Spencer Hanus

Spencer Hanus inquired about the cadence of comparable sales through November and into December, seeking insights into consumer strength heading into the holiday season, and whether Costco is observing any trade-down or divergence in performance by customer cohort that is influencing buying strategies.

Answer

Gary Millerchip, Chief Financial Officer, stated that Costco does not discuss current quarter sales but noted relative consistency in member shopping behavior. He reiterated that monthly sales 'bumpiness' was often due to external factors, with overall comparable sales in the 6.5% range over the last two quarters/seven months. He mentioned a deceleration in non-foods offset by benefits from extended operating hours, but no other significant changes in member behavior or value resonance.

Spencer Hanus asked about the cadence of comparable sales through November and into December, how it informs consumer behavior heading into the holiday season, and if Costco is observing any trade-down or divergence in performance by customer cohort affecting buying strategies.

Answer

Gary Millerchip (CFO, Costco Wholesale Corporation) stated that Costco does not discuss current quarter sales but noted relative consistency in member shopping behavior, with month-to-month "bumpiness" mostly attributable to external factors. He highlighted a consistent 6.5% comparable sales growth over the last two quarters/seven months, with non-food deceleration offset by extended operating hours, and no significant changes in member behavior or value resonance.

Spencer Hanus asked about the potential tailwind from the remodel program in its second year and if there have been any changes in the 3%-4% price gap versus Walmart.

Answer

Todd Vasos, CEO, affirmed strong confidence in the remodel programs and their long-term potential, including pOpshelf and Mexico banners, which are showing nice sales gains. On pricing, he stated that Dollar General maintains a strong position with everyday prices within customer expectations, a balanced promotional cadence, and the critical $1 price point, which collectively enhance price perception. He noted that customer price perception numbers are increasing.

Spencer Hanus asked about the drivers behind the accelerated traffic exiting Q3 and if there's been any change in customer response or elasticities to the price increases taken.

Answer

CEO Winnie Park attributed accelerated traffic to redirecting marketing spend to social and digital channels, focusing on content quality (creator-produced) and engaging with user-generated content. CFO Dan Sullivan added that customer response and unit degradation from price increases remained well above original models, with no material change from Q2. CEO Park noted positive customer response to items above $5 being integrated in-line.

Spencer Hanus inquired about Tractor Supply Company's increased store growth for next year, asking where most of this growth would be centered (new versus infill markets), and the company's perspective on cannibalization and the returns on these new stores.

Answer

John Ordus, EVP of Chief Stores Officer, affirmed that new store productivity is strong and consistent, performing above pro forma, with the best site selection model to date and a robust pipeline. He noted that cannibalization numbers are coming in lower than predicted. While growth is seen across the entire United States, a significant portion will be concentrated in the West, supported by a new distribution center opening there, and also in Idaho.

Spencer Hanus asked about the planned step-up in store growth for next year, where most of the growth would be centered (new or infill markets), and the company's thoughts on cannibalization and returns on these new stores.

Answer

John Ordus (EVP of Chief Stores Officer) stated that new store productivity is strong and consistent, performing above pro forma, with site selection and model being the best ever. He noted that cannibalization numbers are coming in lower than predicted. Growth is seen across the U.S., with a significant portion expected in the West due to a new distribution center opening there, and continued growth in Idaho.

Spencer Hanus of Wolfe Research asked about quarter-to-date sales trends and sought a broader perspective on the potential catalysts for industry-wide price stabilization and when market capacity might begin to exit.

Answer

CFO Matt Faulkner addressed the near-term outlook, stating that due to seasonality, Q1 revenue is expected to dip by a mid-single-digit percentage from Q4. CEO Ben Kovler added that pricing stabilization is market-specific and linked to capital flows. He noted that rising interest rates and tax burdens are slowing new capital, which should help stabilize supply, but it is still too early to declare a bottom for pricing.

Spencer Hanus of Wolfe Research asked for details on the sales cadence in New Jersey during the quarter and whether the company was confident in its product supply for the second half of the year.

Answer

CFO Anthony Georgiadis reported that while it's still early, there have been no major supply issues. He noted that Green Thumb is selling a significant amount of its own product and that operators are building additional capacity to support growth.

Spencer Hanus from Wolfe Research asked when the industry-wide pullback in CapEx might translate to improved pricing trends. He also inquired how the 2023 CapEx target of $25-$50 million compares to maintenance levels and what strategies could drive growth in New Jersey's under-stored market.

Answer

CEO & Founder George Archos explained that any pricing stabilization from reduced CapEx will take time and depend on market-specific factors like adult-use transitions and the economy. CFO Brett Summerer specified that annual maintenance CapEx is approximately $10 million. Regarding New Jersey, Archos stated that the most significant growth driver will be the opening of more dispensaries to improve consumer access across the state.

Spencer Hanus asked how Verano's New Jersey stores performed relative to the industry average, inquired about potential inventory issues among peers, and requested quantification of Q2 sales trends and the outlook for basket size.

Answer

CEO George Archos declined to provide specific store sales data but stated they are performing 'tremendously well' with ample supply. He expects the recent 2% decline in basket size to remain a consistent trend. CFO Brett Summerer confirmed that Q2 revenue is expected to be higher than Q1, with more formal guidance to come.

Spencer Hanus of Wolfe Research asked for commentary on transaction volumes and ticket sizes seen in the first week of New Jersey's adult-use market. He also inquired about pricing trends in early 2022, particularly in Florida and Pennsylvania, and whether the pressures from Q4 had persisted.

Answer

CEO George Archos stated it was too early to comment on specific New Jersey sales metrics like basket size. Regarding pricing, he clarified that Verano has not dropped prices on its premium product lines, as quality and demand remain high. Instead, the company is introducing new mid-tier and value-priced brands to address different consumer segments. COO Darren Weiss added that seasonal discounting was lower in Q1 compared to the Q4 holiday period.