COST | Q3 2011

Operator: Good morning. My name is Demitris, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter and year-to-date operating results for FY '11. [Operator Instructions] Thank you. Mr. Galanti, you may begin your conference.

Richard Galanti: Thank you, Demitris. Good morning to everyone. This morning's press release reviews our third quarter 2011 operating results for the 12 weeks ended May 8. As with every conference call, I'll start by stating that the discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and that 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. To begin with, our 12-week third quarter operating results for the quarter. Our reported EPS came in at $0.73 a share, up 7% from last year's reported Q3 EPS of $0.68. As I'll discuss in more detail in a moment, both this year's and last year's results and a comparison of these results each included one item of note, which we outlined in the press release. They include the following

Operator: [Operator Instructions] Your first question comes from the line of Adrianne Shapira with Goldman Sachs.

Adrianne Shapira - Goldman Sachs Group Inc.: Richard, just if you could talk a little bit about the inflation levels, what it was in the quarter, how you're foreseeing that, what you expect going forward, and how we should be thinking about future LIFO charges? It seems like this quarter, we have sort of a pretty big step up and I'm wondering, how we should be thinking about it going forward?

Richard Galanti: Okay, well, first of all, keep in mind, LIFO is a U.S. accounting phenomenon. And we got a little over $4 billion of U.S. inventory. So $49 million rough number would be about 1.2%, I'm rounding here, inflation from the beginning to the end of the fiscal quarter. Mind you also that this is an annual event. So in reality, the calculation will be done, what was your inventory at cost at the beginning of the year by item, and then what is it at the end of the fiscal year. If you're early in the year, you're supposed to guess as best as you can what you think it's going to be. We've always chosen, historically chosen to take the entire amount that occurred in that quarter. And of course, a lot of these big increases came in the last 12 to 16 weeks. Just examples, and I'm not going to give brand names, but these are all branded items, everything from dry dog food of 3.5%; to all your detergents of 10-plus percent; to various waters, 10-or-so percent; to all your plastic dinnerware, your plates and your plastic cups and everything, 8% and 9%; plastic trash bags, 4% on top of other ones. So again, you can't just say everything is up 4% to 10% because there's -- sometimes the private label is a little less because of our buying power. But the reality is that these are hitting not -- it doesn't rain just on us. My guess is it's impacting us a little sooner because we turn our inventory faster so we're buying more recent, if you will. Mind you, we are able to pass on these increases. Ultimately, we all have to. We're going to try to keep -- if a manufacturer typically will say, "Okay, next Monday, there's a price increase. Or a week from Monday, we'll allow you to buy 4 or 6 or so many weeks at the old price based on your prior 6 months in average weekly purchases." We're always going to take full advantage of that, which I assume most retailers, be it supermarkets or other big discount stores are going to take advantage of. We feel that we always know we take full advantage of it, then we'll hold the price for a few of those weeks and benefit on the tail-end of it and cover our costs. But we're going to hold the prices as long as we can. I've given you in the past quarters a couple of examples, where we will hold it even further and eat into our margins. But again, those are the exception, not the norm. Ultimately, when all your merchandise is going up, you're going to have to

Adrianne Shapira - Goldman Sachs Group Inc.: And just following on that, in light of the fact that we might see continued increases. Any sense the $49 million in LIFO charge doesn't anticipate continued price increases?

Richard Galanti: Well, the $49 million charge is simply the calculation of our LIFO inventory as of the beginning of Q3 and the end of Q3. Period. End of story. I'm sorry, fiscal year end. So but at the incremental amount. We had an amount in Q2 end, which was going to $6 million, which had it through that -- from the beginning of year to that, so it's really the delta since Q2 end for the most part. Again, as I understand it -- no. Our Controller, Dave Petterson, is here will shake his head, yes or no, if I'm wrong and shake it, no. But my understanding is that let's say we were just reporting our first fiscal quarter and we had this calculation indicate it's $49 million. If we believed and if we talked to our buyers and felt that you know what, pretty much the inflation party is over and from the vendors' perspective, we are not seeing -- we've seen a lot. The rate of increase has slowed down, we could correctly choose to take less of it because if our anticipation was, hey, we know through the first 12 weeks of our fiscal year, it was $49 million. And our best guess it's going to be, I'm making this number up, $80 million for the whole year, a totally made-up number, then you might only choose to take 1/4 of the $80 million because you think it's going to be $80 million. Our view is, is that it is what it is. We're also in the third quarter, not the first quarter. And we're going to be, I think, taking a conservative approach to it. I can tell you again, there are price increases that have not hit yet our balance sheet, including some ones in later May and in June that I mentioned some of those just a few minutes ago.

Adrianne Shapira - Goldman Sachs Group Inc.: Okay, that's helpful. And then, just if we could talk a little bit about the merchandise margins. You gave us a lot of detail. And I'm just wondering, since you are lapping by the easiest compare from a year ago, the down 11, I'm sorry down 10 basis points on your merchandise margin, how should we be thinking about that compared to x gas? I mean the plus 17, given the fact that Q2 had sort of -- Q2 last year was up against a tougher compare and then it decelerated to down 10. Given that you had an easier compare, I'm just wondering how we should put the plus 17 in context up against that easy compare in what may be an apples-to-apples comparison is to year-over-year x gas from a year ago?

Richard Galanti: Adrianne, it's hard to say. Who the heck knows what's gas? I read a research report yesterday from someone who follows not only us but Kroger and Safeway who also have a lot of gas stations. And their view was I think correctly so that with a declining gas price, it's more profitable. You guys know that from what we've said in the past. That will help a little. It will also help because there will be lower sales penetration from gas inflation. But again, I think the trend -- I don't have in front of me last year's exact numbers, but the trend in the last couple of quarters has been that the underlying core margins have been up. I can't predict what tomorrow's going to bring.

Operator: Your next question comes from the line of Colin McGranahan with Bernstein.

Colin McGranahan - Sanford C. Bernstein & Co., Inc.: First question, just on the increase in the business add-on membership fee. Richard, can you talk about what the rationale for that was and how that's maybe influencing your thinking about an overall membership fee increase?

Richard Galanti: I know there had been some off and on discussions over time. I think originally that the focus on the add-on fee being $10 lower was simply for small businesses who've got 2 or 3 family owners or a handful of employees. It could be a benefit to them. And we wanted to incent in some cases, perhaps that owner of that business to buy memberships for their employees. Overtime, 2 things have happened, particularly in the last few years. If you wanted to be an Executive Member and get the Executive Member benefits, you would roll out from under that primary business member and become your own member, and you go effectively from $40 to $100. And so that has happened over time, that trend has continued. And I think the view at the end of the day was is that we've got a loyal membership base. We think that we've continued to provide even greater value, that every time, and I know this sounds a little noble, but we sincerely believe that when we have increased fees in the past, and this time as well, that we've created significantly more value than that increase. And at the end of the day, as you know, we keep things simple. And it's simpler to have a $50 instead of a $50 and a $40. And so it evolved into the $50. I don't think there's a lot of science that went into it other than that ongoing discussion, the ongoing trend toward some of those people moving out from underneath anyway to become their own Executive Member. In terms of the rationale going forward, I think what I said in last fiscal quarter, you guys all know after we send out the first month of renewal notices that has an increase in it. We have not made that decision. We have shown over 25 years that we're not afraid to. We have shown, I've communicated to you time and again that our renewal rates continue to be quite strong. We are not completely terribly concerned about with our members and what our competitors' fee levels are. And but we're also conscious enough to know what the economy is right now and we're not going to be completely arrogant out there. So at some point, we'll see and stay tuned.

Colin McGranahan - Sanford C. Bernstein & Co., Inc.: Okay, that's helpful. Then a second question, kind of a little bit different, given that we get the segment data on a lag basis in the Q. But if you look at the last couple of quarters, the last 3, 4 quarters, there's been some fairly dramatic improvement in the profitability of other international, up 190, 200, and pretty nice improvement in Canada and really no improvement in the U.S. Can you comment on what's driving the significant improvement in Canada -- in the other international and Canada, which are already dramatically more profitable than the U.S.?

Richard Galanti: Sure. Well, and every country has a little bit of a different story. On average, forgetting about some overall metrics -- looking at the overall metrics of your basic core items. In Canada we are the only club operator. In the U.S, we have dramatic competition in many of our markets. That's going to be some amount of basis points, more than 50 and less than 200 depending on where and how close but it could be significant. You have a dramatic -- the other line item components that are different -- that can be significantly different as a percent of sales is payroll. And even though we're always going to pay relatively higher in a given country, the average wage in the U.S. is approaching $20. In another country, it might be $9 or $12 or $15 or $8. And it really is in those kind of ranges. Conversely, healthcare is the other big one. Healthcare, in the U.S -- through the last couple of years, as I've talked about healthcare, I've talked about the U.S. healthcare, which is dramatically higher than any other country that we're in, and it grows at a dramatically higher rate than anywhere we're in. The other thing, of course, is comps. In Canada, as I mentioned, underlying local currency comps in the last 2 years now, 2.5 years, throughout this horrible economy in the U.S., it has been pretty robust up there. They didn't have the craziness of the market breakdown and meltdown. And certainly, they've enjoyed a pretty robust economy. So mid- to high-single digit local currency comps have helped us there as well. In Asia and other countries, I think part of it is, is Asia is a bigger component of other international. And as I mentioned also in this call, our comps in local currency in the U.K. was actually showing some life this past quarter, up 6. It has been a bit closer to flat the last couple of years. And that was a bigger piece of other international as we've gone from 0 to 23 units in the 3 Asian countries, which on average are a higher margin, higher sales volume, more profitable businesses for us. And so now, why has then the U.S. coming down? Look at our comps over the last few years, while not withstanding, they've been quite a bit better of late and somewhat better over the last year versus the prior year or 2, you had -- we've enjoyed for a number of years high volume, decent comp U.S. numbers, and they have hit for a while. And again, they're coming back a little but certainly, we recognized too that our growth and profitability over the next few years, while we continue to come from some of this improvement and critical mass in countries where we are expanding now, the bigger piece of the ship is the 73% or 74% or whatever percent it is of our company that's U.S.. And we're working on it. And as Jim and Craig will tell you, top line sales growth is the best thing you can do for it.

Operator: Your next question comes from the line of Dan Binder with Jefferies.

Daniel Binder - Jefferies & Company, Inc.: It's Dan Binder. Rich, I just wanted to clarify a point on this LIFO charge. If I understood you correctly, you're saying that you're basing your LIFO charge in the quarter on where you think your inventory is going to be at the year and the inflation that you're seeing to date. So is it fair to say that you have not factored in price increases that you know are coming next quarter? And if that's the case, based on what you know today, I mean very round number is what should we be thinking about for a LIFO charge in Q4?

Richard Galanti: On the latter part of that question, we don't know. But keep in mind, we booked the entire calculation in Q3 because we're nearing the end of the year. And we could have probably saved a little if we -- well, I doubt we would have saved anything because knowing what we know for some pending price increases in the first -- mind you, you're not getting price increases on 4,000 items. But all you need is 10 or 15 of these big items and you know you're going to have some. We'll have to wait and see. I really can't tell you because we don't know.

Daniel Binder - Jefferies & Company, Inc.: Okay. But I mean, it's fair to say that the LIFO charge we saw this quarter is incorporating -- is it incorporating all price changes that you're aware or which are the ones that have happened?

Richard Galanti: It's the ones that have happened. So yes, we're aware of price changes that will be a hit to LIFO, an increase in LIFO in Q4, but I'm looking at just that side of the equation. I'm looking at other things, be them few, that from down a little and what else is going to happen. If you have a big increase and some key items throughout Q3, even if there has been a few increases over the course of the year, you may be at the end of that so you're not going to have any increase in Q4. Gas, again, was over 20% of Q3. I only have 2 weeks of history and I can't predict from that but so far, gas is less than 0.

Daniel Binder - Jefferies & Company, Inc.: And then just 2 other quick questions. In terms of the buyback, what do you think is a reasonable number or goal to shoot for on an annual basis given your balance sheet and cash flow? And is there any change you would refi [refinance] that debt that's coming off in March of 2012?

Richard Galanti: Well, I don't anticipate refinancing the debt. I expect us to write a check for $900 million in some interest and some of the annual interest expense payment in March of '12. And say, 5-plus percent interest with or near a little over 0% interest income reduced and so that's a no-brainer. We got plenty of cash. Some of you would like to see us ramp it up more. We feel we've done pretty well by kind of on a regular basis as long as we feel good about our future, which we have and continue to. We'll be a regular buyer. As you guys know, the stock has moved very rapidly. We've historically have in the last few years have bought through blackouts with using 10b5-1s. Sometimes given the stock price speed at which it moves, it moves past that little matrix that we have in place and we might not buy for a week or 2. But at the end of the day, we continue to buy. I can't predict what it is. I can tell you that the board authorized $4 billion with a 4-year life, and that's as good as a guess as anything in terms of simple math.

Operator: Your next question comes from the line of Robbie Ohmes with Bank of America.

Robert Ohmes - BofA Merrill Lynch: Richard, just a few quick follow-ups. One was just on the -- in the areas where you have seen some price increases, I think one of your regional competitors had mentioned things like acceleration of private label and trade down to smaller pack sizes. And can you just comment on any sort of behavioral changes you've seen in your customer related to that, if any? And then the other question was just the March-April acceleration, is it just increased traffic from your gas station supporting that? Or is there something else going on that's causing the acceleration?

Richard Galanti: Well, traffic is certainly a big part of it. But the average ticket net of inflation and then everything else is flat to up slightly. I think it's overall improved a little bit. The net numbers improved but we try to give you as much information as we have ourselves on that. It's continuing so far so good. I hope the last 2 months portend what the next few is but we won't know until we get there. We continue to see private label increase sales penetration partly because we keep adding items. And starting last fall, we began, as an example, expanding private label into some canned goods, fruits and vegetables, where the quality, the amount of water in the can is better, it was lower. The quality is a little better in our view. It's a higher end at a great price. And that helps that penetration. I think if you go back to late counter '08, when the stock market went to hell and everybody was feeling a lot poorer, during those next 6 months in '09, we saw I think we saw like a 300 basis point increase in private label sales penetration. That was a real big change. We're not seeing that now, we're seeing normal progression in it. In terms of the trade down thing, you're really not going to see that here because we don't do it. We -- the only area where you are going to see some average price declines is probably in pharmacy where, and we've all read about it, there is some very well-known branded items that are going to become generic this coming year. But in terms of regular merchandise out there, even if the -- what we tested in Vorenus, [ph] we tested a couple of patio sets in early calendar '09 with instead of a $1,299 price point at $999, but we still have $1,299 in there, and guess what, the $999 sold better. But it didn't then -- we didn't rush to do everything at $899 and at $999 to the opposite. By spring of '10, we got out of those price points and tried to trade the customer up because if you're trading the customer down, it's darn tough to get them back. So we have not reduced pack sizes. The only time we are going to reduce pack size, I can't say we never, the examples that come to mind is in the last few months are on what they call limited quantity commodity resource, limited resource commodities like pine nuts. Some obscure item where -- and these are not exact numbers, but let's say, we were selling you a 4-pound pack and nobody but us sells a 4-pound pack for $19.99. Well, now it's 2.5- to 3-pound pack for $16.99 because the price per pound is doubled or whatever. So whatever that actually is there have been some examples like that. But for the most part, we are not reducing the ounces in the can of coffee or the number of M&Ms in the M&M bag. And we conversely are pushing the envelope the other way. And I think our customers that are hiring customers so that we're not as impacted perhaps as some of the lower medium end customer retailers. Perhaps, by the end of the day, we're not seeing the trade down thing.

Operator: Your next question comes from the line of Chuck Cerankosky with Northcoast Research.

Charles Cerankosky - Northcoast Research: When you're looking at some of these new members sign ups, especially in the U.S. where you have the gas, how are they reacting to the gasoline? And can you look at the sales data and see how the availability of this kind of gas is attracting numbers?

Richard Galanti: Well, again, Chuck, if you look at that 16% comp in gallonage in Q3, that's huge. Again, in good economies, we've seen, call it, mid-single digit numbers, when I assume the overall U.S. economy gallonage comps were just slightly lower than that but still positive. Well, I don't know the source but I remember reading recently, in this economy, whatever total U.S. gallonage comps for the economy was x, it's now x minus a couple percent, maybe 2% instead of 4%, whatever x was. We went from that mid-single up to the mid-teens. So we are -- gas is top of mind. It's on the news many nights in many cities. And again, that frequency, I haven't seen any numbers internally lately like how many of those members are doing an incremental shot. But we know that our traffic is up. When we talk about traffic frequency, by the way, we talk about front-end registered frequency, not pharmacy or optical or gas station frequency. So clearly, part of our increased frequency is people coming to get gas and some portion of those saying, "Hey, I'm going to go in and shop for a little bit." And some of those shops are incremental, not just replacing one from 2 days later that would have happened anyway.

Charles Cerankosky - Northcoast Research: Got you. And looking at how consumers behave in overall, would you be able to give us some idea of sales comps growth between consumables and general merchandise?

Richard Galanti: Well, again, if you look in the subcategories, all the basic Food and Sundries categories, other than tobacco, are pretty consistent and up in those mid-single or mid-to-high single digit. Again, a little of that -- again, if you look at LIFO is not a perfect extract, but if you look at the $49 million on $4 billion of sale -- a little over $4 billion, that's a little over 1% inflation in our inventory. In that 12 weeks, we saw inflation and a lot of that was in those consumer products. You look at comps and what I'd call, the middle price ticket discretionary nonfood items like small electrics and domestics and surprisingly, jewelry, which are quite strong in the teens and 20s, and for months now. I mean, it may vary but on average, they've been much stronger. So who the heck knows, other than people are buying and maybe they're not buying as bigger ticket but they're buying.

Operator: Your next question comes from Deborah Weinswig with Citi.

Deborah Weinswig - Citigroup Inc: What's your biggest surprise on the gross margin side in the quarter?

Richard Galanti: I mean, again, it's hard to get surprised when we see weekly stuff here. I mean, what was your biggest surprise? LIFO. Again, I get -- I feel good about the fact that despite my confidence that we are ever more competitive and we're always leading the pack and being the toughest out there, all you got to do is look at our gross margins compared to anybody else, that we're able to still improve underlying margins while remaining very competitive. And I think Jim on -- he hasn't been on a lot of calls in the last few years like these calls, but he's always -- when he's here, he'll talk to you and then he's always -- when asked that kind of questions, he'd basically say, "Guys, margins aren't our problem." We are going to still be very competitive but the good news is we still know -- we think we're smart enough how to make some margins. And it's still driving traffic. When they're ready to buy, they're in to look at, they're in. So that's good, and the loyalty is great. I think -- there's really haven't been honestly a lot of -- I can't think of any real surprises on margin.

Deborah Weinswig - Citigroup Inc: And I think last quarter, on Fresh Food margins, can you just provide guidance and some details there for this quarter?

Richard Galanti: Well, I think I mentioned on Q2, I gave, again, some examples, which spooked everybody a little bit that as commodity prices, underlying raw material prices were rising, there's some key items that we've chosen to see our realized gross margin go from the low to mid-teens down to the low single digits in some examples, some extreme examples. And they would be like pizza. We're not going to change the price of pizza everyday even though cheese prices skyrocketed. We are not going to change the 15 or so pack of muffins that restaurants and commissaries and daycare centers and everybody else buy from, I'm making a number up, from $5.99. Well, and so what happens is, is the margin, I don't know if it's a word but "devolves" a decline over a 4- or 6-month period. And then finally, they're allowed to take the price point from, I'm making it up, from $5.99 to $6.49 and we go right back to the high teens. So it's not a permanent reduction, but it's kind of stairstepped because we want to be fiercely competitive. And those are more of the exceptions rather than the rule. In Q2, when I was sharing why I believed bakery margins were down year-over-year in the quarter, it was because we were holding the price, many of which we've since taken up. And so again, trying to -- I think I've scared everybody saying this is the old, we're just going to keep them down and damn the torpedoes and that was not the case. We're going to be competitive, and hopefully, you got to take those price increases into account.

Deborah Weinswig - Citigroup Inc: Okay. And then, we appreciate the comment and color around SG&A. Historically, we don't have profound forecast but it has impacted our model pretty far, and it looks like one of the best performances, historically. How sustainable should we think about some of the improvements that you called out?

Richard Galanti: Well, I mean there is a sustainable -- I think in terms of our focus on driving the costs down, which I probably reiterated more in the last 3 or 4 quarters than before. I used to always say there's not a lot of silver bullets, were pretty efficient. And the fact of the matter is -- and let's face it, Craig [Craig Jelinek], who's our President, his background is 40 years in operations or maybe 35-plus in operations and 5 or so in merchandising. And certainly, he would be saying himself, he's an operator first, and he is completely focused on that and so are the operators, the EVPs, Senior VPs and all the way down. So I think there's some sustainability. Top line sales are going to do more for it than anything else. And again, I feel -- I can't tell you what the consumer is going to feel tomorrow but I feel confident that our merchants are at the top of their game, and we got a lot of good stuff going on.

Deborah Weinswig - Citigroup Inc: Okay. And then last question, could you talk about, how you [indiscernible] inside the U.S. versus internationally?

Richard Galanti: I'm sorry, you were in and out again. What was that?

Deborah Weinswig - Citigroup Inc: Sorry, can you talk about how your new clothes are performing inside the U.S. versus internationally?

Richard Galanti: Really as expected. I mean, you're always going to have a few that are little better, a little worse. But overall, existing U.S. markets are no-brainers. There aren't a lot of "new" U.S. markets. They tend to be no-brainers. They start off slower. Probably, the thing that has been on the upside surprisingly successful is Asia and Australia. And we only have one in Australia but it's our best opening ever, sales-wise. We have -- and again, some of these numbers are helped also by the weak dollar and I'm expressing the numbers of dollars. But I think we have one unit this fiscal year that is gearing on having a 4 in front of it, 400 million, or 3, high 3, very high 3s. And so certainly, that's fun. Beyond that, I don't -- again, it's not like '02, or '01 and '02, or '02 and '03 when we opened, in 2 years, 61 units, 45 of which were in the Midwest or in "new markets" or Midwestern Texas, where we knew that it was going to be slow growing. Those are all doing pretty well. When we opened our 16th and 17th and 18th or 15th, 16th, 17th Chicago units this past fiscal year in a one-week period, they all started off pretty well.

Operator: Your next question comes from the line of Laura Champine with Cowen and Company.

Laura Champine - Cowen and Company, LLC: Richard, the growth that you talked about in Asia is a little faster than what we expected and particularly in Japan. You just mentioned that your new store productivity is strong there. But any other reasons you want to call out for Costco's stepping up its growth in Asia at this time?

Richard Galanti: Well, we've got a lot of money. We too -- we feel the pressure not just from you guys but from ourselves. And that we want to ramp up the expansion, recognizing we're also our own toughest cost controller when a unit comes in and we just spent an extra $3 million or $5 million. And Jim, as you might expect, is saying no, go find something more reasonable, and so -- but we're trying to open. The other thing is, is we -- I think this is our history. We tended to be relatively slow growing in a foreign country as we get 5 or 8 units, and then there's a little bit of a spurt afterwards. Look, Japan is a huge economy. It clearly -- not just Japan, Korea and Taiwan, the concept clearly works. There aren't a lot of players necessarily looking at the Orient. And we're profitable so let's benefit from that. But I think probably more than anything is that we're certainly comfortable in all those countries, and we certainly have the money. Let's ramp it up a little bit.

Operator: Your next question comes from the line of Gregory Melich with ISI.

Greg Melich - ISI Group Inc.: I just wanted to follow up on the traffic and ticket inflation a little bit. If the U.S. comp was around 6%, what's the break between traffic and ticket at x fuel? It seems to me like traffic might be up 2% or 3% and then the rest, ticket. If that's the case, what portion of the ticket would you ascribe to inflation that you've actually seen already?

Richard Galanti: I think our U.S. traffic is about the same, Greg. It's like 4-ish. I don't have that in front of me.

Greg Melich - ISI Group Inc.: So the U.S. traffic is like the global?

Richard Galanti: Maybe a shade lower but less than -- it could round to the same number, it might round to 1 percentage point difference. U.S -- okay, Jeff Elliott just gave me, U.S. in the quarter was 3.7% frequency in the U.S.

Greg Melich - ISI Group Inc.: Got it. So then the remaining 2.3%, should we just think of the inflation that being the 1.2% that we saw in the inventory or do you think it's a little more?

Richard Galanti: I would say it's a good barometer. On one hand, you'd say, yes, maybe it is a little bit, but the other way -- if you look at the other way is any incremental trend in private label, when you switch from the branded item and the private label is 20%, 25% lower price on average, that's going to deflate it a little bit. That still inflates your inventory cost but it deflates your sales comp numbers, your item numbers. So yes, I think it goes the other way a little bit, but I don't have the numbers in front of me to look at that.

Greg Melich - ISI Group Inc.: Is it fair to say that, that the gasoline -- it was nice to break it out, the denominator on the margin shifts, but was the profitability of gasoline hurt in the quarter given the rapid rise in gas during the quarter, how you burn through the inventories so quickly? Did that have an effect?

Richard Galanti: Yes. It was still profitable but not a whole lot of fun. And again, I'll quote one of the analysts that follows us and Safeway. He said the last couple of weeks have been a lot of fun profitability-wise and it is more profitable with prices coming down.

Greg Melich - ISI Group Inc.: Okay. And at which -- in your matrix, where would that show up, that portion of the gas profitability?

Richard Galanti: It would be under ancillary businesses but it's kind of distorted because when prices are going up and even more exacerbated now because gallonage is so far up because it's such a high price. It's also time when profitability even the gross margin of the gas business itself is coming down a little bit. In the matrix, you've got increased sales penetration x a lower margin number, they kind of offset each other in that matrix. We're trying to keep it simple and not do a 3D matrix.

Greg Melich - ISI Group Inc.: Yes, we'll try our best. But basically, that whole thing compresses as a result, so you don't see it but that's where it is?

Richard Galanti: Yes.

Greg Melich - ISI Group Inc.: And then lastly, you mentioned Hardlines electronics being sold at store point. Can you just fill us in what the actual -- in the passage, sort of tell us where TV is in particular up or down in dollars? I know you've put some more inventory there. Did it actually net out to slightly up or was it still down?

Richard Galanti: I think we gave it. I know you have every month. I believe we're slightly -- it's still deflationary. It's almost -- the sales number for the whole department is down mid- to high singles in the last couple of months, I don't know what the quarter was. I know a month or 2 ago when the department was mid-single down, TVs themselves were roughly flat. Average selling price was down 9 or 10, and units were up 10 or 11. Computers are down. Units -- part of that down, I think in the last several months was everybody was waiting for the new Intel chip or something. And that was something that our buyer mentioned at the budget meeting. We're also not selling Apple products. That is a small piece of it. It has a negative in front of it. We were selling iTouch's and iMinutes, iTunes cards, last year to 0.

Greg Melich - ISI Group Inc.: So in electronics now, it sounds like the TV trend hasn't changed much but maybe some of the computing and notebooks may be a bigger negative than TVs, is that fair?

Richard Galanti: Yes, I would say that's fair.

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

Peter Benedict - Robert W. Baird & Co. Incorporated: Richard, a couple of questions. First on the U.S. healthcare expenses. I think last year, they were just over $800 million. Where do you see those coming in this year now that we're 3 quarters through and it sounds like you obviously had welled the benefits in the third quarter?

Richard Galanti: I think dollar-wise in the quarter, they were up like 8% or 9%, maybe. It was below 10% in actual dollars. And again, that's a reduction in the level of increase from prior quarters and notwithstanding there are some things that have increased it like mental healthcare effect that we gained this last fiscal year. If you took that quarter, and let's say it was 9% or 10% x $800 million, that's $880 million or $870 million. So it's probably in the high 8s.

Peter Benedict - Robert W. Baird & Co. Incorporated: All right, good. And then just with respect to May trends in the U.S., can you comment on any regional trend you're seeing thus far? I mean there's some crazy weather out there, just wondering what -- how the business has gone so far in May?

Richard Galanti: Yes, we have not really been impacted by the tornadoes since we're not very well penetrated down there. You don't want to be a boat seller in the Northwest, it's still winter. No, I'm thinking of just the regional operators at the last 2 budget meetings, there really hasn't been a lot of issues. I mean the strength has continued. It's really all the ships have risen with the regional -- the geographically regional ships here have risen.

Operator: [Operator Instructions] Your next question comes from the line of Bob Drbul with Barclays Capital.

Robert Drbul - Barclays Capital: Richard, just 2 quick ones for me. The first one is, are you seeing more opportunities for co-branded private label given some of the inflationary trends? And the second one is, are you seeing any more opportunistic buys in areas where inventories are maybe getting out of line a little bit, I'm talking about maybe the apparel category in Softlines?

Richard Galanti: I don't think there's any -- the answer to both is yes, there are some. Again, nothing like the first half of calendar '09 after the economy went to hell. But we are seeing -- yes, we're continuing to do both and for a lot of reasons. But it's not like the huge inventory buildup problems that many high-end nonfood manufacturers had, whether it was furniture or apparel or luggage or you name it or watches, that was -- that came all at once when the economy got hammered in late '08. Those types of over-inventory positions out there are fewer and further -- a bit farther between, but we keep adding new stuff.

Michael Exstein - Crédit Suisse AG: Great. And then just my last question is on California, you talked about it being one of the stronger regions for you in this quarter, areas in this quarter. Can you talk a little bit about any of the trends in California sort of what's really changed there and what you're seeing in California?

Richard Galanti: I think the biggest change is, is they're buying more. I mean I'm not saying -- I don't even feel it but it's across category and the regions that were hit the hardest after November or so of '08 have come back, gas also. Our savings -- again, gas is all regional and there's more pricing volatility in California, Southern California, than anyone in the country, I think. And with our savings right now I believe in California are bigger than other parts of the country. But it's all a function of all the different state rules and winter gas and summer gas and you name it, there's those variances.

Operator: The final question comes from the line of Michael Fistein (sic) [Michael Exstein] with Credit Suisse.

Michael Exstein - Crédit Suisse AG: I think it's Michael Exstein but I'll take the opportunity anyway. Richard, can you just follow up on Chuck's question in terms of frequency, what sort of the attachment, if you're 16% more gallons of gasoline sold, what was that in terms of frequency? And you go and fill up with gasoline to 90% of the time, do you go into the warehouse, do you track that specifically?

Richard Galanti: I can tell you what we have tracked of late is the percentage of people that bought gas shopped on the same day has not changed. It's still about 30%. And so if there's 16% -- if they used to have 3% or 5% gallonage comp and now we have 16%, there is 10-plus percent more people, about 30% of whom are coming into shop.

Operator: There are no further questions at this time.

Richard Galanti: Okay. Well, thank you, everyone. Have a good day.

Operator: Thank you. This concludes today's conference call. You may now disconnect.