moving forward, Costco plans to leverage technology and data to enhance member engagement, improve operational systems, and innovate its product offerings. The Costco Next program, a curated marketplace, is expected to grow further, offering more opportunities for testing new products and expanding the online sales channel. With a strong foundation and strategic focus, Costco aims to drive sustained growth and deliver long-term value to its members.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Gary Millerchip, Executive Vice President and Chief Financial Officer. Gary, you may begin your conference.

[Gary Millerchip, executive]

Good afternoon, everyone, and thank you for joining the call today. I'd like to start by saying how excited I am to be part of the Costco team, and it's a pleasure to be hosting my first Costco quarterly conference call. The whole Costco team has been incredibly welcoming. And as you might imagine, my first 3 months working alongside Richard have been a lot of fun. It's also been great visiting warehouses and facilities to immerse myself in the Costco culture and experience firsthand how this is positioning the company for continued growth. Over recent months, I've spent time and met with many analysts and investors, several of whom I know through my prior role, and it's clear you value and appreciate the company's current approach to investor communications. While I can't promise to be able to match the humor that Richard Galanti has become famous for, I can promise the same level of open dialogue and transparency you've come to expect. Oh, and to clear up some recent media speculation I also want to confirm the $1.50 hot dog price is safe. Before I talk about our results, I wanted to mention that Ron Vachris is also joining today's call. Many of you have expressed interest in hearing from Ron and so we thought it would be a good idea to have Ron join the discussion, and he can also take a few questions. Ron, would you like to add anything before we talk about the quarter?

[Ron Vachris, executive]

Thank you, Gary. And again, welcome to Costco. I'm very happy to report that the transition from Richard to Gary has gone very well, and we're very excited to have Gary on board as part of Costco, and I look forward to working together on the growth opportunities ahead for our company. Before we jump into the quarter, I wanted to make a couple of comments on the leadership transition. As Richard has mentioned on previous calls, I've worked closely with [indiscernible] for many years, including side-by-side for the last 2 years as President. And so the CEO transition has been very seamless process. Since January, my time has been focused on working closely with the teams around the world to ensure we continue to deliver the best quality merchandise that are best value for our members. I'm incredibly proud of our employees, and I believe our consistency of the results is a reflection of their commitment to our members and to each other. Consistent with how Craig and Richard managed Investor Communications, I intend to have Gary host the quarterly conference calls, and I will join his business for [indiscernible] to answer a few questions. So Gary, let's go to the results, and I'm happy to jump back in for the Q&A portion to field some questions today.

[Gary Millerchip, executive]

Thanks, Ron. I'll start by stating that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include but are not limited to, those outlined in today's call as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made and the company does not undertake to update these statements, except as required by law. Comparable sales and comparable sales, excluding impacts from changes in gasoline prices and foreign exchange, are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. In today's press release, we reported operating results for the third quarter of fiscal '24, the 12 weeks ended May 12. Before I walk through all the numbers, new for this quarter, we are making available a slide presentation on our investor site under Events & Presentations. These slides summarize much of the information I will share today, including Richard's famous matrices. We intend to make this information available every quarter. Reported net income for the third quarter came in at $1.68 billion or $3.78 per diluted share, up from $1.3 billion and $2.93 per diluted share in the third quarter last year. Last year's results included a nonrecurring charge to merchandise costs of $298 million pretax or $0.50 per diluted share, primarily for the discontinuation of our charter shipping activities. Net sales for the third quarter were $57.39 billion, an increase of 9.1% from $52.6 billion in the third quarter last year. The following comparable sales reflect comparable locations year-over-year and comparable retail weeks. U.S. comp sales were 6.2% or 6% adjusted for gas inflation and FX. Canada was 7.7% or 7.4% adjusted. Other International was 7.7% or 8.5% adjusted and this led to total company comp sales of 6.6% or 6.5% adjusted for gas inflation and FX. Finally, e-commerce comp sales were 20.7% and both on a reported basis and adjusted for foreign exchange. In terms of Q3 comp sales metrics, traffic or shopping frequency increased 6.1% worldwide and 5.5% in the U.S. Our average transaction or ticket was up 0.5% worldwide and up 0.7% in the U.S. Foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 20 basis points while gasoline price inflation positively impacted sales by approximately 30 basis points. Moving down the income statement to membership fee income. We reported membership fee income of $1.123 billion an increase of $79 million or 7.6% year-over-year. Membership fee income growth was 8%, excluding FX. In terms of renewal rates, at Q3 end, our U.S. and Canada renewal rate was 93%, up 0.1% from Q2 end. The worldwide rate came in at 90.5%, the same as Q2 end. We ended Q3 with 74.5 million paid household members, up 7.8% versus last year and 133.9 million cardholders, up 7.4% year-over-year. At Q3 end, we have 34.5 million paid executive memberships, an increase of 661,000 since Q2 end. Executive members now represent over 46% of paid members and 73.1% of worldwide sales. Our reported gross margin rate in the third quarter was higher year-over-year by 52 basis points, coming in at 10.84% compared to 10.32% last year and up 54 basis points, excluding gas inflation. Core was flat and higher by 2 basis points without gas inflation. In terms of core margin on their own sales, our core on core margins were higher by 10 basis points. Ancillary and other businesses gross margin was lower 6 basis points and lower 5 basis points, excluding gas inflation. This decrease year-over-year was driven by gas, partially offset by e-commerce. 2% reward was lower by 1 basis point, both with and without gas inflation, with higher sales penetration coming from our executive members. LIFO was a benefit of 2 basis points. We had an $11 million LIFO credit in Q3 this year compared to no LIFO charge or credit in Q3 last year. This is the third LIFO credit this year following a $15 million LIFO credit in Q1 and a $14 million credit in Q2. And finally, Other was higher 57 basis points or 56 basis points, excluding gas inflation. This was all related to lapping last year's negative impact from the $298 million pretax charge for charter shipping activities. Moving on to SG&A. Our reported SG&A rate in the third quarter was lower or better year-over-year by 15 basis points, coming in this year at 8.96% compared to last year's 9.11%. SG&A was lower year-over-year by 12 basis points adjusted for gas inflation. The operations component of SG&A was lower by 14 basis points and lower by 12 basis points, excluding the impact from gas inflation, despite an increase in warehouse wages this year. Higher labor productivity and great cost discipline by our operators drove the improved core SG&A results for the quarter. Central was better by 1 basis point and flat without gas inflation. And stock compensation and preopening were both flat year-over-year. Below the operating income line, interest expense was $41 million this year versus $36 million last year. And interest income and other for the quarter was flat year-over-year as lower interest income was offset by a foreign exchange gain in the quarter. In terms of income taxes, our tax rate in Q3 was 26.4% compared to 26.5% in Q3 last year. Overall, reported net income was up 29.1% year-over-year. And excluding last year's charge related to the discontinuation of charter shipping activities, it was up 10.3% year-over-year. A few other items of note. In terms of warehouse expansion, in the third quarter, we opened 2 new warehouses both in the U.S. Additionally, since the end of Q3, we had 2 more openings. Last week, we opened in Loomis, California. And 2 days ago, we opened our seventh building in China in the Nanjing market. For the remainder of fiscal '24, we plan to open another 12 new locations; 9 in the U.S., 2 in Japan and 1 in Korea. This would bring the total for the full year to 30 openings, including 1 relocation for a net of 29 new warehouses. Regarding capital expenditures, Q3 spend was approximately $1.06 billion, and we estimate full year '24 capital expenditure will be between $4.3 billion and $4.5 billion. Diving a bit deeper into some of the key themes we saw during the quarter. Nonfoods have the highest comps of our core categories. This strength was aided by lapping some softness in sales a year ago but was really driven by our merchandising teams doing a great job identifying high-quality items with values that really resonated with our members and buying those items with conviction. As inflation has leveled off, our members are returning to purchasing more discretionary items and growth in the category was led by toys, tires, lawn & garden and health and beauty aids. Bakery sales also showed great momentum in the quarter as our Fresh Foods team has reinvented that department with a number of new and exciting items, including the Kirkland Signature Lemon Blueberry Loaf and Morning Buns. Within our ancillary businesses, the food court had the strongest quarterly sales with continued success of the Chocolate Chip Cookie that was added to the food court this year. On the inflation front, it's more of the same from last quarter. Across all core merchandise, inflation was essentially flat in Q3. And with Fresh foods close to 0 and slight inflation in food and sundries being offset by some deflation in nonfoods. The deflation in nonfoods was led by hardware, sporting goods and furniture all still benefiting from lower freight costs year-over-year. Keep in mind that when we speak to inflation, or in the case of nonfoods deflation, we're referring to our selling prices. We're intentionally creating incremental value for our members by delivering lower prices wherever possible. We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us. In that vein, our buying teams are constantly aware of changing costs across all of their SKUs and are ensuring that we are capturing all cost decreases quickly so that we can pass on incremental value through price reductions. If we are unsuccessful in delivering ultimate value with branded goods, we evaluate the potential for new high-quality Kirkland signature items with a goal of providing at least 20% value versus what we would sell the national brand item at. This quarter, we released a new Kirkland Signature men's walking shoe and new Kirkland Signature facial wipes, both of which are doing very well. We also reduced prices on a number of existing items, including lowering Kirkland Signature Pine Nuts from $29.99 to $24.99 and reducing the price of our Kirkland Signature frozen shrimp SKUs by $1. These are just a couple of examples that came out of our recent monthly budget meetings where each country and region shares new and exciting items they have introduced to their warehouses and items where they have lowered prices. Turning now to digital. We continue to make enhancements to the app and website and are excited about the traction that these initiatives are getting with members. Total e-commerce sales growth in the quarter was led by gold and silver bullion, gift cards and appliances. In appliances, Costco Logistics is playing a key role in providing both greater value and a better end-to-end experience for members. Deliveries through Costco Logistics were up 28% in the quarter.

Costco Next, our curated marketplace also continues to grow nicely, and we added 8 new vendors in Q3, bringing the total to 75. Our app downloads were up 32% versus a year ago, with about 2.5 million new downloads in the quarter, bringing total downloads to more than 35 million. Site traffic was up 16% and and average order value was up 8%. You may have also recently seen an announcement that we are expanding our relationship with Uber. Previously, Uber Eats delivered Costco orders in Texas and this new agreement allows consumers the ability to order from Costco through Uber Eats across all of Canada as well as 17 states in the U.S. We are also working to expand this partnership to several of our international countries in the coming months. In addition to the increased access to Uber's customers, the agreement will allow us to sell Uber gift cards globally and offer discounted Uber One annual membership to Costco members. Finally, in terms of our upcoming releases, we will announce our May sales results for the 4 weeks ending Sunday, June 2, on Wednesday, June 5, after market close. Also, remember that our fiscal fourth quarter ending September 1, 2024, will have 16 weeks versus the 17 weeks in the fiscal fourth quarter last year. And with that, we will now open it up for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley.

[Simeon Gutman, analyst]

We're going to take a stab at this membership question. The way that we've thought about it is it's an inflation offset to the model. And it was described as if you have enough levers in the middle of the P&L to deliver whatever stated EBIT growth you're trying to do, you didn't need to touch the membership fee. Is that still the way that you look at it? And is that visibility on enough levers still intact?

[Gary Millerchip, executive]

Yes. Thanks, Simeon. And you're talking about a membership fee increase now. Is that -- where you're question [indiscernible]?

[Simeon Gutman, analyst]

Yes.

[Gary Millerchip, executive]

I would really kind of revert back to some of the comments that Richard shared previously. I don't think that we're thinking about it any differently than he's talked about in the last few calls. We've historically looked at increasing the membership fee every 5 years or so. And obviously, we're beyond that time period now in terms of what will be the typical cycle. There's nothing about anything that we see within how the business is performing, that's changing our view on that. We feel really good about membership renewal rates. We feel really good about the test of are we delivering significantly more value to members than we were or have since we last increased the membership fee. But I think we are our own probably toughest competitor and that we look at what's happened in the marketplace over the last few years. And when we were seeing high inflation and the risk and concern around recession, we -- as I know before I joined the company, it was talked about extensively, and it continues to be talked about as it's something that is still a case of when we increase the fee rather than if we increase the fee. But we're still evaluating those considerations to determine what the right timing is. And when we reach that point where we feel it is the right time, of course, we'll be very open and direct and communicating that.

[Simeon Gutman, analyst]

Okay. Fair enough. Can I ask about your opinion on the U.S. expansion. It's been holding in a lot better. It's been more giving than we would have thought several years ago. Do you have any thoughts, just your own perspective, you're probably looking at members per warehouse. Are you surprised at the runway you still have in the U.S.? Do you think it could be even more than what we're aware of today, less? Just curious if there's anything surprising on that item.

[Gary Millerchip, executive]

I think it's only surprising in as much as -- I know we've talked previously about we thought that we would potentially run out of runway for new warehouses in the U.S. And as you know, this year, we're opening close to 29 net new warehouses, and many of those will be continue in the U.S., and we still see significant runway to continue to opening more warehouses in the U.S. in the future. I think that sort of 25 to 30 new warehouse count is a reasonable proxy for what we think the runway is for the foreseeable future for new warehouses. And I'd be surprised if at least half of those weren't in the continue to be in the U.S. because we still see significant growth when we open those new warehouses. And what it's doing for us in filling market is it's creating capacity for our members that are shopping very busy warehouses today, to be able to shop more frequently and drive more engagement with us. And also, it increases membership renewal rates over time as well. So I think we still see plenty of runway in the U.S. to continue to open more warehouses, but we also see a lot of growth opportunity, of course, in the international markets as well.

[Operator]

Our next question comes from the line of Michael Lasser with UBS.

[Michael Lasser, analyst]

There's been a lot of announcements from consumable retailers in recent times about making price investments, do you think you need to make a sizable price investment in the next couple of quarters in order to remain competitive?

[Ron Vachris, executive]

This is Ron Vachris. No, I think that this is part of our everyday DNA. I mean we are competitive on a daily basis. Our buyers are on top of pricing daily, weekly, and we all review them each month. And so we feel very good about where we are today and our runway to continue to be as competitive as we are moving forward.

[Michael Lasser, analyst]

And my follow-up question is, given some of the changes in leadership over the last year or so, is there any thought given to being more aggressive with some of the evolution on the model, things like Buy Online, Pick Up in Store, deploying more technology in the store or capitalizing on the ever so great amount of data that Costco has in the form of trying to monetize it through retail media.

[Ron Vachris, executive]

That's no -- and I think the answer to that is yes on all those fronts. We are working on all those aspects right now. We're rolling out an expanded buy online, pickup in warehouse, that is always going to be limited in scope based on the volume in our warehouses that we have. We can't expand to all categories, but we're expanding as we currently speak, in televisions and other electronic items that are there. And so yes, we see that as a real opportunity for us. Technology is going to be one of our key priorities moving forward. How do we improve that member engagement and the relationship we have with them in our brick-and-mortar warehouses as well as online and through other aspects such as travel and so forth. So technology we see is a great opportunity to enhance the member relationship with Costco and also drive a lot more business for us as well as we move forward. So we're going to continually innovate. I mean with the management changes, I wouldn't expect major changes as we have a proven strategy now. But as we've done for the past 41 years, we continue to innovate to the needs of our members. And then last on data, absolutely. We see a great opportunity for data. We have expanded our group there. We have a significant program now with retail media. And we see some great upside potential. We've expanded that team, and we see some good potential and some good runway for us in that as well. Things like personalization and so forth.

[Operator]

Your next question comes from the line of Chuck Grom with Gordon Haskett. .

[Charles Grom, analyst]

Congrats again, Gary. Historically, Richard and team have been steadfast on the 14% to 15% margin ceiling, which has clearly paid dividends for the company over the years. I'm curious how, you and Ron view, this threshold? Are you going to adhere to it? Do you think you're going to earn more, just your thoughts on the margin front?

[Ron Vachris, executive]

No, that 14%, 15% has been part of our life for many years. And so I think that's -- our objective, our buyers' goals is really how aggressive they can get on pricing and deliver the best value. So I don't see -- there's no plans to move that capital.

[Gary Millerchip, executive]

And Chuck, maybe just one thing to build on that, too. I think as you think about some of the opportunities that Ron mentioned on the earlier call, I completely echo Ron's comment about we have a really clear growth strategy that's obviously delivering momentum in the company today, and these opportunities through technology and media, I think are great opportunities for us to find new ways to unlock value. But again, I think we see those very much in the mindset of how do we give 90% [indiscernible] that back to the members so that we're continuing to drive member engagement, member loyalty and member value.

[Charles Grom, analyst]

Okay. Great. And then just to kind of build up Michael's question. Just wanted to get your high-level thoughts on digital e-com. What do you think Costco's strengths are? Where do you think the weaknesses are today? And where do you think the biggest focus is going to be for the company in the coming years?

[Ron Vachris, executive]

Our biggest strength on digital e-com is, of course, the merchandise and the value that we have. I mean, that's what works for us in our brick-and-mortar. The technology, the systems that we have, the teams have got a great road map of where they're going. A lot of the work that's being done right now is very foundational. So better fulfillment, quicker delivery times reliability of the site, those type of things. So that -- those are the things. And then following that, will come iterative changes of forward-facing improvements that you'll see in the sites and move forward. So I think we've got a very good road map to do that. But I think that does -- I think personalization is a big deal for members that we could do a much better job on and also a better correlation of the warehouse and the online business. We're working towards warehouse inventory online. Some members could use that on the app. But app functionality is one of our greatest opportunities.

[Operator]

Your next question comes from the line of Scott Ciccarelli with Truist Securities.

[Scot Ciccarelli, analyst]

Scott Ciccarelli. So given the strength of your discretionary sales following the level that we've seen with -- as the economy got a little funky, does that suggest your members are starting to feel better and more willing to spend on once rather than needs?

[Ron Vachris, executive]

It does indeed look that way. I've got to tell you that the discretionary spend we're seeing, I mean, we're definitely winning in consumables as we see the food business and dining away from home has softened up a bit and people are hitting and we're seeing that in our fresh foods. But I have to tell you that categories such as the Home division and Toys are categories that have lagged quite a bit post-COVID that with great excitement. I mean, our buyers have come out and delivered some great items at phenomenal values have really rejuvenated those categories. And those are both leading categories for us and sporting goods, toys, furnishings, domestics, all those categories are really coming on very strong now and all of a discretionary nature.

[Scot Ciccarelli, analyst]

Fascinating. And then today, we had a presentation, obviously, Ron, you joined the call. Are there other changes we could potentially expect given some of the C-suite changes?

[Ron Vachris, executive]

I mean, again, like I said, there's no major changes planned. The team is the team that's been running this company for some time. Gary has been a great addition to us and is contributing nicely. But our model is working. It's working around the world. Great value on quality merchandise seems to resonate in every region that we do business. So we'll continue to innovate. We'll continue to see new things and be relative to what our members' needs are. But I can't sit here today and tell you to expect anything -- any great momentous changes in the near future. We just want to convert you to execute well.

[Gary Millerchip, executive]

And Scott, maybe just to add from my perspective of being new to the role and new to the company, early observations for me, obviously, the incredibly impressed with the culture and the strategy is clearly working very well. So my first priority is to really, being new to the company is to, really acclimatize and to support and enable a smooth transition with the culture to make sure the momentum that we have continues going forward.

And I think the other point, as we talked about a little bit earlier on the call is we're on a journey with technology and data. And so hopefully, there's things that I can bring to work with the team and help us continuing on that journey and accelerate that journey. And really, that's the priorities in my mind being new into the CFO, Rob.

[Operator]

Your next question comes from the line of Kelly Bania with BMO Capital Markets.

[Kelly Bania, analyst]

Ron and Gary, pleasure to have you both on the call, and love the slides. I wanted to just maybe go back a little bit to retail media strategy and personalization. I think, Ron, you noted higher or maybe some key hires in that department. And Gary, I think you bring a unique perspective to this area or both of these areas. So I guess -- just can you help size up the opportunity for us on these 2 fronts in Retail Media and personalization? Is it at all different than a typical retailer because of Costco's unique model and SKU count or anything along those lines? And I guess, would that would your plans in these areas include any increase in technology spend in coming years?

[Gary Millerchip, executive]

Sure. Thanks, Kelly. Yes, I'll go first, and then Ron may want to add some color as well. I think many of your comments are relevant to how we think about the opportunity from -- the first thing, I guess, I would say is, being new and having joined the company is, as you think about where a lot of companies talk about alternative profit streams, there are a lot of areas today where Costco is doing great things in that area today. So using the strength of the membership relationship in driving a very large co-brand payment program that delivers value to members and delivers values to the company. The Travel Services business that we have, which is pretty unique in retail. But I think in any other company will be viewed as a way of generating new revenue and alternative revenue streams from sort of expanding from that overall retail relationship. And then thirdly, I would say we have media revenue today in areas of the business. So it's not as though it isn't something that actually the business is delivering on today. But I think as Ron mentioned in an earlier comment that as technology and data are something that we're sort of building a path towards. I would still say there's significant opportunity for us to grow in that space because of the unique nature of the relationship we have with our members and the ways in which we can deliver value for them and tap into that that data and tap into the growth that we're creating both in the warehouse and through digital channels. I think it's a little bit early to sort of size it in totality because, you're right, there are also some unique elements about our model that would make our opportunity a little bit different. But from what we know today and from the team that's been brought in to help the company think through it, we certainly believe it's got significant runway to drive a lot of growth for the company. And as I mentioned earlier though, I would definitely think of it as something that we'll look at to as we do with everything, reinvest in the member to really accelerate the growth of the company overall.

[Ron Vachris, executive]

I would have to mirror what Gary says. We are -- we do have a unique model. We have a relationship with all of our members. Our responsibility is use that data wisely and respectfully. As far as IT spend, yes, there will be some IT spend. We don't see -- as we look in the future, we don't see that to be anything that will really change our trajectory of our CapEx investments. But there will be some IT requirements, but we feel -- so that will be in the normal course of business.

[Operator]

Your next question comes from the line of John Heinbockel with Guggenheim Securities.

[John Heinbockel, analyst]

I want to go back to personalization again. Where do you think just conceptually the biggest opportunities are, right? When you think about wallet share, every one of your members is going to be a little different but you can probably do cohorts. Where are they not buying from you and why personalized promotions outreach on new items coming into the warehouse. I mean where do you think that the biggest opportunities are to build further wallet share?

[Gary Millerchip, executive]

John, I'll go ahead and start out. I think the biggest opportunity is just like you said, the awareness of the warehouse and keeping our members in tune on what's active -- going on in the warehouse near them and how we can continue to enhance and drive those sales. I think that that's probably our greatest opportunity with digital as we see moving forward. Personalization is good. We talk here a lot about a fair reasonable amount of personalization. We never want to compromise the treasure hunt of Costco. And that's equally as important as people that go to costco.com never knew that they needed a 16-foot shed. And they see a phenomenal value as they do in the warehouse. And so we don't want to personalize to a detriment that changes our DNA and who we are. But we do know that there's definitely some improvements we could have that would enhance the member experience. And that's everything that our team is focused on is that how does this move to the member? And how does it improve their experience with us digitally.

[John Heinbockel, analyst]

Okay. Maybe -- and then as a follow-up, Gary, you talked a little bit about the core on core -- but maybe step back a little bit if you -- and I know the idea is not necessarily to maximize margin. But maybe some thoughts core-on-core this quarter. And I know I think there had been pressure on fresh right, as you kind of normalize post COVID back to a regular level. Are we now through that process of fresh getting back down to a certain level?

[Ron Vachris, executive]

Yes. Thanks, John. Just maybe to give you a little bit more color on the core on core, how it kind of looked played out during the quarter. So if you think about the 3 main categories in core between foods and sundries, fresh and nonfoods. Fresh would have continued to be slightly lower year-over-year, and that's a very deliberate strategy for us to make sure we're delivering more value for the member. And we think that's a really important place for us to drive member engagement and support, especially as we're still seeing some commodities that are a little bit inflationary right now. So that would have been very much part of the plan from our perspective. But it was more than offset, as you mentioned, by the improvement in nonfoods during the quarter, which was what led to the 10 basis point improvement on core on call. Food and sundry actually was pretty flat overall. So -- we feel good about the way that we're managing the balance while staying true to that principle of delivering the best value for the member. And we were pleased with how it played out during the quarter based on the work all the merchandising teams did.

[Operator]

Your next question comes from the line of Peter Benedict with Baird.

[Peter Benedict, analyst]

Ron, maybe one for you. Just kind of back to the member behavior, maybe back to Scott's question a little bit. Can you just talk about maybe just your observations around maybe income cohorts. Any other ways you bucket or slice your membership base, just how the behaviors have evolved here over the last several months. Is there any change that you think is interesting to call out? You talked about the better general nonfood trends. Just curious if this environment reminds you of anything else historically? That's my first question.

[Ron Vachris, executive]

Okay. It's a very healthy environment from what we see from our members right now. And as you take a category such as our meat department, which is growing very nicely, a lot of volume being driven in ground beef and our new everyday lower price on boneless skinless chicken breast, really driving a lot of volume units there. While wagyu beef and Prime are growing at a great fit for us as well. So we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well. The nonfood -- I tell you that nonfood is strictly driven by newness and excitement. And we see big and bulky going very well. It's been a year of our $1,200 swing set that we have on the floor. We can't get enough. They're just blowing out. But it's, again, that continuous innovation of merchandise that is exciting our members and really driving some sales force there. Executive membership continues [indiscernible] and that drives our executive base and because people are engaging at a much higher level.

[Peter Benedict, analyst]

Good. So it sounds good across the board. We're expecting a dryer to get delivered from Costco Logistics on -- in the next couple of days. So looking forward to that. And then the second question would be on, Ron or Gary, either of you, just -- just your view on vertical sourcing. I mean, this has been something that Costco has been evolved for several years going across different categories as you guys continue to grow your business, you need more, I guess, definable sources of supply. Just curious your view of vertical sourcing where you are today and what areas you might focus on over the next several years?

[Ron Vachris, executive]

Sure. We've gotten into vertical integration and sourcing as the need arises. And if you think back in the infamous story about the hot dog and coke at $1.50 and how are you going to figure out how to keep that price there. Well, we're going to open our own meat plants. And as we look at the prices of optical lenses going up and then we opened up our optical grinding plant. So we did that to continue to look at those things. The chicken plant came because we saw an inflection point where supply was not going to meet demand. So we had to get involved and because we didn't have a partner that was willing to expand into that area as well.

There is a focus that I have, a group focused on too, is that let's not try and be everything, no. Let's -- we've got a business to run here and we're not going to get vertically integrated just because it's something we can do. It really is going to be driven by where the needs are and what do you need to step in. It's equally -- we have great partners out there that supply are good for us, and they're long-term suppliers. And so it's strategically using that relationship is going to be the key in the future. So there's nothing that I could announce at this time that we're going to expand into. But we continue to keep that in our back pocket should we need to.

[Operator]

Your next question comes from the line of Paul Lejuez with Citigroup.

[Brandon Cheatham, analyst]

This is Brandon Cheatham on for Paul. Recently, you were selling Instacart gift cards at a discount online and in warehouse, thought that was pretty interesting because it's potentially a gift card that could be used as a competitor as well. So I'm just curious, is there any strategy behind that? Are you trying to drive member engagement online [indiscernible] any learnings from that initiative?

[Ron Vachris, executive]

The strategy behind it was another avenue to bring value to our members is really what that was about, is that there is an up charge on having grocery delivered to home. We work closely with Instacart. Now we will Uber to try and keep those costs at a minimum, but they've got people to pay on their side as well. So the partnership was really to how do we continue to enhance that service for our members and drive more sales. And so that was truly the -- yes, somebody can go out and use that somewhere else, -- but again, our job is to save the members where we can and be it airline tickets or Uber drive tickets or Instacart shopping. We look at all those opportunities to add value to the member.

[Brandon Cheatham, analyst]

Got it. And my follow-up, how do you warehouses react when you open into warehouse. Does it open differently than other new markets, the current market feel an impact? And how many warehouses that you opened over the past year, would you quantify in-store versus new markets?

[Ron Vachris, executive]

I guess how they react -- we normally have good data before we'll open up an infill building, and we can judge based on our member information what cannibalization will realize and what building. So we're able to get in front of that and adjust labor and payroll and buying and all those type of things for the upcoming cannibalization that we plan. And our team does a very good job. They're normally within 1% or so of what reality is to the execution of where our plans are as well. So we've gotten pretty good at planning those things out. And it's strategic and the number of cannibalized locations, I'd have to tell you, I'd have to say that we probably open 8 this year that cannibalize other buildings. Some may have cannibalized one warehouse. Others may be in the middle. We had one in Toronto that cannibalized 4 buildings around it, but they've built back their sales within 6 months. So those are the opportunities where you know to, Gary's earlier point, frequency improves significantly because members can get back into a high-volume club. And so it's strategic cannibalization, if you would, as we look around the world.

[Operator]

Your next question comes from the line of Greg Melich with Evercore ISI.

[Gregory Melich, analyst]

Ron, I wanted to follow up on the gross margin gap still very much in place at 14%, 15%. Is there any reason that SG&A, now that it's back under 9% of sales, couldn't fall to 8 if you keep having the growth that you have?

[Ron Vachris, executive]

No, that's fair -- that's a very good point. No, we continue to see -- I mean the company -- we had a very healthy SG&A number this quarter. Inventory was flowing very well. We had fresh goods coming through the system. Our warehouses did a phenomenal job. SKU counts are in line. And so it's one of those things where all the stars aligned and this is the way we operate well when you can deliver that kind of a top line growth at our size now, our operators do a tremendous job leveraging that to the SG&A. So what could that get to? I'd hate to say 8%, but I do think that we can have continued runway of driving down that number.

[Gregory Melich, analyst]

That's great to hear. And on maybe some insight on gas gallons in the quarter. I know it was volatile and there's certainly a point of pressure for a lot of members and consumers. Did that help the traffic acceleration in the quarter, gas gallon growth?

[Ron Vachris, executive]

Yes. We were 5% up in gallons. And again, that's -- I think all of those things, when you can save people on gas, that's also going to lend to your traffic as well. But gallons were up 5% for the quarter.

[Gregory Melich, analyst]

Great number. And a follow-up on gas. Is that still -- there was a profitability in gas, Gary, kind of similar versus a year ago or last quarter? Or is that trending up or down?

[Gary Millerchip, executive]

Yes, the gas profitability would have been down a little bit. I think you may have heard me mention in the prepared comments that, when we looked at the overall gross margin rate for the quarter, the sort of headwind that we had was in the ancillary businesses, the other businesses, and it was essentially gas that created that headwind. So we did see a reduction in gas profitability during the quarter. But overall, the core-on-core margin improvement and e-commerce improvement, essentially offset that to bring us pretty close to flat overall when you adjust for gas inflation in the results. So it was down. I would say, in general, we've seen on gas profitability. It's been relatively consistent to slightly improving, if you look over the last few years. But obviously, there are points in time when you think about volatility in fuel prices where you can have those ups and downs in any given quarter. And that was -- this last quarter was one where we did see a headwind in year-over-year gas profitability.

[Gregory Melich, analyst]

And I'll let somebody else ask about how much gold bowling drove the comp.

[Operator]

Your next question comes from the line of Rupesh Parikh with Oppenheimer.

[Rupesh Parikh, analyst]

So just going back to unit growth. In recent years, it's been stuck in -- let's call that mid-20s, it looks like this year will be closer to 30. Just want to get a sense of the opportunity to potentially accelerate that unit growth, especially in the U.S., just given some of your competitors are planning to accelerate growth from here?

[Ron Vachris, executive]

It is a good [indiscernible]. When you look at -- I talked before about managed cannibalization and when you do these infills and 29 locations is a solid number for us. As you start getting into infills, some of these projects take a little longer. It's a little tougher than there's not a whole lot of green land out there for us to go in and open up a warehouse. So we have to do some creative things to find a way to infill in a very high market. International expansion continues to be strong. Some of the countries or regions that we do business in, take quite a bit longer to get things done. So I think you'll see that ebb and flow. That number 25 to 29 is -- 25 to 30, is a good number for us. We feel good with our staffing and leadership and building up the infrastructure behind these warehouses. So we open with great solid support there.

[Rupesh Parikh, analyst]

And then maybe just one follow-up question. So as you guys added Uber to a number of locations. So as you guys think about the intermediate to longer term, like would you expect multiple providers at all Costco U.S. stores over time? So maybe just more the rationale in terms of adding Uber to longer-term vision?

[Ron Vachris, executive]

We saw -- we were testing Uber for some time in Texas. We had a test going on there, and we did see a new cohort of members engagement that are in the Uber platform. Uber also allowed us to expand our international footprint, too. So we're going to be out in Japan, Korea, Taiwan, U.K. that will be expanding and where we don't have grocery delivery now. So there were some real benefits to that relationship, along with the long-standing Instacart relationship that we had has been very good for many years. So we think that it does open up the window for us for some new member engagement, and we also think that it's going to be very good for us internationally and expansion there as well.

[Operator]

Your next question comes from the line of Christopher Horvers with JPMorgan.

[Unknown Analyst]

It's Christian [indiscernible] on for Chris. Could you speak to some of the innovation you're seeing in non-foods and anything else you think is driving some of the performance, particularly in the discretionary categories. You called out toys, sporting goods and homes. So maybe any incremental color you can provide on those in particular. And while you're clearly gaining share, when you compare your own performance of some of the syndicated data out there, does the emerging newness suggest there's also somewhat of a rising tide in some of these categories that saw some pull forward over the pandemic?

[Ron Vachris, executive]

Well, yes, I think if you look at -- you talk about the home category and definitely is furnishings, which is one that was quite soft post pandemic that has come back strong in furniture, those type of things. When home decor -- it's been some very unique items. I mean we've got 7-foot artificial trees that have come in and just exploded out and just blowing out of the warehouses and those are going at a nice clip. Domestic -- most unique items, Swedish dish towels, import items we're finding from around the world, are doing very well. But it really comes down to unique items at great values that are exciting the members in all those categories. The Housewares categories have been great. Sporting goods and toys, inflatable outdoor toys have been a big, big category for us as well. We've added the Kirkland Signature driver into our golf lineup, that sells out as quick as it goes online. So we're seeing wins in several different categories.

[Unknown Analyst]

Got it. That's really helpful. And just broadly, are you seeing the competitive environment heat up in terms of peers investing in price, particularly in nonfood. You have some peers talking more and more about looking to drive units, others are talking about a big step-up in appliance promotions recently. So any color on what you're seeing competitively?

[Ron Vachris, executive]

There'll be ebbs and flows with the competition, but I'm very confident that we are always in the right position, and we're staying ahead of that to keep the value there for our members. So those things are cyclical but we're going to be a value every day.

[Gary Millerchip, executive]

And I think maybe just one thing to mention on that, Ron, you mentioned it earlier, but with -- on the appliances, obviously, making sure we're always very competitive on price, but I do think the the acquisition of Innovel Costco Logistics now and the value that we offer members there through both including the delivery and the insulation and the removal of the old appliance is proving to be a real differentiator for us on the member experience as well.

[Operator]

Your next question comes from the line of Scott Mushkin with R5 Capital.

[Scott Mushkin, analyst]

And Gary, welcome, it's nice to be talking to you at Costco. So my first question is kind of the opposite of what everyone asks all the time around the fee, but given some of the stuff you've outlined around media and maybe driving the SG&A down, why do you need to increase the fee? Your sales are strong, your fee income growth is strong. So what -- just because you've always done it, doesn't mean you should do it. So what would be the rationale behind driving a fee increase at this point?

[Gary Millerchip, executive]

Fee increases go back to the members in lower prices. I mean that's -- it creates -- I mean -- and that's one of the key parts that we use that money for is that, it allows us to broaden that distance from the competition and bring greater values and improving our operation overall for the member. So that's the primary focus.

[Scott Mushkin, analyst]

Okay. And then my next question actually is kind of dovetails on the last one, but you guys talked about the consumer being a little bit better overall. And I guess what I was wondering, is that really a Costco phenomenon? In other words, are you gaining share, and that's what's really driving your improvements in some of these categories like electronics and appliances and big ticket, rather than the consumer actually getting better. Is there any way to tease that out?

[Ron Vachris, executive]

I would say that that's very fair. We -- our merchants report monthly on industry trends in the country and internationally as we're seeing and we can see our sales performance compared to the rest of the market. And I would think that you're spot on when you say that we're gaining market share.

[Gary Millerchip, executive]

Scott, maybe one thing I would just add to is, I think we're all reading a lot about the consumer, of course, and what they're going through right now. And I think what we see is that value and quality has never been more important. And so that plays to, as Ron described earlier, what we deliver, and we're making sure that the teams are laser-focused on every day delivering that value and quality. And so I think we're drawing customers to what Costco offer for many years, and it's never more relevant than now based on what we're hearing from members and consumers.

[Scott Mushkin, analyst]

Yes, we definitely like our Costco here at the Mushkin residence.

[Operator]

Your next question comes from the line of Edward Kelly with Wells Fargo.

[Edward Kelly, analyst]

I would like to ask you about maybe membership fee increase but in a different way. And you just touched upon it a little bit about membership fee increase, right, just gets reinvested to your members. But can you talk a little bit more about how you think about the areas of reinvestment? I'm sure you probably have already done a lot of work around like where you would like that to go. Is there anything that's unique about where reinvestment might come to this time around, just thoughts around that?

[Ron Vachris, executive]

It moves as time moves and you see pricing in categories and where we have the greatest opportunity to be more competitive for our members. And it may be in an area that fresh foods is seeing some price inflation, we may invest more in the fresh foods department for that that period of time. The nice part about our model with 3,600, 3,700 SKUs is we're still quite nimble as big as we are. So we can shift and based on the needs of our members and where we think the best investment in margin would take care of them, we're able to shift that thought process and move it around. So I wouldn't say that there's any set okay, if membership fee goes up, it's going to be spent in these areas. We work as a team and we continue to monitor it throughout the year, and we act as needed.

[Edward Kelly, analyst]

Okay. And just a quick follow-up on club throughput. It's remarkable how you drive off to a Costco Club and it's hard to find a place to park but yet you guys can still comp the way that you do. How are you thinking about throughput ways to improve that? And I don't know both buy online pickup is part of that. How do you think of things like scanning to or maybe it's club density. Just curious as to how you solve for that over time.

[Ron Vachris, executive]

The part -- a good part of those are things like our e-commerce business and how we can move out some of those goods out of the warehouse and move that business online. And as Gary spoke to, now that we have control over Costco Logistics, we can bring great value to that experience as well. We continue to look at technology. We're testing some front door scanners that are going to start speeding up our registers significantly when we get all the scanning and memberships are verified at the front door, it has shown a significant improvement in our register speed. And so that turns over parking space is much quicker. And so those kind of things, along with strategic infills to help open up parking opportunities and gas expansions where those are needed as well. So there are several different levers that we'll continue to pull on how we can best serve the member in that building and where we need to make sure that we can look at throughput.

[Operator]

Your next question comes from the line of Oliver Chen with TD Cowen.

[Oliver Chen, analyst]

Ron and Gary, you've done some really creative merchandising around UPTs and units per transaction with pickup items and innovation on that treasure hunt. What are your thoughts there? Also a big ticket in electronics previously, previously, it was a bit of a drag. Just would love your thoughts on on what you're seeing there? And third part is marketplace, the marketplace model and the concession model and alternative inventory models. Just what are your views of opportunities there because they're really big ones and your member is still loyal to you as well.

[Ron Vachris, executive]

On your UPT, you were asking about the transaction impact?

[Oliver Chen, analyst]

And thinking strategically about adding units to people's baskets going forward and merchandising in that way as well if it's something you see in terms of an opportunity?

[Ron Vachris, executive]

Absolutely. We -- that's one of the big -- we were just in a session with our grocery divisions and talking there, and we've seen a great success in international foods that have been brought into the U.S. And then of the like from the U.S. into the other regions of the world where we do business. But you want to take care of not only the consumables in the grocery side. But when we bring in an item that's a success in Taiwan or Korea or the U.K., and it creates that excitement for the member that's when we really have done a good job of triggering that impulsive purchase, where members are trusting the buyers, and they will add that additional item to their cart. So that's been a big win for us. And again, it goes a lot of times with that treasure hunt. I mean you've heard with [indiscernible] people come in to spend $100 and walk out with $300. That's because our buyers do and our operators do a great job in making the warehouses exciting and keeping those on the forefront of what they're -- when they come in and do their basic shopping, they pick up a few additional items that just compel them at the time.

[Gary Millerchip, executive]

I think maybe just to add on that, Ron. I mean the nice thing about the opportunity there for us is with trips up by 5%, that's really why the average basket size has been more flat recently, and that's because we've been growing member engagement in consumables, as Ron mentioned, with food and fresh. And so it does present a great opportunity, and I think it also speaks to the team doing a good job of driving more frequency of member visits. So it creates a great opportunity for us to drive more of that basket size as well.

[Ron Vachris, executive]

And then your question on marketplace is a significant opportunity for us moving forward. I mean we really do indeed see that, I think, especially with our limited SKU count in the warehouse, how can we expand the offering to our members, bring value to their membership card beyond what's within our 4 walls or what's on costco.com. And we see this as a great growth driver for us in the future and a way to bring expanded value to the members as we look forward. So I'm quite bullish on Costco Next and what that can become in the future.

[Gary Millerchip, executive]

I think the difference for us on that would be, of course, as we are with Costco Next is just being very curated for the members. So we're unlike a traditional marketplace that is about maybe just sheer volume for us, it's about making sure the member is getting something that truly is unique and valuable and being consistent with who we are. But there's tremendous upside opportunity there in that regard.

[Oliver Chen, analyst]

Okay. And finally, on that big ticket question above any green shoots on electronics or TVs. And the last question on Asia. You had same day in China, and you've done a lot of great things in the Asian region. Just would love any update there in terms of progress you made and the big opportunity for more infills as well.

[Ron Vachris, executive]

Yes. I think just briefly on electronics. So we believe -- I think Ron referenced earlier, we look at a lot of the market data, and we believe that we're winning with the member there in terms of the value that we're delivering. And when we look at our trends versus the market, so we feel good about our ability to continue to outpace the market there, and we're seeing a good opportunity within digital, in particular, to really drive more connection with the member and take some of those big ticket items from the warehouse to online as well. And in Asia, I think, it would be consistent with what we've talked about with warehouses in the past that we think all of the markets offer us a great opportunity for growth. Some of those markets in Asia are more mature, but there's still significant opportunities to open new warehouses and fill in those markets. And then, obviously, we have markets like China, where we're really just sort of starting that journey, but there's tremendous growth opportunity as we identify the right path forward in that market.

[Gary Millerchip, executive]

The grocery delivery in China, we're up and going in 6 buildings. We just opened our seventh warehouse this week. That will start up this weekend. It's been a big win for our members. It's delivery within 2 hours is what is able to be done. And so we're seeing some good incremental shops initially out of that program, and we look forward to good things in the future on that.

[Operator]

Our final question comes from Joe Feldman with Tesley Advisory Group.

[Joseph Feldman, analyst]

A lot have been asked, but I did want to ask, with Costco Logistics, what was driving that 28% increase, which is very strong? Was it new relationships with some of the other retailers or partnerships or -- just anything you could share on that would be helpful.

[Ron Vachris, executive]

Yes. That is the -- that is only -- they have only deliver Costco members orders through Costco Logistics. There are no partnerships going through those numbers that you see. We do a trace amount of [indiscernible] numbers, but that's not in any of the numbers that we report the growth in. That is just part of the past relationship that's there as well. And it is appliances, furnishings and outdoor, were the 3 big drivers. Appliances were almost 30% growth for us in the period.

And again, to Gary's point, it's that member value of the all-in, what you see is what you pay price for delivery installation, [indiscernible], everything you need done at one time that has really resonated with our members and has been a great driver of sales force.

[Gary Millerchip, executive]

I'll give you a practical example as a new entrant to the Seattle market. I just had Costco Logistics deliver 2 mattresses, 3 TVs and a couple of chairs as well for me. So that's the kind of stuff I think that we're seeing really resonate with members.

[Joseph Feldman, analyst]

And then just one other question. I know it's still relatively small, I think. But the Costco Next, is that sort of -- it seems like it's ramping nicely. I guess, how will that continue to ramp in the future? Like where do you see that going? And how important is that a driver? Like is that sort of the basis for this marketplace that Oliver was just asking about?

[Ron Vachris, executive]

As Gary mentioned earlier, Costco Next is a bit unique, but it is a fully curated marketplace as there's many other marketplaces out there that are just for somebody to go on and sell goods in this marketplace. These are relationships that our buyers have with our suppliers, and we're creating new suppliers as well.

This has not only been a new way to sell goods. We've also found that we can find some really neat items that are selling through Costco Next that we in turn then bring into our warehouse. So it is a great testing ground for newness, new items, a way to expand categories of accessories for certain categories that you have swing sets that we sell online, but you have additional swings and slides and other activities that you sell that we normally wouldn't be able to fit into a warehouse. So it really complements the core warehouse business, but gives us an opportunity to expand member value to these other partners as well. So we see a lot of upside there.

[Operator]

We have no further questions in our queue. And with that, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.