Ladies and gentlemen, thank you for standing by, and welcome to the Q3 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during that time, please press star one on the telephone keypad. Please note that this conference is being recorded. For further assistance, please press star zero. I would now like to hand the call over to Mr. Richard Galanti, CFO. Please go ahead, sir.
Thank you, Joseph, and 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 third quarter of fiscal 2020, the 12 weeks ended May 10th.
Reported net income for the quarter came in at $838 million, or $1.89 per diluted share. This compared to $906 million or $2.05 per diluted share last year in the third quarter. This year's third quarter was negatively impacted by direct expenses of $283 million pre-tax, or $0.47 per diluted share from incremental wage, safety, and sanitation costs related to COVID-19. Last year's third quarter number of $2.05 included the benefit from a non-recurring tax item of $73 million or $0.16 per diluted share. Net sales for the quarter increased 7.3% to $36.45 billion, up from $33.96 billion last year in the third quarter. On a same store or comparable sales basis for the third quarter, for the 12 weeks on a reported basis, the U.S. was a 5.9%. Excluding gas deflation and FX impact, the 5.9% would've been for the 12 weeks at 8.0%.
Canada on a reported basis was -2.5%, ex-gas deflation and FX + 3.0%. Other international came in on a reported basis at 6.2%, and again, ex-gas deflation and FX +1 2.2%. Also, the total company came in with a reported 4.8%, and again, ex-gas deflation and FX, the 4.8% would've been 7.8%. I might also note that e-commerce on a reported basis was 64.5% comp and ex-gas deflation or ex FX, 66.1%. Now, foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 110 basis points, and gasoline price deflation negatively impacted sales by approximately 190 basis points. For the total company, therefore, the 300 basis points. Additionally, gasoline volumes or gallons were down about 20% year-over-year in the quarter as a result of less driving due to the pandemic.
These adjusted figures, the impact of gasoline gallons is not in the adjusted figures that I just described above. In terms of traffic, our shopping frequency decreased in the quarter worldwide by 4.1% and in the U.S. by 2.0%. Our average transaction, our ticket was up 9.3% during the third quarter. The 9.3% does include the negative impacts from gas deflation and FX. Our third quarter comp sales figures did reflect also that a few of our businesses, notably optical, hearing aids, and photo, were closed for much of Q3. A good portion of our food court item offerings were eliminated also for much of Q3. As well, we eliminated the food court seating during this time.
Reopenings of these began, the ones that were closed, began on April 30th, 10 days prior to the third quarter end, with about 20% of the locations back operating by Q3 end. In the past two to three weeks, nearly all will be back in operation by mid-June. In terms of the food courts, which have been open, but again, a much more limited menu, we've added some, but not all the items back as of now. In all, an estimated hit to the reported sales numbers that we gave you earlier in Q3 by 1-2 percentage points by those items being closed or restricted. Next, on the income statement, membership fee income reported came in at $815 million or 2.24%, up 5% or $39 million from $776 million or 2.9% last year in Q3.
Ex FX weakness, the $39 million increase and 5% increase would've been up $47 million or 6%. During the quarter, we had two new openings, a total of four year-to-date. In terms of renewal rates, at Q3 end, our U.S. and Canada renewal rate came in at 91.0%, a tick up from where we were at Q2 end, the worldwide rate came in at 88.4%, the same as it was a fiscal quarter ago. Keep in mind that any impact on renewal rates from COVID, positive or negative, are reflected over the next several months. In terms of the number of members at Q3 end, member households and cardholders. In terms of households, we ended the third quarter with 55.8 million households, up from 55.3 million 12 weeks earlier. Total cardholders came in at 101.8 million, up from 100.9 million 12 weeks earlier.
At Q3 end, paid executive memberships came in at 21.8 million, an increase of 135,000 over the last 12 weeks. Going down to the gross margin line, our reported gross margin was higher year-over-year by 54 basis points on a reported basis. Coming in at 11.53%, up from 10.99%. The 54 ex- gas deflation would have been +33 basis points. As I usually do, I'll ask you to write down a few numbers in two columns, and then we'll go through that explanation. In terms of reported in Q3 2020 year-over-year, the core merchandise was up 51 basis points on a reported basis, and without gas deflation, up 33. Ancillary businesses was on a reported basis, +26 basis points, ex- gas deflation, +21 . The 2% reward, -6 and -4 basis points. Other, -17 and -17 .
You add up those two columns, total reported again, up 54 basis points on a reported basis and up 33 basis points. Gross margin was up 33 basis points ex- gas deflation. The core merchandise component of gross margin, again, higher by 51 or 33 ex deflation. Keep in mind that in the quarter we had a decent sales shift from ancillary and other businesses to core businesses, which resulted in a higher contribution of our total gross margin dollars coming from the core. Looking at the core merchandise categories in relation to only their own sales or what we call core on core, margins year-over-year were lower by 17 basis points. 5 basis points, by the way, of which was losses related to our new poultry complex.
This is something I've pointed out in the last two quarters, and we'll probably do so next quarter as well. In total, pretty similar, in fact, to our year-over-year impact in Q2. While higher penetration of our total sales came from the core this year, it was at a slightly lower gross margin percentage year-over-year. This is mostly attributed to sales mix both between and within merchandise categories. Our fresh foods gross margin percentage was up again despite any first-year headwinds from the ramp-up costs associated with the poultry complex. The strength in fresh was a result of high sales driving down our spoilage as well as labor costs as percentage of sales being able to leverage those at a greater than normal rate. Soft lines, food and sundries, and hard lines all had lower margin percentage year-over-year in the quarter.
One example, non-foods, which is both hard lines and soft lines. Non-foods was impacted by a shift in sales towards lower margin departments, particularly things like majors and big ticket electronics. Ancillary and other business gross margin in the two columns, higher by 26 basis points and again 21 higher basis points ex- gas deflation. This result was primarily due to strength in gas and e-com gross margin dollars year-over-year, partially offset by a lower penetration of ancillary sales due to lower gas prices and volumes and the closures of some of those ancillary businesses that I talked about earlier. Several of those businesses have higher gross margins. 2% reward was higher or was a hit to gross margin by 6 basis points on a reported basis, and 4 ex deflation, implying that a slightly higher percentage of our sales were eligible for the executive member reward.
The other line item, 17 basis points to the negative. 12 of the 17 basis points is attributable to the COVID-19 costs, and the 12 basis points, that's about $44 million of the $283 million number that was mentioned in the press release. These are the costs for incremental wages, safety, and sanitation costs allocated to our cost departments and merchandise fulfillment operations. It hits to margin. The other 5 basis points, or $19.7 million, came from accruing reserve for certain third party gift cards and ticket programs. This latter $19.7 million was not included in the $283 total amount that we called out as a direct incremental expenses from COVID. Moving to SG&A. Our reported SG&A percentage year-over-year was higher by 59 basis points, coming in at a 10.51% of sales, up from 9.92%.
Ex-gas deflation, the -59 would have been -40 or higher by 40. If you, again, please jot down the following SG&A components, then we'll go through that. Core operations reported was +9 or lower by 9, a benefit of 9. Ex-gas deflation, +24 or a benefit of 24 basis points. Central, zero and +2. Stock compensation, +3 and +3. Other, -71 and -69. You add up those two columns, you get to the reported SG&A increase of 59 basis points and ex-gas deflation, higher by 40 basis points. Again, the core operations component, lower by 9 and ex-gas deflation, lower by 24. SG&A in the core operations, that's excluding the COVID related expenses that I'll talk about in a minute. They were, needless to say, leveraged with strong core merchandise sales. Central was essentially flat and a slight improvement relative including ex-gas deflation.
Stock comp, no surprises there, a slight benefit to SG&A of 3 basis points. Again, the other component, the 71 or 69 ex- gas deflation. Of the 71, 66 basis points of the 71 is attributable to the incremental cost of COVID-19 or $239 million of that $283 million total amount that was in the press release. Again, these are the costs for incremental wages and safety and sanitation related direct expenses. The balance of the 71 basis point figure was 5 basis points or $18.5 million. This came from the cost associated with the acquisition and integration related expenses of our recent acquisition of Innovel, that last mile delivery and installation operation for big and bulky that we acquired a few months back. Next on the income statement is pre-opening expense.
Pre-opening expense was lower by $6 million, coming in at $8 million in the quarter versus $14 million a year ago. We had two openings this year. Last year in the quarter, we had three. Chunks of each of these numbers relate to pending openings in Q4 as well. All told, reported operating income in the third quarter of 2020 increased by 5.1%, coming in at $1.179 billion this year compared to $1.122 billion a year ago. This 5% increase is notwithstanding the incremental cost that I just talked about, the $283 million, as well as the $19.7 million and the $18.5 million that I just mentioned as well. Those were all taken in the third quarter. Below the operating income line, interest expense was higher year-over-year by $2 million, coming in at $37 million this year in the quarter versus $35 million a year ago.
Recall that we completed a $4 billion debt offering on April 20th, during the third quarter. Following the completion of the debt offering, we called the outstanding debt due May of 2021, that was a $1 billion tranche, and an additional $5 million tranche that was due in February of 2022. Both of these tranches we've paid off this morning after a 30-day call notice. There will be a pre-tax expense of $36 million related to the early retirement or make whole of this debt, which will hit our Q4 results on the interest income and other line in our P&L. Next on the income statement, interest income and other for the quarter, it was lower by $15 million year-over-year, mostly attributed to lower interest income and mostly attributed to lower interest rates within that.
Overall reported pre-tax income from Q3 fiscal 2020 was up 3.6%, coming in at $1.163 billion versus $1.123 billion last year. Again, the $1.163 billion is after taking the impacts of those charges that I previously mentioned. In terms of income taxes, our tax rate in Q3 this year was 26.7%. Last year was 18.5% tax rate. Again, last year, it included a benefit of a non-recurring tax item of $73 million. A few other items of note in terms of warehouse expansion. As I mentioned, we opened two units in the third quarter. That puts us at actually five units total through the first three quarters. We expect in Q4 to open 10, including two reloads, so a net of eight. It looks like our net total this year will be somewhere around 13.
There's been a few that have been impacted by COVID-19 in terms of construction delays and have been pushed into the first part of fiscal 2021, which starts in early September. As of Q3 end, total warehouse square footage stood at 115 million square feet. In terms of capital expenditures, the third quarter fiscal 2020 total spend was approximately $626 million. Our estimated CapEx for all of fiscal 2020 is currently in the $2.7 billion-$2.9 billion range. A slight decline from what we had estimated a quarter ago. Again, I think that has to do with some of the delays in construction since this COVID issue. In terms of e-commerce, as I mentioned earlier, overall, our e-commerce sales on a reported basis increased 64.5% and 66.1% FX.
I should note that within that 66.1%, like many retailers out there, we saw an increasingly level of strength in e-commerce sales over the last few months. If I looked at the three four-week periods that comprise our 12-week third quarter, roughly that 64.5% reported number in the first four weeks was in the 25% range, and the next four weeks in the 50% increase range, and the last four weeks in the 90% range. Totaling that 64.5% on a reported basis. A few of the stronger departments, health and beauty aids, office, majors, housewares, and small electrics. Total online grocery grew at an incredible rate during the third quarter, as I'm sure it did at many places. The comp numbers just mentioned, again, that's the 64% number.
They follow our historical convention where we exclude our third party or same-day grocery program since that comes into the warehouse to be picked up by the third party and delivered to our member. If we were to include that third party in our e-commerce number, that mid-60% comp number would be slightly over 100%. We've seen big strength in driving the business that way. Overall, our e-comm sites have worked pretty smoothly during the quarter, despite dramatic volume increases. As well, we were able to improve on delivery times throughout the quarter as we adjusted to the ramped up order volumes. Now turning to coronavirus and all the issues and impacts surrounding it. From a sales perspective, as discussed last quarter and indicated by our monthly sales results that we do, we started Q3 strong.
I think it started actually in the fourth week of February and into the first two and a half weeks of March with very strong sales as people were stocking up prior to the concern about availability of certain key products, as well as the implementation of various stay at home orders. The middle of the quarter was weaker as many of the geographies in which we operate had issued mandates limiting movement. As well, we had implemented our own restrictions during these times. Recently, our sales have started to recover somewhat as states have begun to relax restrictions. Within the merchandise categories, foods, fresh, and other essentials have been very strong, despite out of stocks on some items throughout the quarter, such as toilet paper towels, cleaning supplies, et cetera, meats and proteins toward the end of the quarter, hand sanitizers and the like.
Office and majors were also strong during the quarter, driven by work from home initiatives, while most other discretionary categories were a little weaker during the quarter, such as jewelry, luggage, third-party gift cards, they were generally weak. Other weak categories, which include things like sporting goods, lawn and garden, patio, and apparel, while they were weak, they've rebounded somewhat towards the end of the quarter. From a supply chain perspective, I'm going to give you a 40,000-ft view of that. On the non-food side, as it relates to imports from China, most of the factories are now up and running. Other major country suppliers, India for textiles and domestics, Mexico primarily for things like TV assembly, a few weeks behind China in terms of getting back to normal, but each week showing improvement.
On the food and sundry sides, paper goods are still on allocation and item limits on certain items in certain regions. Sporadic limits on canned food items like tuna and chicken. The toughest areas, again, are still hand sanitizers, disinfecting wipes, and Lysol sprays and the like. Items like milk and butter are generally okay, and we have eliminated certain frozen proteins like chicken and beef items. In terms of fresh, on the protein side the merchandise is there, but challenging from a production and processing side. Currently for us, pork is the least affected, but somewhat affected. What we've done for the last couple, three weeks, I believe, on fresh beef, chicken, and pork items, so those protein items, we limit three fresh items in total.
We also have limits of one per SKU on certain frozen items, like 10 lbs of hamburger patties or chicken breast or the like. In terms of seafood and produce, that's all good. Again, talking to our buyers in these categories, they're generally, again, probably with the exception of the hand sanitizer because it's not just people were hoarding it, a great increase in use and demand of those items continued. We expect continued improvement generally each week. Lastly, Costco Travel. It was, needless to say, significantly impacted during the quarter due to reduced demand as well as cancellations of previous booked trips. Members are now starting to actually book travel again, although generally further out than we have historically seen, and of course, we book those results when the trips or activities occur.
Our warehouses have overall remained open, although we did operate at reduced hours at most of our U.S. locations for several weeks during the quarter. Regular hours resumed May 4th, with an additional hour on weekday mornings for seniors and persons with disabilities. Warehouses are still following social distancing and sanitizing guidelines. Additionally, as discussed, some of our warehouse businesses like hearing aid, optical, and photo, and to a partial extent, the food courts, were closed or mitigated during the majority of the quarter. Effective May 4th, we now require all members and employees in the warehouses to wear masks. During the quarter, included in, again, that big $283 million number, we spent about $32 million on masks, gloves, and incremental cleaning and cleaning supplies and things like plexiglass partitions and you name it, all related to COVID. That's in that $283 million number.
Some of the initiatives related to $283 million in costs will extend into Q4. We would expect these types of expenses related to COVID to exceed $100 million in Q4, but be quite a bit lower than the $283 million that we had in Q3. We'll have to just wait and see, though. Finally, in terms of upcoming releases, we will announce our May sales results for the four weeks ending this Sunday, May 31st, next Wednesday, June 3rd after market close. With that, I will open it up for Q&A and turn it back to Joseph. Thank you.
Thank you, sir. At this time, for the participants to ask a question, please press star one on your telephone keypad. Again, that's star one on your telephone keypad. We will pause for just a moment to compile a Q&A roster. We have our first question from Simeon Gutman from Morgan Stanley. Your line is open.
Hey, Richard. I know we have to wait till we get the May results, but I don't know how much you can preview us, just given how dynamic the environment is in terms of the mix of product that's being sold, traffic to warehouse, because the environment now you're starting to see other states and stores open. Curious if there's anything you can call out as a preview for May.
I really can't call anything as a preview. Some of the comments I made in this document as it relates to towards the end of the quarter, we saw certain things pick up. The fact that we went back recently to full hours, we're all better, both us, our employees, and our members are better at getting through the warehouse. Seasonally, I think some of the items that were online have picked up that we talked about, but we'll wait and see next week.
Okay. My follow-up on memberships. I think you said FX, they were up 6, if I caught that.
Yes.
Can you parse out U.S. in the quarter, relative to that 6, if that is the right number, and then anything that surprised you with regard to the pace of new members growth, the actual amount or anything geographic?
Generally, no. What we talked about way back when in the end of Q2 and the beginning of this quarter, we saw some pickup when we had these crazy strong numbers and people were coming in to buy all those high demand and short supply items. We saw some additional sign-ups, but not meaningful relative to our whole company in those weeks towards the end of February and the first half of March. Other than that, I think the fact that the traffic is down a little bit, but the average ticket is up, you've got some members that are coming in and bulking up a little more. You have some members that are not coming in as often. That hits you a little bit, but overall we think that we're in pretty good stead.
Okay. Can I just sneak in one more? I just want to ask on e-commerce-
Oh, yeah, one other comment is that we have also seen a switch from walk-in sign-ups to online sign-ups. That's good. When you sign up online, I know you're also required to have auto bill, which is a positive for renewal rates long term.
Yep. Then the last one is on e-commerce, the assortment, the SKU assortment. Any strategic thinking that we should have a bigger assortment than you do? I think you are always adding, but is there a rethink as far as the total number of SKUs?
I don't think necessarily. The only total increase is where we've gone to some additional suppliers and some very limited items. We've expanded our supplier network in some limited cases. Beyond that, it's more of a shift. It started with, if you will, some of the big and bulky items. This started well before COVID, like white goods, and that's continuing. Certainly, the strength that we've had online, whether it's reported online through our 2-Day grocery or through e-commerce or certain third-party providers like Instacart and Shipt and others, all that stuff has driven some of the business from the warehouse online. Again, if I go back six, eight, 10 weeks ago, whatever the normal time to get something was, particularly like 2-Day grocery, was well more than two days. We're back to two days.
Same day, our third-party suppliers had challenges of, they ramped up in the 200,000+ new employees in a matter of weeks. That, too, has gotten a lot better in the last few weeks. I hesitate to use the word strategic. We certainly know that big and bulky can be done very effectively online with a few displays in the warehouse as well, but have that delivered and installed through online, and that'll continue. It probably has been expanded a little bit because of this. People at home, things like exercise equipment and.
Electronics
Big electronics and things.
Okay. Thanks, Richard.
We have our next question from Chris Horvers from JP Morgan. Your line is open.
Thanks. Good evening. A couple of questions on the margin front. Can you talk about breaking down the ancillary margin a little bit in terms of what you saw in terms of the benefit of gas versus the headwinds that you would see from mixing down in those other categories? As you look ahead, given where you see gas prices are at this point, would you expect that benefit of gas, if prices held, to be higher in the current quarter?
Well, there was a perfect good storm in the last quarter as it relates to margins and gas. I think there's, not even our information, but there's public information on strength in retailers that sell gasoline in terms of gross margins. We certainly benefited from that. A little offset to that was a reduced number of gallons, but nonetheless, it was particularly strong, and I think that's evidenced in the matrix. You have higher margins on some of those other ancillary businesses, like optical and hearing aid. While small in size, there's a higher margin because we have to account for the additional cost of optometrists and hearing aid technicians and the like. Those types of things, gas being the biggest piece of it, dwarfs the other stuff, but it all adds up to it was net good for us in the quarter.
Did you have any impact in terms of the apparel category? Did you have to take any markdowns? As you look ahead, how are you thinking about the potential risk of that category impacting? Are you seeing some rebound in that category and don't expect that to be a headwind in the next quarter?
Fortunately, we haven't seen a lot of markdowns. Apparel for us is a big component of it that's seasonal. When this thing first started, we were able to talk to suppliers and work deals where, in some cases, certain things hadn't been made yet, or they had the raw materials, but they hadn't finished the product. Let's pay for part of the raw materials but hold off until next season. We've held on. One of the reasons we went and borrowed money was looking at the worst case, which in our view has not happened, but what if we had to hold some big volumes of seasonal stuff? Whatever commitments we had, we were going to respect. I think a combination of working with our vendors as well as sales have rebounded in those areas a little more than expected.
It's not that people are coming in and going down every aisle. Some are just going and getting their essentials and heading out of Dodge. At the end of the day, I think as the weather has turned, we've felt a little bit more good about things. Who knows what tomorrow brings, though.
Just the last question, also on gross margin. Did you mention that e-commerce was actually a benefit? Most retailers we've seen have a substantial headwind as e-commerce growth accelerated. It didn't seem to occur here, could you elaborate on that?
Well, first of all, it's like, I think everybody, for us, it's certainly a lower margin business as we try to build it over time. It's really the gross margin dollars are stronger because of the huge sales volume. We are spending more money on it. Probably, I don't have it in front of me, but as a percent of profit to the percent of sales, I'm sure is down a little bit, and that's expected. The total gross margin dollars are up simply because of the sheer strength of it.
Understood. Thanks very much.
Yeah.
We have our next question from Michael Lasser from UBS. Your line is open.
Good evening, and thanks for the opportunity for my question. Richard, are you reaching an upper bound of your membership potential in the U.S. with the view that if a pandemic is not going to motivate a regular consumer to sign up for a membership, then it may be hard for them to sign up under any scenario?
Well, we certainly don't believe that. There's going to be two or three new normals over the next two or three years, and probably not a real new normal, and then with its own set of difficulties besides that. We're asked the question constantly, when I talk about this giant 10-plus-fold increase in same-day grocery delivery, that's certainly because there's a group of people that don't want to go out. There's others that want to come in, but they come in less frequently and buy more each time. There's going to be some new normals. Our guess is that whatever it's gotten to is not going to necessarily, maybe does it back down a little bit at some point? Still be higher than it was the day before all this? Sure. Who knows?
That's something that we talk about every day around here, and I think over time, there's been a lot of questions, and we're happy with our renewal rates. We're all going to have to get past this. One of the things we and some others of, what I'll call the big essential retailers, we've all been fortunate that we've been open. When you talk to people anecdotally, they feel, frankly, more comfortable coming into a Costco, which is bigger, more wide open with certainly the 6 ft apart that we're all doing, with the mask requirements. There are a few people that don't like it, but most people do. I think all the things that we're doing, including the visible things that you see in store. Look, at the end of the day, it's a value proposition.
Our average gross margin is in the very, very low double digits, 11% or 12%, implying a whatever, a 13% or so markup. Traditional retail grocers are in the mid- to high 20s, and other big boxes are above that, and regular retail is way above that. Ultimately, it's got to be a combination of all those things. We got to figure out ways to get you in, and I think we've, so far at least, successfully, sometimes begrudgingly, but successfully figuring out how to get you stuff online as well. It'll be a combination, but we'll have to see over time.
My follow-up question is, speaking of online, given the success that you've enjoyed as of late, coupled with the acquisition you made a couple of months ago and the overall increase in online penetration that we've witnessed across retail in the last few months, is there an inclination within Costco to push harder to market your online channel more, to expand your offerings to consumers?
Yeah.
Because of the desire to still push consumers into the store.
Sure.
That you will maintain your posture?
Well, I think by necessity, we have responded and maybe, for those of you, sometimes I'm not suggesting you, Michael, but that feel that we've been a little stubborn or not wanting to do some of this stuff, we still want you to come in. You're going to buy more stuff when you come in, period. We think we can do both. We recognize, and I think white goods was the best example way before COVID. four years ago in the U.S., we did $50 million in white good sales. three years later, we did $600 million on our way to $1 billion, which is getting there faster simply because of COVID right now. Certainly, the acquisition of Innovel helps a lot of higher ticket, big and bulky items, many of which people don't want to put in their back of their Suburban or truck and take home.
I think we'll have to see over time. We feel we've also been pretty good, again, COVID has changed things a little bit right now, of doing marketing and having email promotions that are in warehouse. Again, time will tell over time, and we'll figure it out together.
Understood. Thank you very much and good luck moving forward. I appreciate it, Richard.
We have our next question from Chuck Grom from Gordon Haskett. Your line is open.
Hey, good afternoon, Richard. This is actually John Parke on for Chuck. Can you talk a little bit more about what you're seeing from a gas gallons perspective towards the end of the quarter?
What?
A crossover to those visiting the club, have some of those metrics have changed as certain areas have opened back up and are starting to normalize?
Yeah. Look, just driving to work, you know there's less gas gallons being bought. I think it has picked up a little, as just hearing from the news and seeing, I know in the state of Washington, they have each day, the percentage of cars traveling on different interstates is improving a little bit. Part of it is some of the stay-at-home stuff, and part of it is the weather's gotten nicer and people want to get out of dodge. It has to impact a little. One of our frequency catalysts that we've always talked about are fresh foods, executive member, and gas. To the extent that gas has come down a little bit, that hurts you a little bit. Offsetting that has been the fact that, one, the average ticket in the store was way up, which helps offset the lower traffic.
Again, who knows what tomorrow brings. We're encouraged of how we got through so far. We've seen some things pick up a little bit in the last several weeks in terms of categories or as weather turns. Certainly, some of the openings I think should help us. Again, we'll let you know.
Hello?
Is Chuck Grom still on the line, sir? Okay. We have our next question from John Heinbockel from Guggenheim. Your line is open.
Hey, Richard, when you think about the Innovel, what's the biggest impact that's going to have from a customer perspective? Maybe it's just coincidence. You look at some of the mailers, you've been pushing big and bulky a little more here. I assume that's not tied to Innovel. That's just what you would have done anyway.
I think it's kind of what we would have done anyway. It certainly is because we now have the confidence that we can provide a better service at, frankly, a lower total price. Innovel was one of our suppliers that has always done a good job, as have some others. As we build more volume on it and get more density, that too will allow us to lower the cost and lower the cost to our members. Certainly, with that, and what we've seen, again, I think if you'd asked us four months ago, "Hey, we're going to have this big COVID thing, and this is what's going to happen," we certainly didn't know that we would sell more big and bulky items. What we're finding is because people are at home, notwithstanding some of the economic things of layoffs and furloughs, people are buying things for the house.
We saw that again more recently with not related to big and bulky, but lawn and garden. If you had asked us two months ago, how is lawn and garden going to look, and we'd say that's going to not be very good because of all the economic issues. I think at the end of the day, we are marketing additionally right now because we have the confidence that we've seen the delivery times on certain big and bulky items improve dramatically on small groups of items as we onboard some of those items. It's a year-plus process.
On the savings book, thought process there, it looks like the assortment's sort of getting back to normal from a food and sundry standpoint. When is that fully back to normal, and do you go back to mailings or stay digital only for now?
We will go back to mailings in June.
The assortment normalizes in June as well?
Yeah, for the most part, yes.
Okay, thank you.
We have our next question from Karen Short from Barclays. Your line is open.
Hey, thanks very much. A couple questions on, I guess, e-com in general. Wondering first within the membership growth, any color you could provide on growth in online sign-ups versus walk-in. I want to just ask a little bit more about e-com generally. Obviously, you're blessed and cursed with very high velocity units, and you've had to do the distancing, which has impacted traffic. Would that kind of cause you to rethink potentially a much more robust click and collect model? I just had one other follow-up.
Well, first of all, in terms of online signups, again, there are some members that aren't coming in or coming in less frequently. To the extent they didn't come in the first part of this month, and this is normally when they would come in and when they went through the checkout, it would notify them that they're up for renewal. They are now getting their email, which they would have gotten had they not renewed. That's pushing some of it that way. Certainly anecdotally, there have been plenty of people that have signed up to become members simply because of the one-day fresh or 2-Day dry grocery. We're seeing a big push. I think it's too early to tell what happens in the future. I think more of it will go online just like everything else in life, and we'll do that.
In terms of click and collect, we have very limited click and collect right now. It's in some of those high-value jewelry, small electronics. We did add pharmacy to it, and that's not only click and collect, that's click and deliver. We're expanding. We're not everywhere yet with the benefit of Instacart. Tires, we're doing that, where you could go online, order it, and schedule your tire installation. Photo. We are doing more things, but if you're asking the question to buy online and pick up in store, in general, we're not looking at doing that on a regular product basis.
Delivery instead?
We do delivery instead, again, through third parties in a big way, as well as our own 2-Day.
Okay. I know it kind of seems like a lifetime from now, but when we look towards the fall as it relates to merchandising, like back to school, Halloween, I guess the question is two. How much flexibility do you have to pivot to the extent that there really isn't much of a Halloween or back to school? The second question is just bigger picture. Everybody loves to go to Costco for the sampling. I'm just curious how you think about that going forward. Is that something that we'll not likely ever see again? Is there anything that you're discussing in terms of how you could reintroduce that safely? Anything there?
Karen, I missed the second part of the question. In terms of how do we feel our ability to have pivoted and-- Look, if you go back two or three months, three months ago, we were cutting orders, reducing orders, recognizing there's going to be plenty of merchandise out there in these categories. Certainly for things like Christmas, I think we reduced the selection of a few things, and so a little more regular items than out-there items. Now we're pivoting to try to get a few of those items which are available. Frankly, I think in some ways it's been easier for us because we have so many fewer SKUs, and we're willing to try a few new things. Now I didn't get the second part of your question.
The other part of it was just people love going to Costco for sampling, food sampling. That's a big part of the experience. How are you thinking about that, just bigger picture when we get to a new kind of abnormal?
We're going to start doing some things in mid-June on a slow rollout basis in sampling. I can't tell you any more. It's needless to say, not going to be where you go and just pick up an open sample with your fingers. Sampling, both food and non-food items are popular.
Roadshows.
Roadshows as well. I think you'll see a little bit more excitement on the roadshow side. Things that we can do to get people excited about coming in.
Okay, great. Thanks.
We have our next question from Greg Badishkanian from Wolfe Research. Your line is open.
Good afternoon. This is actually Spencer Hanus on for Greg. Just turning to e-commerce again, can you give us any color on the repeat rates that you're seeing from the new customers that it looks like you're adding to the platform? Have you been able to take advantage of some of the lower online advertising costs that are in the marketplace today?
On the second question, the latter question, I don't know. I'm not up to speed on that in terms of lower prices. I would assume it's what I've read in the paper in general. I'd assume we have some of that ability, recognizing we don't spend a lot to start with. On the first question was what? Oh, repeat business.
What are the repeat rates?
Yeah. You know what? That's another one that I don't know off the top of my head. Sorry.
Great. Just if we could turn to small business customers, can you talk about what you're seeing there? How did the sales go, throughout the quarter for that segment of your customer base?
Well, look, food service related small business is down everywhere. It's been helped a little bit by. We're less about serving the big restaurant chains, but the mom-and-pop restaurants, the takeouts in your neighborhood, the Japanese, the Chinese, the Thai, those types of things, they're doing some business. Arguably, what business we're losing on some of those things we're gaining because you're eating at home. Overall, I think just in looking at fresh foods and the food items of what we call food and sundries, it's been way up, particularly in fresh foods and somewhat in the rest. I think overall we've been blessed. Now, the question beyond that is what happens when everything opens up. I think the new normal's still going to take some time.
You see on the news that even in states where it's been open, there's not everybody running to sit down, and then there's restrictions on how many people can be in a certain place at a given time. Again, having fresh foods has been certainly something that's been very positive for us.
Great. Thank you.
We have our next question from Kelly Bania from BMO Capital. Your line is open.
Hi, good evening. Thanks for taking my question. Richard, I think you mentioned executive penetration, if I heard it correctly, was up 135,000, which seemed to be just a little bit of a slowdown. I'm wondering if it was just impacted by the environment and if you have to do anything to change your process in terms of convincing members to upgrade there.
Yeah. It fluctuates all over the board. Certainly, it shows improvement when we add a country like we've done Japan and Korea in the last couple of years. It certainly is down from its peak a few years back. Probably the biggest things are that, getting back to traffic. Traffic is down a little bit. The other thing is one of the things we do in store a lot is something we internally call eBlocks or electronic blocks. Based on when your membership is scanned, based on your historical purchases, it makes all the sense in the world for you to upgrade to an executive member. We've chosen for the last couple few months not to do eBlock because it's one-on-one direct contact with the member while they're waiting in line at the register. My guess it'd be a little higher.
We haven't opened a lot of warehouses year-to-date. We'll get back to normal on these things, but it does not raise a concern for us at all at this point.
Okay. Just as a follow-up, in terms of renewal rates, I think you mentioned any impact from COVID there will be in the next few months. Maybe just can you give us any color on what we should expect to see? I was thinking maybe there could be a positive impact to renewal rates from this environment, but any color you can share would be helpful.
Well, we do what's called, we've always done it this way, a fully captured rate for renewal rate. Let's say you signed up originally in January, in sometime in December, you get your renewal notice. Let's say we ultimately get to that 91% renewal rate in the U.S. and Canada. By the end of January, for all the people that signed up in January, maybe by the end of January, I'm making these numbers up here at 75%, by the end of February, you're at 82%, by the end of March, you're at 85%. You might even get the last 0.5% or 1% of that renewal rate six months out because it's somebody that was a snowbird or somebody that just doesn't come in that often. There's always going to be that.
Whenever you have a group of new members, irrespective of whether it's online and in-store or in a new country, you have a lower renewal rate in that first respective year, and then it builds each year over as year three becomes the combination of somebody renewing for the second time at a higher percentage than those that signed up originally in year two and were renewing for the first time in year three. We don't know which direction. We wanted to say that because we don't know where it's going to go. The renewal rate right now is mostly related to stuff that happened four, five, and six months ago, and seven months ago.
Thank you.
We have our next question from Paul Lejuez from Citi. Your line is open.
Hey, thanks. Richard, can you remind us of the economics of an online order in terms of basket size and what's in that basket? Separately, curious if there are any categories within the box that you would say are a bit high from an inventory perspective. Thanks.
Well, first of all, from online, there's regular online, which includes a lot of the big-ticket items. I don't have the number in front of me, but if in store, during regular times, the average front-end transaction was in the $160 range . $140 range. I'm sorry, $140 range. Online, which include a lot of big-ticket items, was probably $300-$400 range.
2-Day grocery
Yeah, as we added 2-Day grocery , that number's come down. Certainly, while we don't, again, include e-com, the same-day grocery that the likes of Instacart and others come in and do, that's going to be lower as well. All these things are in flux right now.
Gotcha. On the inventory side?
Again, I'm happy to report that it's less than we braced for the worst case a few months ago or a couple of months ago when we decided to raise some extra capital. Might we have to take things like seasonal apparel and seasonal lawn and garden and luggage. We do have some luggage to sell you. It's a small category. At the end of the day, all those things are less than we thought. Yeah, there will be a small amount of items of probably in the few hundred to several hundred million dollars that will hold for a season or up to a year. These are not things that are going out of style, even in items like apparel, which again, I think our buyers did a very good job of mitigating that impact initially with suppliers.
Also, it's come back a little better than we thought. Not all the way back by any stretch, but better than we thought. In addition, we're not exactly high fashion where things are going out of style. A lot of the things that we have, whether it's some furniture items or apparel. Our senior merchant in the room is not pleased with that comment. Yeah, we're basic. We're fashion basic. We're not too worried about that.
Gotcha. Just, Richard, what percent of members shopped the club in 3Q versus last year, and did this quarter mark a peak in that metric?
I've never looked at it. It's a good question. We'll have that for next time. Certainly, it's a lower percentage this quarter simply because of new members or people that have decided I have friends that have chosen not to go physically anywhere, and they're having things delivered, and they love the same-day fresh. My guess is it's come down a little. Why don't we have two more questions?
Thanks. Good luck.
We have our next question from Greg Melich from Evercore. Your line is open.
Hi. Thank you. Richard, it seems some of the e-commerce was probably 8% of the business in the quarter. If I'm interpreting it correctly, should we think of it as that that would have grown to over 10% if you include the Instacart?
Yes.
As part of e-commerce?
Yes.
Okay. Second is on inflation. You talked about, obviously, deflation in gas and what that did to the top line. Has there been any inflation, especially given some of the shortages in proteins, et cetera, that's worth noting as an offset?
Overall, ex- gas, overall, it's very small. Actually, gas, because it's a lot more sales volume than there is inventory level. On certain limited items, we've seen extreme examples where like eggs for a period of time, some of the protein items like meat. I would guess that it's impacting us a little less than others in some of those categories because of some of our supplier relationships and strengths. It's coming back now. It's coming down. Overall, I would say very little difference that we're seeing.
Got it. On Innovel, just a follow-up on that. How much of Innovel's business was distributing other people's things, and where does that revenue show up, and how are you thinking about either growing or reallocating that capacity?
Well, keep in mind, Innovel was a business built over decades to serve Sears, its owner. Sears, of course, has come down dramatically over the last few years. While I can't disclose all of the numbers I'm aware of, the component that was actually still servicing their needs had come down. Then also, they had gone through their own reorganization as a retail company. With that, I think they lost the business along the way. There's an infrastructure in place with great capacity. We view this as an ability to do great things with.
Could you describe that capacity a little bit? Like number of employees or footage?
I think the employees were 1,500- 1,550, 1,500. There are about 100. There is I think 11 large facilities, call it the roughly 800,000 to 1.2 million square foot facilities. Then about 105 smaller facilities, which could be as small as 8,000 or 10,000 ft or as big as 50,000 or 60,000. And spread throughout, generally serving, I think, 85% or 90% of the U.S. Again, it has a lot of capacity. We've worked with them for five-plus years, I believe. Like anyone else working with them, we're doing a small piece of our business because we didn't know what was happening to the business as its parent was going through its own restructuring.
Got it. Thanks. Good luck.
Thank you. Last question.
We have our last question from Rupesh Parikh from Oppenheimer. Your line is open.
Good afternoon. This is actually Erica Eiler on for Rupesh. Thanks for fitting us in and taking our questions. I wanted to touch on the store capacity restrictions that you've put in place. You talked a little bit about the impact from some of the ancillary businesses being closed had on your sales. Are you able to quantify for us what you think the impact may have been to sales from the store capacity limitations and restrictions that you put in place? As things start to open back up in certain markets, are there any changes in these restrictions you put in place, and can we expect to see these restrictions weigh upon sales for a bit longer?
Well, the only thing that I pointed out earlier was is that those businesses like optical, hearing aid, a reduced food court, those things was somewhere in the middle between 1 and 2 percentage points impact in Q3. Aside from that, when we went from generally closing Monday through Friday at 8:30, we went to, I think, 6:00 . We also added an hour in the morning for elderly and expanded that from two days to three days, and now to all five weekdays. We have not tried to quantify that. I can tell you that when we've had some very busy locations historically and we said, "Let's add an hour in the morning or an hour later at night," what we found is we tend to just spread the business. I think the same thing here.
There's not a lot of big impact other than our qualitative view was that there's a lot more impact from shelter- in- place and stay at home and come and get what you need and leave than there is from anything else. I was encouraged by some of the things I've seen with a couple of the other retail apparel stores that have just started to open and are showing good numbers because people are coming back. I think that is encouraging, but I don't think it was a big impact to us either way. Oh, yeah. By the way, yes, you notice in our numbers, Canada was weaker than the U.S. In Canada, in Quebec, there's current outstanding limitations of Sunday closes, which is new over the last few months.
There's also, I think, been a little bit more stricter generally up there, either stricter or people listening better to stay-at-home issues. We've seen, in a country where we're the only game in town in terms of warehouse clubs, we've seen weaker traffic and therefore slightly weaker numbers than the U.S.
They removed the limit.
Okay. Well, I guess that's a good segue into my next question. I was just curious on the international side, if there's any more color you can provide on what you're seeing internationally with regards to coronavirus impacts. Are there any notable differences in terms of behavior or any other call outs versus the U.S.?
Well, I think, again, putting on my blinders for a minute, Taiwan and China are the most encouraging. China, we have one location, of course, that's been open for less than a year, so we don't have a year-over-year comparison. Taiwan is quite strong. Japan is quite strong, maybe a few weeks behind that. We see Australia coming back. Overall, that gives us encouraging news for the U.S. and Canada. Part of that answer is, so what until we see it.
Okay, great. Thank you so much.
Okay. Well, thank you everyone, and me and my guys here are around to answer questions. Have a good day.