Ladies and gentlemen, thank you for standing by and welcome to the Q2 Earnings Call and February Sales Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Mr. Richard Galanti, CFO. Thank you. Please go ahead.

Thank you, Rochelle, and good morning to everyone -- good afternoon to everyone. 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. In today's press release, we reported operating results for the second quarter of fiscal 2020, the 12 weeks ended this past February 16, as well as February retail sales results for the four weeks ended this past Sunday, March 1. Reported net income for the quarter came in at $931 million or $2.10 per share. This compared to last year's second quarter of $889 million or $2.01 per share. Net sales for the quarter came in at $38.26 billion, a 10.5% increase over the $34.63 billion realized last year in the quarter. Comparable sales for the second quarter were as follows: in the U.S., for the 12 weeks on a reported basis 9.1%, excluding gas inflation and the impacts of FX 8.1%; Canada, on a reported basis, 8.9%, ex-gas and FX, 6.8%; other international, 7.9% reported and 7.1% ex-gas and FX. For the total company a reported 8.9% same-store sales increase and ex-gas and FX of 7.9%. Both of those numbers were positively impacted as well by approximately 0.5%, due to the Thanksgiving holidays occurring one week later this…

All right. Thank you. [Operator Instructions] Your first question comes from the line Simeon Gutman from Morgan Stanley. Your line is open.

Hey, Richard. Can you hear me okay?

Yes. Yeah.

Okay. Good. Thank you. First question is on the gross margin. I think if we take the core-on-core down 15% and you get rid of the chicken production costs, you're down 9%. Did you say within that? What the e-commerce mix shift is? And how that compares to prior quarters up to the prior run rate?

We weren't that specific, but a lot of it has to do with the fact that, that one -- particularly, that one week, where it's so important to e-commerce on promotional items, for Black Friday, Cyber Monday, the weekend, the three days leading up to Thanksgiving, so you do have some lower-margin -- you have some lower-margin categories in there to start with, as well as, we do a lot more promotional stuff, as most retailers do, with that week of Thanksgiving.

Okay. So this was a little bit unusual, given the timing and given just the fourth quarter, or the holiday period was in that number?

And I want to stand corrected, there's a couple of people here just correct me. The e-com numbers are not in the core-on-core. So that would be outside of that.

Got it. Okay.

But it's still the strength in majors.

Right. Okay. Got it. But broadly speaking, the greater mix of e-com, Richard, is going to depress -- well, you're saying it's not in that number, but it's unfavorable to gross margin broadly, though, is that fair? And is that because of the mix of products that are being bought or because of the discounts or the markup that you're putting on those items.

It's both. I mean, as we try to build new categories over the last year or so like apparel, we're giving some hot deals out there. If you buy one shirt, it's X if you buy two; it's a little less for delivery or whatever else. So, we're driving that business. And again we've talked about -- yes, but the big thing is electronics. Electronics tends to be a low-margin business not only TVs, but all the computer and phone things.

Got it. Okay. My follow-up is on just overall reinvestment, right? Your business is growing at a really high level, high single-digit comps. I'm not sure if you planned for that level and the core-on-core, in general, is doing relatively well. It's not down 20 or 30. And I guess the SG&A that you're spending seems somewhat in line. But I assume you're not flowing through all the leverage that's coming through this model. And so my question is where are you finding places to reinvest. Again it doesn't seem like the core-on-core is getting -- is going down enough to suggest you're putting it back in price. Are you finding other places to spend in SG&A?

Well I'd argue that we are putting a lot of it back in price. Keep in mind of all the buckets we talked about historically from the membership fee income to the tax reform to the changing credit card, those things keep growing and it allows us to be competitive. And when we see strong sales, I think it encourages us to do more of that. And the other thing is I'm not going to go through 10 different things, but there's lots of things. We're very busy. It's not just the five basis points I mentioned in IT. We got a lot going on with the e-com fulfillment, with the chicken complex which I mentioned, there's a lot -- with the CCPA. These are small things but each of these are various numbers of basis points. CCPA is the privacy -- California Privacy Act. We don't point it out because I'm sure there's something that goes the other way sometimes. But at the end of the day, there's a lot of things going on and we feel pretty good about where our expenses are, in other words, we're going to try to improve them.

Okay. Thank you.

Your next question comes from the line of Gregory Melich from Evercore ISI. Your line is open.

Hi, thanks. Richard two things I wanted to follow-up. One is on the membership fee income could you give us what that is in constant currency. And also if you're seeing any membership sign-ups in Flex like the way sales and traffic have in the last couple of weeks?

Its $2 million, is it? $2 million? It's $2 million even with FX.

Once we adjust for that. Got it. And then on the sign-ups, have you seen any change there in the rate of sign ups?

I honestly don't know. I know even a few people -- I mean the shopping frequency is off the charts for the last few days. And you see it on social media with people sending in pictures. So, I've got to believe there's been a little bit of it but not enough to move the needle.

Got it. And then secondly was just on gasoline. What -- did you have the average selling price this quarter? And if you have any sort of trends on the gallons would be great as well.

I don't have it in front of me. I know that there was -- gas was inflationary, correct? I think -- in Q2, it was 7.9% inflationary.

Inflationary. And that's the average selling price per gallon versus a year ago?

Yes. $2.75 versus $2.55.

Got it. And then last I'll sneak in things. I know its coming. The balance sheet, very strong, more volatile markets, how should we think about buyback capital structure in the current rate environment and environment of the world?

Well, every banker calls us every day to let us know that rates are even lower today time to borrow. But, no, look we continue to look at it. We talked about it in every Board meeting and all I can tell you is stay tuned.

All right. Thanks. Good luck guys.

Your next question comes from the line of Chris Horvers from JPMorgan. Your line is open.

Thanks. Good evening. So a few follow-ups. First on March, I mean you are limiting some of those high-volume items. It does look like you've got some pretty low in stocks out there. Do you see the potential for comp risk later this month?

Well, we don't know. People have asked us what happens when people have been bulking up on certain items. And, yes, there's out of stocks every day too. But overall the numbers are incredible because there's so many people coming in. And they're buying other stuff as well. So I don't know what tomorrow brings. When asked the question, are the people then go through this additional purchasing of water and shelf-stable food items and everything, I guess it depends. Are some of them putting it in their basements for another day, some of it related to the fact that people aren't eating out as much. I think it's a combination of those factors. All we know is that last week starting Tuesday or Wednesday, which is when a lot of the news went even -- went -- in the U.S. went even further we had a huge pickup in traffic, which continued over the weekend and increased, and increased the first few days of this even further in the first few days of this month -- this week. And so we'll see what tomorrow brings. And again on the supply side, there is clearly not just -- at Costco and other places you really can't go in and generally find sanitizing items and what have you. And while we're getting shipments daily somewhere in the U.S. whatever limited amounts we get or allocated is gone pretty quickly. And I would assume that over the next few weeks or several weeks that will abate. But it depends what else happens with the virus itself.

Yeah. I was at a store on Saturday. I've never -- right after they open. I've never seen a line that all the way back to dairy. The -- my follow-up question is this might be hard to parse out, but I think the big question on investors' minds is how the consumer is going to behave. Obviously you have the pantry load, but you also sell a lot of general merchandise, you also sell a lot of big ticket. So were you able to tease out if you're seeing any pullback relative to trend in the past week or so in some of the more discretionary and larger ticket categories?

Yeah. What's interesting, I'm just looking at some hand-written notes from our -- I spoke to our senior buyers yesterday. You would think things like patio furniture would be impacted because it's a big ticket discretionary items. The comment was we're selling it extremely well. Now part of that is we've got a bunch more people coming in, so maybe per customer -- the purchase per customer is down a little but there's a lot more customers. And so -- and -- what else lawn and garden is doing well. The buyers' view is that's more weather related in certain markets. There has been some impact in -- excuse me?

Did you say TV? Were you going to say TV?

No lawn and garden are weather related. And then in some electronics items, while some are strong, there's others like some laptops and some phones where there's been some supply chain issues. But I would say, overall the initial thought -- my initial thought is that, big-ticket discretionary items might be negatively impacted right now. To the extent they are, it's been more than offset at least in these last several days by the influx of shopping frequency. I don't know what that means for tomorrow we'll have to see.

Understood and super helpful. And I'm sure all the media outlets are picking this a lot. My other question, two quick ones; one is, have you expanded the number of SKUs in the MVM. It seems to have picked up over the past couple of months, but wanted to get your thoughts there? And then lastly it looks like you have a new grocery delivery option in the app and on your website sort of an extended delivery option, not the 2-day and not the same day. So sort of what's been the strategy there? And is that new? Or just a repackaging of something you already have?

Generally there's been no change in MVM items. I mean if it's up a little or down a little I think that's random not planned. And as it relates to shipping at least the people in the room with me here are not aware of that. Was it?

Okay. It must be just a repackaging of something that you already have. Yes. Okay, thanks very much. Best of luck.

Sure. Thank you.

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

This is actually John Parke on for Chuck. Can you guys provide a little bit of an update on the performance of same-day and Costco 2-day and how that's impacting kind of total spend from these customers that are utilizing it?

It's still relatively new for us over the last year. Overall in -- my knowledge of this is a couple of months old. It's a slight improvement. The concern of course is as they buy more having delivered in one day and two day and then they come in less frequently. But how less frequently and they are coming in a little less regularly but the sum of the two still is fine. Again it's too early to tell in our view just fine continue? Or does it change a little bit. We're still -- but keep in mind also, we continue to do a lot of things consciously even through e-mails to get you come back in the location with certain promotional things that are in-store only.

Got it. And then I guess, just going back to the coronavirus. I mean, is there any way to kind of indicate whether the margin on these sales are materially different than your traditional shop?

Food sundries overall is -- yes, it's about in line, I would say, on the company averages.

All right. Thank you.

Our next question comes from the line of Karen Short from Barclays. Your line is open.

Thank you so much. A couple of questions, you -- Richard, you commented on the fresh gross margin decline. And I'm wondering if you could just give a little bit of color on that, and that's obviously excluding the poultry. You kind of called that a step-up in price investments?

Yes. We're just -- I mean, at the end of the day, our heart is we're merchants, and we try to drive business. And fresh is an area that also is a frequency driver. So it's more -- my comment is more anecdotal than some new change in strategy.

But not necessarily -- also comment on the competitive landscape.

No that is – the increased level of competition that I've talked about that goes back a year and a half plus ago. And that hasn't changed.

Okay. And then can you just maybe clarify a little bit on the – I guess the true-up of the breakage estimates.

Well, I mean at the end of the day it's a small amount of basis points. When we issue a significant amount – you can kind of back into the number yourself of what percentage of our sales are the 2% reward. And we send out those certificates and there's always going to be some slippage. Notwithstanding the fact that, we send out reminders to our members that you haven't cashed this. At the end of the day we tend to be – we do our best guess to accrue for slippage. And I'd like to think that we tend to be a little conservative. And therefore when there's a review it picks up the other way. But at the end of the day we – accounting rules say, you do your best guess of what it should be. And then when you re-review it you adjust that.

Okay. And then I just want to switch gears to the Shanghai store and I think you said you you'll be opening a second one soon. But maybe any thoughts on what you think the actual annual volumes could and will settle out at for that store? And then any update on the number of members at that store since the last call. And then I mean, I ask it in the context that to the extent that China is an opportunity, it's not so much about the units. It's actually about the volume per unit.

Right. Well, it's hard to say because this one is so off the charts. I mean, again the last few weeks – the last several weeks with some limitations on number of members for some of that period of time, it's changed a little bit. But I mean that was either a top or second largest location in our company for the several weeks leading up to that. And the number of members is again off the charts. Nearly five times the company.

Okay. And but would we take that same number and apply that to the total revenue for that box? Or how should we think about that?

No, no, no. Because given the population of Shanghai and the fact that this thing went throughout social media and it was very popular over there. You have a somewhat higher renewal rate, we don't know yet because we opened it in August. But we know from other countries – I'm sorry, lower – lower rental rate. And no and you can't just simply multiply that out. But our – but the unit overall is again either number one or two, up until the last few weeks with what's going on over there with coronavirus was one of our top two units.

Okay. And then just last question for me. I don't think I've asked this for a while but do you have any – are you willing to give an update on what you think or what the – where the average ticket is in the U.S. of an executive member today versus just the basic membership and how that's trended in the last several years? Because it does seem like the momentum is really continuing to increase in terms of your share gains?

Yes. Look, we don't disclose that but more executive members and more penetration of executive members is good. More members who have the – in the case of the United States, the co-brand credit card is good. And if they have both in the executive and that it's even better. All those things I think are – help our sales growth.

Okay. Thanks.

Your next question comes from the line of John Heinbockel from Guggenheim. Your line is open.

Richard, the price investments you mentioned in fresh food, was that actually proactive price investments or more delays in passing through vendor increases? And then, where those investments occurred, was that more protein as opposed to other categories?

It's definitely proactive on our part. And, I think, it's all of the above. It's protein. It's fresh -- I mean its produce.

Okay. And then, if you -- I mean if you look at the fresh food comp, right, so I think you said low double-digit and that included the final week, right? So, that was the best fresh food comp you've had in a while. I don't know if you can parse out and maybe you can with -- looking at the final week, how much -- was some of that coronavirus related, or was a lot of that step-up related to the price investments?

Who knows? Clearly, week four was different than weeks one, two and three, for everything. And just a sheer number of people coming into the warehouse. I personally believe that given that restaurants probably have been impacted a little bit the last couple of weeks. They're buying more at supermarkets and more at Costco, so those things help a little bit as well.

And then, lastly, when you think about it -- and I know you said the margin on some of that stuff is sort of in line with the average. When you think about the -- sort of, the cost associated with restocking and dealing with that volume and you think about, I don't know, an EBIT margin tied to the volume. Normally, the EBIT margin will be -- the incremental margin will be a lot higher. Is that less the case here because of the cost required to keep up with that volume?

Well, yeah, I think, there's a lot of additional things that cost you. I mean, there's not a lot of it, but I'm sure there's a little air freight going on. And I'm sure there's -- when you've got a high-cube, high-weight, low-value items like water, for the hectoliter it's for $2.99 or something, and you're going through it faster than you could put it on the floor. There's more labor and everything else. But it's still a net positive. In the scheme of things, I don't know if it helps or hurts the bottom a little bit. So. Okay. Yes. And the other thing is, they're not just coming and getting those five items and moving. They're shopping a little bit. Again, I personally was surprised that patio furniture is strong. And maybe per person it's a little weaker, but there's a lot more persons.

Okay. Thank you.

Your next question comes from the line of Mike Baker from Nomura. Your line is open.

Okay. Thanks. A couple of questions. One, can you tell us how gas profits were this year versus last year. And then, remind us if you could, how much that helped 2Q, 2019, versus 2Q, 2018.

I believe -- I don't have it in front of me, but I believe last year we said gas helped us, relative to the prior year. It was pretty -- it wasn't worth talking about, plus or minus either way.

Okay.

This year versus last.

Got it. Okay. Shifting gears a couple more, if I could. So, February, even if you take out -- first of all, the 300 basis points, can we take that out pro rata across international and the U.S.? Or is it that impacts one region more than the other? And the real question is, when you strip that out, February was much stronger than you've been running, even so? In other words, I presume the first three weeks were strong. So what do you think is behind that uptick, even before you got to week four?

It must be those investments in price. No, at the end of the day it is generally around the world. I think Korea has been a little less of that probably a little less of that benefit. But there's been -- there was an outbreak there that had a lot of publicity and I think there were more people perhaps staying home are not going out. The -- but when I look at U.S., Canada, and several other countries, all of them had big upticks in that last -- the past nine or so days. And I'm sorry what was the last part of the question?

Just why do you think weeks one -- so weeks one, two and three were obviously strong as well because when you take out that 300 basis points, it's still -- you're high single digits. So, what do you think is behind that big uptick?

There's probably lots of little things I'd like -- my mother would say we're good merchants and great stuff at low prices. There's nothing that stands out completely. And certainly there was not a lot of press out there issues around coronavirus even though was in the news a little bit. So, maybe on a macro basis, there's a little bit of that in there. I think there may have been some weather issues a year ago that may have impacted a little. But overall, we were -- in those three weeks, forgetting about week four, which was off the charts, it was -- we're feeling pretty good about it that some of the stuff we're doing is working from a merchandising standpoint and a pricing standpoint.

Okay, fair enough. Appreciate the time.

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

Good afternoon. Thanks for taking my questions and thanks for all the comments on the coronavirus. So, I guess, Richard, just going back to your commentary on the supply chain. So, as you guys look forward, at this point, do you expect any impact on your supply chain-related to coronavirus or is it too early to tell earlier in the year?

Well, I think -- first of all, there has been an impact on it. It's now starting to get a little bit further than normal back to normal on regular stuff. On some of the virus-related items that people are buying like water and sanitizing items and paper tiles and things like that, that's going to take a little bit while longer. When I ask the buyers they're working day-to-day with suppliers. You've got suppliers that are literally working around the clock to produce and to ship. But again people are coming in and buying stuff, if you will, for their basement.

And what about -- I guess I was asking more on some of the other categories like electronics. And some of those categories that may come from Asia. Just curious if you expect an impact?

Well, I think I mentioned there have been -- we have seen some little impact on some laptops and some cell phones and I think that's related to some of the things that we all read about in the paper about some shortage -- some delays because of some of the component parts. I think one thing that helps us a little as we're able to pivot a little bit. So, if there was a shortage or something with one area, we're able to put something else in its place since we sell pretty much everything. But we just don't know what's going to happen tomorrow. First order of business is to get the supply chains back open and running well. There are two kinds of supply chain issues. There's a supply chain issue related to all these very high demand items related to fighting and protecting yourself; the waters, the sanitizing, and things like that. And then there's just stuff, I mean everything from furniture to apparel to electronics coming from China. And on the latter, it seems at least while the one week -- and keep in mind given, the planned Chinese New Year week, there were stuff bought in early not only by us, but I'm sure others and so -- but then there's two more weeks of closures. So, those kind of things over the last three weeks in terms of talking about buyers, the supply chain has -- and the manufacturers are now back open they went from zero if you will the 25% to 40% to 50% to 60%, 80% and now it's getting to the ports. And some of those things are also being abated, some of the issues there. So my guess is if everything got better tomorrow from a concern standpoint, you still have a few weeks here where it takes time to fill those supply chains.

Great. And one follow-up question. Just on the holiday season. You guys had a really strong performance even with fewer selling days, so just curious if there's any surprises or what do you think contributed to the really strong outperformance?

Well, I think we -- this is -- that's what we do. I mean, I think we've done a great job. We've been helped by strong big-ticket categories like electronics, like patio furniture and lawn and garden right now and other hardlines and softlines areas. Fresh continues to drive our business. We -- as you know when we're asked what are the two or three big factors that drive our business -- or of categories. It's fresh, it's gas, it's executive membership. And again utilizing those different bucket -- even when sales are good, we want to be aggressive in pricing. And when sales are bad, we want to be aggressive more aggressive in pricing. When the sales are good, we want to be more aggressive in pricing. It drives -- the top line improvements drive the bottom line.

Great. Thank you.

Your next question comes from the line of Scott Ciccarelli from RBC Capital Markets. Your line is open.

Good afternoon, guys. Richard, you talked about expecting margin pressure to moderate a bit from the poultry plant ramp. And I know there was an incubation period there. So is that plant actually turning out product at this point? And related to that can you give us an idea of what the incremental benefit you guys are expecting once you're in full production mode?

Well, I think it was mid-September when we -- when the first chicken went through the plan if you will. The plan was that 45 weeks later there would be approximately 2.2 million birds a week being processed. And so call it September to August. And so we're a little bit past the halfway mark on that. And I believe in terms of production, we're a little bit past the halfway mark on that. Call it one million birds a week. It should be off a little bit on either side. And so a lot of this has to do with the fact that you've got this big facility that is running at well below capacity. The amount of impairment to margin related to that in Q2 was less than Q1. We would expect it to be less than in Q3 and further. So once we get the full capacity I think -- and then I'm sure there's going to be some operational improvements over the first couple of years as well. At the end of the day, it's a combination of sourcing just simpler supply. And our view is, is we can improve if you will the ultimate cost per bird. But we don't know that yet. We spent a little more than we planned, but we also upgraded the facility to be air chilled instead of water chilled. It truly is a state-of-the-art facility for the U.S. and a very high volume facility. And I would say, right now, things are going as planned in terms of that 45-week cycle. And I would like to think that a year from now -- six months from now or two more quarters from now, it's not going to be an issue that we really even talk about as it relates to how it impacted margin.

Got you. I appreciate that.

A little bit. I don't think it'll be that wrong.

Got it. And then I know you obviously had the surge in that kind of fourth week, as you pointed out, because of the coronavirus. Warehouses were obviously jammed. Everyone kind of sees that. But I'm curious if you happen to see an even larger increase from e-comm in terms of -- like has there been some sort of shift in consumer behavior at all? Or is all the activity concentrated on warehouses?

No. I mean we saw an increase but not really. I mean mind you that -- we saw -- yes throughout February we saw some increase in e-commerce. But again if people are looking for those -- the sense of urgency I'm going out right now and get it in things like water and everything. And some of those key items like peanut butter and crackers and the like, we have online as well. And those too in some regions there might be in and out of stocks.

Got it. All right, thanks guys.

Our next question comes from the line Judah Frommer from Credit Suisse. Your line is open.

Hi, thanks for taking the question. I was hoping maybe you could help us with kind of how things trended in Korea over the last few weeks. You have exposure there potentially weeks ahead of where the U.S. could be worst-case scenario for the virus. So in terms of demand and kind of stock up and then potentially demand falling off as the virus spread there any insights there?

Well I think the only insight is -- from what I've read it is not -- is the issue that more people are staying at home and not even going out. Whereas even near the -- I love the publicity that the state of Washington and King County is getting with a few of the -- there are people out and about. There's a little less traffic on the highways. And -- but notwithstanding that that's some highways coming to see us.

Got it. And then kind of changing gears. We've seen some stuff about potentially requiring membership and some food courts in the press, anything behind the thought process there?

Well first of all, it's gotten more press than it deserves. There are I believe seven current locations on the West Coast where we -- and I believe they are all outdoor locations. And one of the challenges that we've had is, particularly on very busy locations where people that are non members just come and eat there every day. You've got member complaints saying, why are you -- I have to pay the come to Costco. And so we took -- we're testing it in seven locations that we are limiting it to members only. It's easy in locations where you have the food court inside. But on -- and many of the ones in areas where the weather is generally good like California, Arizona and things like that you have a lot of them are outside. And so we'll see. But that's -- but again, seven locations out of 540, we're testing it at and it's gotten a lot of press.

Okay, got it. And if I could squeeze in one more, anything on supply in pharmacy and any people stocking up there and potentially running out of inventory?

This is just a quote from the FDA yesterday and said well the FDA and other outlets are reporting disruptions and medical products are possible. At this time manufacturers are reporting that no specific drugs are experienced in shortage due to the impact of COVID-19. And talking to our Head of Pharmacy yesterday, he said the only thing that we've seen there's been a little pickup there as well. Let's say somebody has a year-long prescription. So four nine -- a prescription plus 990-day refills for -- and they'll come in and they'll want all four of them filled now. And in some cases even when their particular insurance plan doesn't cover it, they're paying cash. They're just hoarding -- they're hoarding up on their prescription to make sure we're not running out. But that's more again, I think the same thing you're seeing with paper goods. But from a supply and availability standpoint, but we haven't seen anything yet.

Okay. Thanks.

Why don't we take two more questions.

Okay. Next question comes from the line of Oliver Chen from Cowen. Your line is open.

Hi, Richard, regarding the supply chain and what you're seeing, what are your thoughts regarding the price increases or potential price increases, whether that be from transportation costs or other and what your buyers think may happen there. And the second question is related to e-commerce. You made a lot of progress on your mobile app. Just what's ahead for changes to the mobile app? And also more broadly, capital investments related to e-comm and supply chain? Thank you.

As it relates to costs, the general view of the buyers is, is that we have – I get back to the comment I made earlier about strong relations. To the extent that there's some raw materials cost increases because of shortages, that's going to rain on everybody. In our view, it rains on us a little less. But I think we – given the limited number of items we buy and the amount of things we – the amount of any given item that we buy, our buyers, we feel, know a lot more about the cost structure. And so I haven't seen any commentary on that internally other than there was one small comment I can't find it in my mess of papers here, that there may be – in some small cases, some raw material increases on some particular item – some particular raw material for some manufacturing process. But overall, there's not been a big issue. Right now, the only increase in transportation has some very limited items where there's been a little bit of airfreight, what we're finding is, is that the ports are getting back to capacity and there's plenty of space. And so that's not been as big an issue. As it relates to an e-comm investment. There's not a lot I have my plate to tell you today, we're working on more things related to our app, to our membership digital app. And we certainly have some things going on on the fulfillment side of e-commerce. And we've been focused on getting two more countries opened, as I mentioned in the last quarter. And we think – there are a few other things that we've got going on that I'll be happy to chat with the next time around.

Okay. And is buy online, pick up in-store going as you like? And do you expect a lot of enhancements ahead to that as customers like it?

Well, customers like it, but we don't like it necessarily. We're doing buy online and pick up in-store for some small items – small high-value items. But we're not at the point where we're looking for members to buy online they come up and pick up their whole grocery baskets. So we're trying to figure out our way. And certainly – again, the last nine or so days notwithstanding, seems – things seem to be working pretty well for us in that regard. We continue to work on the – where we've had good sales and good strength over the last few years in e-commerce is taking certain big and bulky things out of the warehouse, white goods and things that are delivered, in some cases, installed, and so we continue to work on those kind of things as well.

And lastly, Richard, with the surge in demand and the traffic trends that you've seen, how have you managed, like, this customer and guest satisfaction and also labor in your stores, those kinds of things that we're curious about?

How do we measure it?

How have you managed it? And just -- and tried your best to make sure that customers are happy. And also, you have the appropriate labor levels, relative to spikes and changes in demand.

Well, again, the last week-and-a-half notwithstanding, because it's been nuts. No, first of all, member comments and basic member renewal rates. I mean, we actually -- the operators and all the way up to Craig, see weekly information on comments. You can't imagine how many people call and e-mail when to have something that they're concerned about. And we also measure the least expected, but the positive letters to that effect. On the operations side, the key is still -- well, aside from merchandising, the art of merchandising out there and giving the warehouse managers the assistant managers and the merchandisers -- whereas merchandisers some leeway, not -- I mean, certainly electronics is when you walk in and there's defensive promotional goods and fresh is in the back. But the end of the day, there is a bit of merchandising that is pushed down to the regional and warehouse level. And that's what, I think, drives our business there. In terms of the front end, managing the front end, I think, we've got less count, 120 of our 540-ish locations in the U.S. with self-checkout. And we plan another 100 in the next three months. And so, always trying to figure out and measuring the number of transact -- number of member transactions through the front end per hour.

Great. Thank you. Best regards. Great job.

Next question from the line of Peter Benedict from Baird. Your line is open.

Hey, Richard, just two quick ones here to close out. So, it looks like the business probably comping in the 20% range there in that last week and, certainly, the demand is probably even higher than that, just given that you guys are running out towards the end of the day. How do you think about the ability for the club to kind of keep up that pace -- with that pace of demand? I mean, if this were to go on for three, four more weeks. Do you guys think you've got the supply chain able to keep up with that level of demand? Or are you hitting a point where you're not -- you're just not going to get another delivery tomorrow of pick your category?

Yes. No. Well, I think, it's all over the board. Yesterday, I think, there was a couple of -- either Los Angeles or San Diego counties that announced a heightened level of concern. King County here in Seattle did that a couple of days ago. When that happens, that's another catalyst to puts people to go out and get more stuff. I would hope -- and, look, we would all hope this thing peaks and starts to slow down. It depends what happens tomorrow. We'll be tired, but still working hard. Given that half of our employees -- roughly -- a little over half of our -- of the 90% of employees in our warehouses that are hourly, about a little over half of those 90% are full-time and a little under half of are part-time. Certainly, there are employees that want to work more than part-time and so we've been able to accommodate some additional hours there. But everybody is a little tired but that's what you do.

Okay. And then my last question is just on lawn and garden, you mentioned that a couple of times and you talked about seasonal. Maybe expand on that a little bit. Where in particular are you seeing the strong -- I guess, it's an early start to spring, but maybe talk a little bit about what you're seeing on that front?

Well, the only thing I mentioned there was that in -- and getting ready for today's call, I had spoken to several of the senior merchants in the different categories. And one thing without even looking at the numbers I thought is I assume some of the big ticket discretionary items might be a little weaker because people are not running in to get those items. They're running in to get other concerned items. And the fact was to my surprise that they said that certain items like patio furniture and lawn and garden was strong. They felt -- and again it was just their view that patio -- lawn and garden was more related to some of the areas of the country where the weather has turned already. And -- but clearly because you got X percent more people coming in every day than normal.

That makes sense. Fair enough. Thanks so much.

Okay. Well thank you everyone. Have a good afternoon and we're around to answer any questions. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.