Good morning. My name is Felicia and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year 2013 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Mr. Galante, you may begin your conference.
Thank you, Felicia. Good morning. Today, of course, is our Q1 earnings report for the 12 weeks ended November 25. As of every conference call, I'll start by stating that these discussions we're having will include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 19 95 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 Q1 operating results for the quarter. Our reported earnings per share came in at $0.95 compared to last year's Q1 of $0.73 As was noted in this morning's release, there were 2 one time items that hit last year's Q1 results. The first of these was the settlement of an income tax audit at Costco Mexico last year in Q1. During that quarter, Costco Mexico recorded an after tax charge of $24,000,000 The impact to Cosco's net income as a then 50 percent owner of Cosco Mexico was $12,000,000.03 a share. The 2nd item that hit last year's earnings results was a $17,000,000 or $0.04 per share charge to SG and A line for our contributions to the Washington State I-eleven eighty three liquor initiative.
Excluding these two one time items from last year's results, last year's $0.73 reported figure would have been $0.79 making this year's $0.95 figure a 20% year over year increase. In terms of sales for the Q1, our 12 week reported comparable sales figures in Q1 showed a 7% increase, 7% in the U. S. And reported and 9% internationally. Excluding gas price inflation and the impact of FX, the 7% U.
S. Comp reported number would have been 6% the 9% reported international comp would have been 7% and the 7% overall would have been a 6%. Other topics of interest, I'll talk about our opening schedule. 1st, we opened 9 locations during the 1st fiscal quarter of 2013, 8 in the U. S.
And 1 in Alberta, Canada. By the end of this week, we will have opened in the Q2 5 additional locations, one in Washington D. C, one additional one in Canada, one in the U. K. And one in Korea, which is later this week, giving us 14 new openings thus far in fiscal 2013.
For all of 13, we have a current plan of 30 new locations, 14 of which are planned for the U. S, 3 each in Canada and the U. K, 1 in Australia, which will be our 4th in that country, a new one in Mexico, our 33rd location and the first new opening in Mexico in a little over 3 years and 8 in Asia, including 5 in Japan, 2 in Korea and 1 in Taiwan. Also this morning, I'll review our e commerce activities, our membership trends, additional discussion about gross margins and SG and A in the Q1, stock repurchase activities, which were relatively small and of course the 2 subsequent events the announcement of a $7 per share special dividend, which will be payable on December 18 and the sale of $3,500,000,000 of senior notes. Okay.
On to the discussion of the quarter. Again, very briefly the sales for the year, the 12 weeks ended November 25 were $23,200,000,000 up 9.6% from last year's Q1 of 21.2 percent. On a reported comp basis, 1st quarter comps were up 7% for the quarter and excluding gas and FX up 6%, again comprised of 6% U. S. Without gas and 7% international in local currencies.
For the quarter, our 7% reported comp result was a combination of an average transaction increase of about 2.5% and an average frequency increase of just under 5%. In terms of sales comparisons by geography, geographically all the regions have been fairly consistent for the past few fiscal quarters, generally in the mid to high single digit positive range. One outlier was due to Hurricane Sandy hitting the Northeast. Comps for the Northeast region in November were lower than it had been running by a couple of percentage points. California has been in the mid singles positive range.
Southeast and Midwest in the mid to high singles. Internationally in local currencies during the quarter, Canada continues strong coming in in the low double digits for Q1 and in the mid to high singles in November. Where international sales results are being hit is in Asia, in a word cannibalization. Since Q1 end a year ago, we've opened 1 unit in Korea. We now have 8 there.
1 unit in Taiwan, which brings us to 9 and 4 new locations in Japan, so we now have 13 in Japan. So 6 new openings in the past year on a base a year ago of 24. Additionally in Korea, a few months ago, we like other big box retailers in Korea are now required to be closed 2 Sundays a month. In terms of merchandise categories for the quarter, for the Q1 September, October, November essentially within food and sundries overall in the 4 to 6 range candy deli and refrigerated being the relative standouts. Our hard line sales were quite a bit stronger as compared to recent quarters.
Majors electronics came in in the high teens and hardware in the mid teens, overall in the low double digits for hardlines. Within the low double digit softlines comps, small electrics and women's apparel were the standouts with media being the area of continued weakness. And within Fresh Foods, its comps have been in the mid to high single digit range, all subcategories pretty good results. Moving down the income statement. In the Q1, membership fees $511,000,000 or 2.20 percent.
That's up 14% or 9 basis points from the $447,000,000
a year
ago or a $64,000,000 increase. In terms of membership, we continue to benefit from several things. Certainly, we're still benefiting from the 5 $10 membership fee increases that began last November in the U. S. And Canada for new sign ups and this past January for renewals.
The $64,000,000 increase year over year in membership fee income about $28,000,000 we estimate was due to these increases based on how deferred accounting works. Income statement benefits to the membership income line as I mentioned before will continue to show year over year incremental year over year increases throughout the 4 fiscal quarters of 2013 and to a partial extent in the Q1 of fiscal 2014. In addition, we've got new openings that have helped as well as strong renewal rates rounding up to 90% in the U. S. And Canada and 86% worldwide and continued increasing penetration of the $110 year executive in the U.
S. And Canada. Our new membership sign ups in Q1 company wide kept pace year over year with last year sign ups. While we did have more locations open in the quarter 9 versus a year ago 4, we think it's a pretty good outcome given that there were very strong international openings last year, which contributed to a very large sign ups in Q1 a year ago. In terms of new members for Q1 end, at fiscal year end, we had 26,700,000 Gold Star members.
That's up to 27,300,000 at Q1 end. Some of that, of course, is the conversion of some of our business add ons they convert into executive member and become their own separate membership. So again 26.7% became 27.3 percent primary business 6.4 percent at year end and 6.5000000 at Q1 end business add on 3.8 and down to 3.6 again that's related to that conversion. And so all total $36,900,000 and now $37,400,000 including add on spouse cards 67,400,000 cardholders at the end of Q4 68,200,000 cardholders 12 weeks later at Q1 end. At Q1 end, paid executive members were $12,900,000 an increase of $280,000 or about $23,000 a week increase in the quarter.
Executive members account for a little over a third of our membership and a little over 2 thirds of our sales. That trend continues as well. In terms of renewal rates, they continue strong at 89.7% at Q1 end in the U. S. And Canada and 86.4% worldwide.
Business was a 93.6 percent at Q4 end and ticked up to a 93.8 percent at Q1 end. Gold Star remained constant at 88.7 percent and total 89.7 percent and again worldwide 86.4 percent so continuing strong in all categories. Overall, it certainly appears that the year ago's membership fee increase had a little or no impact on our renewal rates. Going down the gross margin line. Margins were up 6 basis points year over year in the quarter from a 10.6.2% last year to a 10.6.8%.
And as usual, we'll just jot down a few numbers, give you a few less this time. We'll make 4 columns and the line items are as follows. And the 4 columns by the way would be reported fiscal year 2012 and then fiscal year 2012 without gasoline inflation. And then for the quarter the same thing reported Q1 2013 and then without gas inflation. So those would be the 4 columns.
Going across core merchandising for the year it was minus 21 basis points. Without gas inflation it was minus 13. For Q1 reported was minus 7 and without gas minus 1. Ancillary plus 1 and plus 2 for fiscal 2012 reported and without gas and in Q1 plus 14 and plus 15. 2% reward minus 2 and minus 2 and in the quarter minus 2 and minus 3.
LIFO plus 8+8+8 for last year and plus 1+1 in the Q1. All told, we reported for all of last year a 14% year over year decline in gross margins, but without gas inflation it was minus 5. In the Q1, we reported plus 6 without gas inflation it was plus 12. So with that chart in front of you, you can see that our overall gross margin was higher year over year by 6, but again up 12 without gas inflation. In the Q1, our core merchandising gross margin again was a minus 7%, but only 1 basis point lower year over year excluding gas inflation.
This one basis point negative result compares favorably to the previous 4 fiscal quarter figures where the year over year core merchandising gross margin variances had ranged from minus 10 to minus 16 basis points. And again, as you can see in the chart we just wrote down for all of last year range averaged minus 13 basis points. Ancillary business gross margins contributed 14. Higher year over year gas sales both in dollars and gallons and higher year over year gross margins in the gasoline business represented about 2 thirds of this positive year over year gross margin variance. Margins in our food and sundries department, which is a little over half of our core merchandise were up slightly year over year in the quarter, while in non foods hardlines was flat year over year and softlines margins were down slightly as were fresh foods.
The 2% reward feature, again, just a little extra sales penetration, therefore, a a -two basis point reward. That of course would imply about a percentage point increase in sales penetration to those members. And LIFO, there was no charge or credit last year and there was a very small credit this year of $2,000,000 or 1 basis point implying some minor amount of deflation during the fiscal quarter. Moving on to SG and A. Our SG and A percentages in the quarter were lower or better by 7 basis points coming in at a 10.05% compared to a 10.12% as a percent of sales last year in the quarter.
Again, we'll do the same little chart with the 4 columns, 2 columns for fiscal 2012 reported and without gas and then 2 columns for Q1 reported without gas. First line item is core operations. In fiscal 2012 plus 2018 and then without gas inflation plus 12 meaning lower better or lower by that much. In Q1 plus 10 and plus 5. Central was a small improvement last for the whole fiscal year of 2012 plus 2% and then without gas plus 1%.
And in Q1, SG and A was higher at Central minus 7 and minus 8 without gas inflation. Equity compensation was minus 1 and minus 2 for all of last year and minus 4 and minus 4 in the Q1, certainly a reflection of both the higher stock price as well as there are certain recipients that get them every other year and we're trading off a year versus that when that doesn't happen. All told, plus 17% and plus 9% for last year, so reported SG and A I'm sorry, excluding quarterly adjustments. Quarterly adjustments was just basically that $17,000,000 charge to SG and A last year in the Q1 for I-eleven eighty three. For all of the year that was a minus 2% in the reported fiscal 12 column and a minus 2% without gas inflation.
In Q1, it was +8 and +8, so lower year over year of course. So a total of +7+1 meaning we reported 7 basis points of improvement and without gas inflation plus 1 basis point improvement. In terms of a little editorial, operations were lower again in this you can see in the chart by 10 basis points, but 5 excluding gas. Within core operations, our payroll as a percent of sales improved year over year by 7 basis points. And I think for the first time in the past few quarters, we benefited slightly by a 2 basis point improvement in health care cost line item.
Our central expenses were higher year over year in Q1 by 7 basis points as you can see 8 without gas. The big culprit there is something I've mentioned in the past few quarters that has continued to increase is the IP modernization costs. We are now in full swing and that represented year over year 7 basis point hit to SG and A. Next on the income statement line is preopening expenses, dollars 10,000,000 last year and of course with the ramp up and expansion that's $8,000,000 higher this year or that was 3 basis points for the company, but $18,000,000 this year versus $10,000,000 last year. Last year in the quarter, we had 4 openings.
This year, of course, we had 9 with 5 more just after Q1 end. All told, reported operating income was $543,000,000 compared to last year compared to $639,000,000 this year or an 18% increase. Excluding the $17,000,000 charge for I-eleven eighty three, operating income last year would have been $560,000,000 or up about 14%. Below the operating income line, reported interest expense was much lower this year versus last year with Q1, 2013 coming in at $13,000,000 versus $27,000,000 in last year's Q1. Virtually all of this is the pay down represents the pay down of $900,000,000 of debt back in March, which we did on an annual basis beginning this past March.
The annual pre tax interest savings to Costco given that we paid off 5.3% debt and we're then foregoing interest at a much lower rate and that's about $44,000,000 pre tax a year. Now interest income and other in Q1 was much lower year over year as well by $17,000,000 coming in $20,000,000 this year interest income and other and $37,000,000 last year. Actual interest income within that interest income and other was only lower by 1,000,000 coming in at $10,000,000 versus $11,000,000 The other component of the interest income and other amounted to $10,000,000 this year versus $26,000,000 last year or lower by 16,000,000 dollars Now $12,000,000 of that negative variance related to a gain last year in the Q1 on U. S. Dollars held at our Mexico joint venture, because Mexico venture held U.
S. Dollars and the during that quarter the peso declined relative to the value of the dollar, its holdings of the U. S. Dollar which is a foreign currency to them required marking that to market in a gain. That $12,000,000 of course half of that gain was ours ultimately since we owned 50% of Costco Mexico at the time.
So half of the gain was so all of the gain was in the interest income another line a year ago and half of it was down below a non controlling interest as an offset. Most of the remaining year over year decrease of approximately $4,000,000 is just a normal swing plus or minus where buyers managing the cost of foreign denominated inventory purchases in our foreign operations, which require at the quarter end to mark those to market. Overall, pre tax income was up 17% last year from 5.53% to 6.46% this year. And again excluding I11 83 that would have been last year's 553 would have been 570 so the increase would have been 13%. In terms of tax rates, our company tax rate this quarter came in at 34.8%, much lower of course than last year's reported rate of 40.8%.
But excluding the two items mentioned in the press release, our effective tax rate last year was a 35.3%, which I think is a more appropriate comparison, still about 0.5. Higher last year than this year. And again that reflects mostly the fact of increasing penetration of overseas of earnings outside the U. S. Where federal tax rates generally are lower.
Overall net income was up 30% as you know in the press release. Excluding those two items in the press release that would have been up 19 Now for a quick rundown of other usual topics. The balance sheet is included in today's press release. Depreciation and amortization $213,000,000 for the quarter. Accounts payable as a percent of inventories reported of course it showed 108% year over year and up 5 percentage points from 103% last year.
If you just looked at merchandised inventory accounts payable compared to merchandise inventories, last year it was 92% and again improved up to 94%. So most of our inventory is trade payable financed. Average inventory per barrel last year in the Q1 was $12,871 This year in the Q1 it was $13,200,000 so up $432,000 or 3%. About $100,000 of that just under $100,000 of that is FX strengthening foreign currencies versus the dollar. Another $130,000 is in majors principally television and cameras.
We've done very well as you know in the monthly sales reports about how our comps in the majors areas have been. And the rest is pretty much spread among many departments. In terms of CapEx, in the Q1 we spent 488,000,000 13 CapEx is estimated to be approximately $2,000,000,000 This compares to CapEx last year of just under $1,500,000,000 Some of this higher annual year over year estimated expenditures are due to both higher penetrate should have the number of units planned in Asia as well as anticipated higher ramp of total opening schedule for Q1 and beyond. Also I want to mention our dividends our regular dividend. Our quarterly dividend of $0.275 per share quarterly.
This $110 per share annualized dividend represents total cost of the company of just about $480,000,000 In terms of expansion, as you know last year we opened 16 units, 17 openings and 1 including 1 relocation, so 16 net openings. For this year, we've as I mentioned opened 9 new units with no relos. Actually there's no relos all year. So in Q1 we opened 9. In Q2 with the opening later this week in Korea we will open have opened 5 more so 14 total.
We plan 3 we plan 7 for Q3 and 9 for Q4 and that would give us our 30. Certainly, we're going to get north of 25 and 1 or 2 of those slip so be it. But that's our current budget 30. So in fiscal 2012, the 16 units we added on that then base of the beginning base of 592 represented 3% square footage growth and 13% adding 30% on a base of the 6 0 8% that we be in this fiscal year is about 5% square footage growth. And again that includes 14 in the U.
S, 3 each in Canada and the U. K, 2 in Korea, 1 in Taiwan, 5 planned for Japan, 1 in Australia and one in Mexico. As of Q1, our total square footage ended at 88,259,000 square feet which represents an average of just over 145,000 feet per Costco warehouse. In terms of stock repurchase during the quarter, for basically for as you recall for all of fiscal 2012, we had purchased 7,300,000 shares for a total of a little over $600,000,000 This year in the Q1, we repurchased 357,000 shares at an average price of 96.41 dollars that represented about $35,000,000 Mind you that during the 12 weeks there were only about 3 weeks that we actually purchased stock. For the 1st 5 or 6 weeks between the beginning of the fiscal quarter and through the day after of Q1 earnings announcement in I think the 2nd week in December, we essentially were locked into a previous 10b5-1 filing and the stock had moved above that matrix.
So we weren't buying. And of course once we decided to do a special dividend, we held off on buying during the last few weeks of the quarter as well. So if I looked at the days we actually bought on an annualized basis, it was in excess of $500,000,000 on an annualized basis, but who knows what that brings for the future. And lastly, the 2 subsequent events. 2 weeks ago on November 28, we announced the declaration of a $7 a share special cash dividend.
This dividend will be paid on December 18 to people who own the stock on the close of business on December 10. In total, the dividend represents return to our shareholders of just over $3,000,000,000 By the way, in connection with the Costco shares held by our employees in the 401 plan, which totals approximately 22,600,000 shares. These shares are held through an employee stock ownership plan that had been tax purposes. So we will recognize a one time income tax benefit of approximately $62,000,000 in the 2nd fiscal quarter of 2013 in connection with a dividend payable on December 18. Also on November 28, we announced the completion of a $3,500,000,000 public debt offering in the form of senior notes.
The notes were issued amongst 3 tranches 3 year $1,200,000,000 worth 5 year $1,100,000,000 and 7 year $1,200,000,000 Given the weighted average maturity of 5 years, our all in annual rate of interest came in just under 1.25 percent, so we believe extremely attractive financing. With that, I will turn it back over to Felicia. As you know later this morning there'll be a supplemental information pack which includes some useful stats and that will be posted to the Costco Investor Relations site later this morning. Felicia?
Time, I would like to remind everyone. And your first question comes from the line of John Heinbockel with Guggenheim Securities.
So Richard, a couple of things. What are your merchants now saying about reflation in 2013? I mean, it seems like it may be less than we originally thought, but there's still would seem there are some price increases coming down the pike. What's their thought and what's your thought in terms of what you put in the budget? Well, I think the buyers are the ones that more put in the budget.
And but in polling the buyers just yesterday actually. The one the area that stands out would be components of fresh foods notably protein, beef, poultry and pork. The view there is there's still additional mid to high single digit inflation expected over the next 6 to apparel is down ever so slightly year over year, but that's partly because it was up a lot last year. So it's coming off of its peaks. It's still probably higher than a few years ago.
So I would say the overall view aside from electronics being down slightly per like item, but actually our average price points are up a little I believe because we've tended to go towards higher end like 60 inches 80 inches TVs and more SLR cameras and DSLR cameras and the like. But just looking down the list of some unusual items, again, tuna looks like it's come up a little bit, canned tuna. As I mentioned, beef is up some. There's always going to be some ups and downs on produce just based on supplies. Grapes are and blueberries are dramatic right now higher year over year, but I'm sure it's weather related not anything else related.
And on the downside, when I scan the list of the top 20 or 30 items here, most of them are electronics with a few other things. I mean, just anecdotally pecans and walnuts. But I know a year ago, again, they were way up. So if you put it all in, my guess is, is that gas who the heck knows? Fresh foods, inflationary.
The rest of it kind of a wash at this point nothing up or down a lot. But probably not enough to dampen demand it sounds like right? Not in our part. Okay. Now your big competitor has talked about price investments and other than rotisserie chickens.
I can't see a lot of big change in the competitive environment or the intensity of competition. What have you seen? And it doesn't look like you've had to do any reaction thus far. Is that likely is that sort of the plan going forward based on what you've seen today? I can only speak of today and yesterday and prior, but we don't see any big changes there.
Okay. And then I guess finally, when you look out into January, is there any either with your individual customers or small business customer, Do you think as best as you can tell, do you think the cliff has it created any change in behavior to date? Do you think it will? Or it's pretty much a non event for you? Well, I think again we're a little jaded here because our numbers particularly our frequencies and our comps have been pretty darn good.
I think we like everybody have a little of cautious optimism that they're going to do at least a compromise or they better. So we're not really focusing a lot on it right now. Okay. Thanks. I would think that we do a little better than others at least if history continues.
That's fair. Thanks a lot.
Yes. And your next question comes from the line of Mark Wildemeyer with Morgan Stanley.
Hi, Richard. Congrats on the quarter.
I wanted to ask a little bit about the core merchandising margin only down 1 basis point ex gas. Is there any change there? Or can you really point to what was going on there to keep that number muted?
Not really. I mean, as we've always said for many quarters, margins are more us than anybody else. No, no. There's it's pretty much as you see it. It's a little better.
I don't think we started the quarter saying let's get a little better or let's get that trend back to 0, but that's where it ended up. We're trying to do both drive business and make money.
And have you seen an uptick in
your private label penetration or anything like that that might be contributing?
Products either anything from some wine and spirits to canned goods and all kinds of nut and candy items. So I'd say nothing dramatic. The big dramatic number came in the first half of calendar 2009 after the financial crisis where we saw an unusually large increase in sales penetration of private label. I think on the food and sundry side over 6 months back then it was like 300 basis points. But generally we see 0.5% to 0.75% a year and I don't I'm not aware of anything that is different than that right now.
Okay. And then lastly Black Friday, how did that go for you? It looked like there was
a lot of activity in the electronics part of the store, especially with the manufacturer rebates that were being featured there. How did that look for you in that category?
It was fine. No surprises versus what we had expected. We've now done some of our own Black Friday coupon handouts and the like for the last few years. And so, yes, we were pleased with it.
Okay. Thank you very much.
Yes.
Your next question comes from the line of Greg Melich with ICI Group.
Hi. It's Greg with ICI.
Richard, one
question on SG and A and then CapEx. What really drove that central increase? Is that some of the monetization impacts or getting the website up and running in the new format? Or what should we call out there?
Well, the big when I look at IT costs as a percent of sales year over year, they were up 7 basis points. My guess is a half or one a half of a basis point might be replatforming maybe another half a basis point or a whole basis point is normal increase in IT. But clearly 5 plus of it is modernization. And that's probably has trended up a little extra year over year over the last few quarters and will probably peak this year and then it will be anniversarying against itself each year over the next 3 or 4 years.
Got it.
And as it Go ahead.
As it anniversary, do you expect it to go back to 0 or do you actually cycle it and it becomes a year over year down for Good Guy?
Well, I don't think it's going to go down for 2 or 3 years. These things take on a life of their own, but it will be a lot less than 5 to 7 basis points. I mean, I would hope again, we haven't budgeted that detail that far out, but I would hope it's 0 to 2 not 5 to 7 next year. And by the way, regarding the prior question as related to Black Friday, I just was looking the that week on a year over year basis frequency was still darn close to 4% just below 4%. So pretty consistent with what we've seen all over.
That's great. And if I could follow-up on the CapEx front. I know it's going up because we're having more club openings. Could you help us on the international openings and how many of those you actually build and own the store as opposed to lease it? Because I imagine it's less when you go overseas than the U.
S.
I don't have that detail in front of me. I can tell you that when we look at the average location cost, which might be on average over the last couple of years company wide in the mid-30s, it tends to be a shade lower than that in the U. S. And Canada and higher and it might be in the 40s on average over like let's say in Asia. But we've done a couple that are in the low 50s and I would assume we'll continue to do that.
In Korea, we tend to do more ground leases. In Japan, we tend to own. In Taiwan, I think we've tend to it's a combination, so ground leases as well. Australia, I think we own and Mexico we own and U. K.
We own and in Canada and the U. S. We generally own 80%
plus. Okay. So the ownership rate doesn't seem to change dramatically if we're looking at international
or not? No, particularly because we tend to right now we're tending to open like in Asia more in Japan than in Korea and Taiwan where we tend to own more than lease.
And then just lastly a follow-up on gross margin. I think you mentioned in hardlines gross margins were flat. I'm just surprised on that especially given the strength of electronics. Was there anything else going on in there that could have impacted it?
Well, that's not really. I mean, I think sales were strong. But in terms of the outright gross margin year over year, look there's a lot of hot deals over there. I don't I didn't really read anything into that. There's not a lot we've certainly improved on our returns over the last few years as we changed our returns policy in electronics to 90 days instead of infinity.
But I haven't in terms of anecdotally in the last few budget meetings, there's not been nothing there hasn't been anything coming out of there in terms of any issues in electronics or hard line. Thanks.
Your next question comes from the line of Charles Grom with Deutsche Bank.
Good morning, guys. It's actually Matt for Chuck. Most of my questions have been answered. I was just wondering if you could kind of flush out your comments about the cannibalization you're seeing in Asia and kind of where that is relative to what you expected and what you think is going to happen kind of going forward as you continue to open up? Thanks.
Yeah. Well, I mean, it's as we expected. I mean, as an example, I think in Taiwan, we opened North Kaohsiung, which of course took a bunch of business from Kaohsiung. In Japan, earlier this year, we opened and reopened Thomas Sakai, which was the one unit that was that had been closed for about 10 or 11 months from the tragedy of the earthquake. Essentially all of that business went to 2 or 3 nearby Cascos.
When I say nearby, half an hour away. And the day it reopened that unit is not comping because it hadn't done any sales over the last year, but it took all that business out of the other 2. So on top of regular cannibalization, we had extreme cannibalization in that one. So all that's that was yes, in March. That will subside in this March.
But nonetheless, I mean, we're opening a bunch of units over there. So that will continue as we expect.
Okay. Great. And then just a follow-up. In terms of the Northeast, you said it was obviously weak given Sandy. Have you seen the recovery kind of take hold?
And are we back to normal in this area yet?
Yes, we are.
Okay. Thanks a lot.
Your next question comes from the line of Colin McGranahan with Bernstein.
Good morning. Thanks, Richard. Just a quick follow-up on Asia cannibalization. It looks like the comps in international ex currency were running kind of in the 10% range for all of fiscal 2011, the first half of fiscal 2012 and then the last few quarters in the 7% range. Is that entirely explainable by cannibalization?
And can you quantify what that cannibalization impact is in total on the international business?
Yes. A big chunk of it is. I don't have that all that detail in front of me. But if I look at Japan and local currency as an example, I mean it's easily from up. I don't have the exact I don't have no one was running I'm sure is running in the low double digits.
And of late it's in the high single negative digits. And you look at it and we've opened 4 units in the last year. And what did that impact? Those units those new units aren't in the calculation yet. And so half of the previous units or almost half of the previous units are being cannibalized and 1 extreme and 2 of them extremely cannibalized because you'd had a high volume Thomas Aquai unit existing location that's been closed for 11 months and all those customers came back to their home base.
So, yes, we don't and then again, there's the anomaly in Korea of having to be closed for 2 Sundays a month. If you just do simple math, it's 115, that's 6% or 7% of the days. You don't lose at all, but you certainly lose some or half of it or who knows.
Okay. That's helpful. And then back in the U. S, how many clubs that don't have a gasoline station can still be converted at this point? And where are you on that entire path?
I think in the U. S. We have about 4.40 locations that could be off 1 or 2 and I think about 70 of them don't have gas. My guess without looking in detail is that half of them ultimately can have gas and half of them will never have gas. We're never going to have a gas station at 11th and Harrison in San Francisco or in Brooklyn.
Just they're landlocked and forget about it. And I'm sure there'll be some that we're working on. I don't have the list in front of me. And there'll be others that will relocate. So probably a best guess is over the next 5 to 8 years half of those seventy.
And my guess is when we open new ones virtually all of them do. There's always there'll always be one outlier, but virtually all of them have gas stations as is in Canada. Now in Canada, we have hold on I got a list here. In Canada, we have 83 locations, 38 of them have gas, so 45 of them don't recognizing we've only been in gas in Canada for the last few years. So again, my guess is that 2 thirds of those that don't have it will have it over time.
Okay. That's great. And then just very quickly, you went through the variance on other income relative to last year, but what's the $10,000,000 of actual other income this year?
Bear with me. Interest income.
Well, it's $20,000,000 of interest and other income and there is $10,000,000 of interest. So there's $10,000,000 of other income.
Yes, there is. He's asking is the $20,000,000 that we had hold on I got to look real quick. When I look at interest income and other hold on a second. Okay. That $10,000,000 was investment income and $10,000,000 is mostly equity and earnings of hold on.
I just did the variance. Hold on. Basically, it's about $8,000,000 or $9,000,000 of FX related stuff. But by comparison, it's within $500,000 a year ago, so no change.
Okay. Thanks. I was just trying to figure out how persistent it is for modeling purposes. I appreciate that. Thanks.
Mind you, just because it's about the same year over year means nothing.
I understand. Okay.
Your next question comes from the line of Karen Short with BMO Capital.
Hi, there. Thanks for taking my question. Just on the SG and A, Robert, you pointed out payroll and healthcare. Just wondering how sustainable you think that might be throughout the year?
We always certainly payroll depends. I mean, I think we've certainly shown that we've focused a little more on expenses and payroll and that's we've gotten it down. But certainly sales are a big part of that as well and increased penetration outside the U. S. Where payroll percentages as a percent of sale are lower to start with.
Our $20.5 average hourly wage in the U. S. Is a third to 60% of that number in other countries and close to it in Canada of course and a couple of countries as well. But so that helps increasing penetration. On the Healthcare, I think if we got a couple of basis points, it's probably more related to sales being stronger and getting it down a little back to flat without it.
So, still hit and miss there. Several components of all the new health care legislation, which have kind of hit each year incrementally a little more. I think we're nearing the end of that. So a lot of that stuff if you will, is in there by the end of this year at the end of next year rather. So I can't predict that it's a trend by any means yet.
Okay. Thanks. And then any color on the online sales growth in general with the website revamp and rollout of the U. K, right?
So far so good, but I don't want to really give numbers out because it's only been a few 1.5 months and probably talk about that more on the second quarter call.
Okay. And then just last question. Any comments on fuel profits in the quarter comp gallons and total fuel sales?
Gallons, I think I have Holt. We generally don't give that, but I'm here so we'll get it. Let's see. Volume, do you have it handy? I don't have it.
I think in the last couple of budget meetings, it's been running in the mid single digit range positive.
And then it's a lot
Mid to high single digits.
Okay. And then anything on tax rate going forward that we should think about?
I'm sorry?
Anything on the tax rate going forward that we should think about? I mean, I know you might comment on the issue of the $16,000,000 I think in the 2Q, but
Yes. Other than that, I mean, I think the number in that 35 range, on a normal basis somewhere in the 35 maybe a shade higher. But the trend line if international's penetration continues which we expect to would see that again trending down ever so slightly certainly up all things being equal.
Great. Thanks very much.
Your next question comes from the line of Mark Miller with William Blair.
Hi. Good morning, Richard. One thing that really stands out for me with Costco versus other discounters is that the comp growth is very consistent for you across the product categories. So not just food and consumables, but also very strong in general merchandise. So can you expand on what you think you're doing differently or better, especially in hardlines and majors?
Well, I think I can give you a different reason for some different categories. From the beginning of time, we've always known we could be strong in foods and fresh foods and the key is how do you those are fast turning areas. So how do you turn the bigger ticket non food items because you don't have to add more square footage for it? If you can get something that's turning 6 and 8 times up to 9 and 10 that's good and bigger ticket items. So we've always focused on that.
I think of late, if I think of electronics, certainly our strength in 60 inches and 80 inches TVs, the bigger higher quality TVs that's helped us. Clearly getting people in the door via gas and fresh foods and having them walk by those types of things. I think in apparel, certainly we've made a conscious bigger commitment in several of those areas over the last year, year and a half. I think I used the example last quarter something as simple as like the men's wool Kirkland Signature pant, which I think we tested a couple of years ago with 100,000 units and last year 200,000 units and this year 1,000,000 units that's 60 or so dollars a pair. And they're doing well.
And so not only we're making a decent margin, on the private on the KS shirt, we've gone from just the standard one to a couple of different styles with a spread collar. And so we're up to 4 +1000000 KS shirts. So overall making some bigger commitments. Jewelry is strong not just because some of the prices of components have gone up, but jewelry has been pretty good of late.
Great. Thanks. New member sign ups, I'm assuming benefited during the Q1 due to the rise in gas prices during the summer, especially in California. I mean to what degree did that was that material? And then as gas prices have come down might that slow member sign ups in the periods ahead?
I don't think a lot of it relates to that. I mean, yes, a little bit of it when we get somebody when a newscaster talks about it in a given market certainly that helps. When I look at the numbers on a base of about 1,300,000 new sign ups in each of the fiscal prior 2 fiscal quarters. Again, when I talked about Australia and Japan last year, which opened near the end of very, very just before Q112 a year ago and into Q222 Japan a couple of units. Just those two markets represented almost 90,000 fewer sign ups year over year because of the huge sign ups we have in those markets during the 6 or 8 weeks prior to opening and then they're booked as of opening day.
So that again dwarfed anything else. And the fact that we were flat year over year given 90,000 less in those few locations is pretty good.
Great. Thanks. My final question is previously you'd indicated 7 to 30 new clubs as your plan for this year. This morning you said in your prepared remarks 30. Is there anything I should read into that?
I mean do you have higher visibility now for this year? Or is that should I perceive it to be the same?
Well, I think earlier in the probably a quarter ago I talked about 25 to 27. Again, if pushed I'd probably say 27 to 29, but 30 is our budget and they're all doable. There's always the chance that a couple will fall out, but I think we're getting more confident of those numbers. So if my single point estimate was 27% or 26%, now it's 28% or 29%.
Thanks, Richard. Yes.
Your next question comes from the line of Dan Binder with COSCO.
Hi, Dan Binder with Jefferies.
I had a couple of questions. First on the membership growth, what do you think we should see given I guess the extraordinary sign ups per club last year? What do you think average sign ups per club should look like this year for the 30 or so stores that you're opening?
I don't have haven't looked at it that way and our marketing our membership guys not here. But it ranges again, some of these locations overseas can be and again when I say opening day sign ups, it's anything that was signed any paid member sign ups during the 6 or 8 weeks prior to opening when they've got the tabling activities outside of the construction site through opening day. And in the U. S. In very strong Southern California markets, but we're popping a unit in where we have a bunch of members already.
It's just moving around where they shop and shopping more frequently because they're closer to a location. We might have 3 to 6000 as of opening day and another 5000 to $10,000 or $8,000 to $12,000 over the next 12 months that 1st year. In a new market, a small new market like Tennessee or a Carolina unit, we might have 4000 to 7000 or 8000 new sign ups in the first day as of that 1st day, which is more than a high volume LA unit when we open it. But again, it has somewhere to do with that. Again, over in Asia, we've seen numbers in the 25% to 50% range as of the opening through opening day.
And so, well over the company average for all members warehouses that have been open whether they've been open a week or 29 years. So there's no right number there.
And then if we look at existing clubs, how does the new member growth rate look like in existing or comp clubs?
At the end of the day, I don't again, I don't have that level of detail right in front of me. But when I've looked at it in the past, if our renewal rate is just under 90, let's say in the U. S. And Canada and just call it 90 for a moment for simplicity. We lost 10 and we gained 11.
I mean it's always up a little bit more by just a little bit more than it was at the beginning of the year. And that of course is cannibalized a little bit when we open in an existing market a little bit. But then those new sign ups in those new markets help us. So it's a lot of there's no major trend changes if you take out cannibalizing units and take out some of the crazy high numbers in some of the new Asia units or the like?
And then my last question was on SG and A. 7% comp impressive. We've got sort of flattish SG and A year over year rate. As we look forward, do you think that because of the accelerated store openings this year that to get leverage on SG and A going forward this year, we need to be at 6% or 7% or do you think you can achieve it at somewhat lower levels?
Well, I think there are a couple of things. Again, IT my guess will continue for these next few quarters. What I didn't mention there's always 4 or 5 miscellaneous line items that generally should add up to 0. Some a little higher, some a little less. If I look in the quarter, I think there if I added up those types of things, it hit us by 2 or 3 basis points in the quarter versus being 0 or helping us by a basis point.
So there's always going to be those things. I would think that's on average 0, not minus 2% or 3% as it was this quarter. Again, when I looked at it, I was pleased that payroll, which is payroll benefits are 70% of SG and A. The fact that we have increasing penetration overseas that helps us a little bit just because it on average lower SG and A. But again offset that probably for the next year in Japan as an example where we're cannibalizing the heck out of it.
Great. Thanks.
Your next question comes from the line of Deborah Leinschwag with Citi.
Thanks so much and congratulations on a great quarter. So Richard, obviously with the 30 clubs that you're targeting at this point in the game, it's very different from what we've seen in the recent past. Can you talk about the difference in real estate process to get those 30 clubs open in 1 year?
Well, we put a lot more people on the ground in countries. If I go we've been working a long time and I know it was forever before we even got to perform in terms of how many we say we're going to do and we actually do. But if I look back 3 years ago 2, 3 years ago as an example between Korea, Taiwan, Japan and Australia, all of that real estate activity was done with no real estate people on the ground none of our real estate people on the ground in those countries. We now have 1 to 2 people in each of those countries. Same thing with Europe, same and we've always had it pretty much in the U.
S. And Canada. The U. S. And Canada.
So and the pipeline is more full. So again, as the pipeline as the time to get to opening in some of these countries are more difficult and countries are more difficult and take a little longer anyway, we've got we've built up the pipeline. So I think there'll be more confidence in the next few years of how many we can open based on the pipeline.
Okay. And then in terms of looking at the 5% increase in frequency in quarter, most retailers have been talking about traffic as being a major issue. Can you provide some additional color around your strong traffic numbers?
Well, the 5 my guess is by the way these months are a little strange for a couple of reasons. One, we had a 50 3 week fiscal year. So it ended like on the September 2 instead of late August. So how did that affect Labor Day a little bit? Same thing at the other end of the quarter of I think Thanksgiving was a week off and in terms of dating.
So all those things are in that number. My guess is that getting being just below 5% and I mean just below 5%, is there a 0.5 point in there or a little more that could have been just how all these things ran? Possibly. So I'm not banking on a +5, but certainly that gives me comfort that our high 3s to low 4s that we've seen 3.5 to 4.5 hopefully that will continue. There's nothing that we see that should change that until it changes.
All right. And then
The other point is, as I've said over the years, the good news is, it's a lot of little things. It's everything from the membership base and the demographics. It's certainly gas and fresh foods, certainly big screen TVs. I mean, there's lots of different things that we've been blessed by.
Okay. And then you called out hard line sales as being quite a bit stronger as compared to recent quarters. Was that I mean, and you called out several specific categories. What was there any kind of key there? Or was it quite broad?
It was broad recognizing what we call majors is a big category within hardlines, cameras and TVs and the like. Jewelry is not a big percentage category, but had decent numbers. So again, it was across the board. I think also even in some of the little things when we bring in items within the furniture category, we've tended to do well with them. And certainly on the soft line side, as I mentioned in apparel, that's been a help.
Okay. And then lastly Part
of it is our aggressiveness in some of these categories.
Okay. And then lastly, just could you give some color on how new clubs are performing in markets?
I'm sorry what was the last part of that?
How new clubs are performing both domestically and internationally?
Of the 13 openings this fiscal year that we've opened, we've got the 14th coming in a couple of days. I think overall they've done as good if not a little better than our overall plans. I mean, Craig walks in happy from the opening trips.
Great. Well, thanks so much and best of luck.
Sure.
And your next question comes from the line of Michael Eisenstein with Credit Suisse.
Hi. This is actually Trey Schwergel in for Michael. We were just wondering if you think there will be any impact from the retroactive income tax increase that was passed last month in California?
No.
No. Okay. Then that's all. Thank you.
Okay. Why don't we just take 2 more questions?
And there are no further questions at this time.
Well, thank you everyone and have a good holiday.
Thank you. This concludes today's