Good morning. My name is Tabitha, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the fourth quarter and fiscal year-end operating results for 2012 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you, Mr. Galanti, you may begin your conference.
Thank you, Tabitha. Good morning to everyone. This morning's report relates to our 17-week fourth quarter and 53-week fiscal year 2012 operating results, both which ended September 2nd. For comparison purposes, the fiscal quarter and year are compared to last year's 16-week and 52-week periods for the prior fiscal year 2011. As with every conference call, I'll start by stating that these discussions we are having 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.
For the fourth quarter, to begin with, our 17-week fourth quarter fiscal 2012 operating results. We reported earnings per share, of course, this morning of $1.39, up 29% from last year's reported fourth quarter earnings of $1.08. Sales for the quarter were up 14%, which of course includes the extra week in Q4 this year. Again, it's 17 weeks this year versus 16 weeks last year. Comparable sales, which we do compare like 17-week periods both years, were up 5% on a reported basis and up 6% excluding gas and FX. Last year's fourth quarter results included a $32 million pre-tax LIFO charge that impacted last year's earnings per share by $0.04. This year's fourth quarter results included a $11.5 million pre-tax LIFO charge, impacting this year's fourth quarter earnings by $0.02 a share.
Several other items impacting the year-over-year fourth quarter comparisons of earnings include the following. First, the U.S. and Canada membership fee increase that took effect earlier this fiscal year. This added approximately $26 million pre-tax, or $0.04 a share, in this year's fourth quarter. Second, FX headwinds. Earnings from our foreign operations are converted into U.S. dollars when we consolidate and report our results. Year-over-year in the fourth quarter, on average, the foreign currencies where we operate weakened versus the U.S. dollar. This resulted in roughly a $20 million pre-tax or $0.03 a share after-tax hit or impact to this year's fourth quarter. That is, assuming FX exchange rates were flat year-over-year, our foreign country operating results in the fourth quarter when reported in U.S. dollars would have been higher by that amount. Third, our $900 million pay down of 5.3% fixed rate debt this past March.
This reduced our interest expense comparison year-over-year Q4 by approximately $15 million pre-tax or $0.02 a share. Fourth, as reported earlier on July 9th, we completed the acquisition of the remaining 50% ownership interest in our Costco Mexico operations. The impact to our fourth quarter 2012 P&L was twofold. First, about a $0.02 per share benefit to fourth quarter 2012 for the extra earnings we now own, if you will. Second, a one-time charge of $8.3 million or $0.02 a share to our income tax line. This related to the dividend payment from Costco Mexico to Costco US. For the purposes of the year-over-year comparison in the fourth quarter, these two items relating to the Costco Mexico purchase were essentially a wash to earnings. The earnings accretion from our Costco Mexico acquisition will continue through the first anniversary of the transaction or next July.
Finally, a fifth item of comparison. We had an extra week, of course, this year in the fourth quarter, 17 weeks versus last year's 16 weeks. Simply dividing our fourth quarter earnings of $1.39 by 17 weeks, the positive impact to Q4 we estimate to be about $0.08 a share. For the fiscal year, net income came in at $1.709 billion or $3.89 a share. This compared to $1.46 billion or $3.30 a share in last year's fiscal year 2011. Net earnings were up 17% in dollars and up 18% on an earnings per share basis. For the entire 2012 fiscal year, our LIFO charge was $20.5 million pre-tax, or about a $0.03 hit to earnings. This compares to all of fiscal 2011, when it was an $87 million charge or a $0.12 hit to last year's earnings.
Lastly, on the FX front, the total negative impact to this year's sales was just under $600 million, and the earnings hit, if you will, assuming flat year-over-year FX rates, would have been $31 million pre-tax or $0.04 a share. Sales for the fourth quarter. Again, our 17-week quarter as like weeks was up 5%, and this included a U.S. number of up six and international up two. Excluding gas deflation, there was ever so slight deflation and a negative impact of FX, the comp sales increase would be 6% for the total company as compared to the five reported. The U.S. would remain unchanged at six. Again, very little impact, although it was minor gas deflation. International, given the weakness in foreign currencies, international and local currencies, the reported 2% number would instead have been plus seven.
September sales results were reported last week on October 4th. Briefly, for the five-week September reporting period, U.S. comp sales came in at 6%, international at seven and total company at six. Again, excluding the positive impact from gas and FX, U.S. comp sales on a normal basis, if you will, were up 5%, international up 6%, and total company up 5%. For September, the average ticket increased a little over 2%, while frequency or traffic increased by about 4%. Other topics of interest are opening activities and plans. We opened a total of 16 new warehouses during fiscal 2012. Again, that fiscal year ended on September 2nd. Of those 16, 10 were new in the U.S., four in Japan, and one each in Korea and Taiwan. In addition, we relocated one location during all of last fiscal year in Ontario, Canada.
For fiscal 2013, our expansion activities include a plan for approximately 27 to 30 new locations, with just under half of those in the U.S. and remaining in international markets. During the first four months of fiscal 2013, basically September through calendar year-end here, we plan to open 14 new locations. Almost the same number of new locations we opened in all of last year. Nine of these 14 will be in the U.S., three will be in Canada, and one will be in each of England and Korea. I think most recently I'd mentioned that we've estimated 15 locations. One in Wheaton, Maryland, has been delayed due to construction issues, and we estimate it now to open in March or April.
Also this morning, I'll go over our Costco online results and some recent activities, our membership trends, additional discussion about our operating results for the quarter, and our stock repurchase activities. On to the discussion for quarterly results. Very briefly, sales for the fourth quarter, again, up 14%. Total sales, $31.5 billion this year in the fourth quarter versus $27.6 last year. For the quarter, our 5% reported comps were a result of a combination of an average frequency or traffic increase of 4.5% and a flat average transaction year-over-year. I mentioned earlier that we all of a sudden have started to see quite a bit of weakness in foreign currencies. That flat average transaction includes that impact, a negative impact of about 1.5% from FX. Up a little, assuming flat year-over-year FX rates.
Overall, for all of fiscal 2012, our average sales per warehouse for the 608 warehouses we have in operation on an annualized basis was $154 million, up 7% from the $146 million figure in fiscal 2011. Moving on to sales by geography. For the fourth quarter, the strongest comp results in the U.S. were in the Northwest and the Midwest. All regions were fairly good. The range between the low and the high among regions was in the 4%-8% range. Internationally, in local currencies, Canada, Korea, and Mexico were the strongest and Japan the weakest. Japan, mostly due to cannibalization resulting from the four new locations opened this past year in Japan. In terms of e-commerce, costco.com and costco.ca, sales were up 14% for the quarter and up 9% for the entire year.
During the fourth quarter, as I think I mentioned, we were planning to do as of the last quarterly report. During the fourth quarter, we launched costco.com apps for both the Android and the Apple devices. Three weeks ago, on September 16th, we transitioned costco.com and costco.ca sites to its new platform. The new platform certainly improved the visibility of the sites when using search engines and also, we believe, made several improvements to the sites from the end-user perspective. Lastly, next week we will open our new e-commerce site for the U.K., costco.co.uk. We go live next Monday, October 15th. In terms of merchandise categories for the quarter, soft lines was the standout for the quarter in the high single digits. Within food and sundries, comps were in the positive mid-single digits. Hard lines produced positive comps in the mid-single digit range as well.
Strongest subcategories within hard lines were hardware and lawn and garden, which are in the very high single digits. Consumer electronics produced positive comps in the mid-single digits. Within the soft lines, strongest numbers were in small electrics and domestics. Lastly, all fresh foods comparable sales were up in the mid to high single-digit range, with the strongest results in deli and produce. On the inflation front, food and sundries along with fresh foods continue to experience inflation in the low single-digit range. Moving down the line items in the income statement. We will start with membership fees. In the fourth quarter, membership fee income was $694 million or 2.21%. This is up 18% in dollars and up 7 basis points and representing an increase of $104 million year-over-year in the fourth quarter.
In terms of membership, we continue to benefit from strong renewal rates, rounding up to 90% in the U.S. and Canada and worldwide, 86%. We continue to experience increasing penetration of the executive membership. Incremental membership from the fee increase effective last November in the U.S. and Canada benefited the quarter by an estimated $26 million. The benefit from this will continue to show year-over-year increases throughout the 4 fiscal quarters of fiscal 2013 and into the first quarter of fiscal 2014. That, of course, is based on the fact that we use deferred accounting to book those increases. Our new membership sign-ups in the fourth quarter were up 2% year-over-year. Last year in the fourth quarter, we opened 12 new locations, including 4 in Asia and 2 in Australia. Those tend to have outsized new member sign-ups through opening day.
That compares to 6 new openings this year in the fourth quarter, which included 2 in Asia. In terms of the number of members at fourth quarter end, in terms of Gold Star, 26.7 million, up from 26.4 million at the end of the third quarter. Primary business, 6.4 million, both at the end of the third quarter and at fiscal year-end. Add-on business, 3.8 million at year-end. That is up a little bit from 3.6 million at third quarter-end. Total households, 36.9 million at year-end, up from 36.4 million 17 weeks earlier. With spouse cards, 67.4 million cardholders out there, up from 66.5 million a quarter ago. At the end of the fourth quarter, we had 12.6 million executive members, which is an increase of about 245,000 or 2% since third quarter-end, and that is about 14,000 new executive members per week.
Executive members, as I have mentioned, represent a little over a third of our member base and a little over two-thirds of our sales. In terms of renewal rates, as I mentioned earlier, they continue to be strong. Business membership renewal rates ended the year at 93.7%. That is up a tick from 93.6% at the third quarter-end. Gold Star, 88.7 at year-end, up a tick from 88.6 at the end of the third quarter. Total, U.S. and Canada, 89.7, up a tick from 89.6. Again, as I mentioned, worldwide 86.4, up from 86.2 at the end of the third quarter. Based on our increasing U.S. and Canada renewal rates, we believe that the last November's membership fee increase had little or no impact on our renewal rates, which continue to move higher.
In terms of gross margin, our reported gross margin in the fourth quarter was lower year-over-year by 3 basis points, coming in at 10.51% of sales this year in the fourth quarter, down from 10.54% a year earlier. I will ask you to jot down a few numbers. We will have 6 columns, basically looking at the fourth quarter and the prior 2 quarters. Each of those quarters will have two columns, both reported and without gas impact, being inflation in Q2 and three, and a minor amount of deflation in Q4. Line items would be core merchandising, ancillary businesses, 2% reward, LIFO, and total. Going across core merchandise in Q2, reported -25 basis points year-over-year, and without gas inflation, -16. Q3, -21 reported and -14. In Q4, -10 and -10.
Basically, the Q4 columns will be the same in both columns because, again, while there was minor deflation, it was very minor and did not even change the basis point variances. Ancillary, -2 reported and +2 without gas. I am sorry, let me correct that one. For the second quarter, ancillary was -5 and -4 without gas. For the third quarter, ancillary was +7 and +8. For the fourth quarter, +1 and +1. 2% reward, -2 and -3 in the second quarter. -2 and -3 again in the third quarter. -2 and -2 in the fourth quarter. LIFO, +2 and +2 in the second quarter. +21 and +21 in the third quarter. Recall that last year in the third quarter, we had the first sizable amount of LIFO.
In the fourth quarter, +8 and +8. Total, in the second quarter of 2012, we reported gross margins down year-over-year of 30 basis points, but without gas inflation, it would have been -21. In the third quarter, we reported up 5 basis points total margin. Without gas inflation, it would have been up 12. In the fourth quarter, both reported and without that minor amount of gas deflation, -3 basis points. I will focus my attention on the without gas column. Note again that in Q4, gas really did not have an effect anyway. As you can see from these overall numbers, the core merchandising gross margin in the fourth quarter was 10 basis points lower year-over-year. Actually, a small relative improvement from the -14 in Q3 and the -16 in Q2 on a year-over-year comparison.
Ancillary business gross margins contributed a small amount, up 1 basis point. Unlike prior quarters where our gas business and again, its inflationary price trends impacted the gross margin matrix, it did not really do a whole lot here in the fourth quarter. The core merchandising categories, food and sundries along with fresh foods were slightly higher, while non-food categories, hardlines and softlines margins were a bit lower. The 2% reward feature of our executive membership was incrementally higher or negatively impacted gross margin by 2 basis points, as I mentioned. Again, LIFO, while we did have a charge, $11.5 million this year, that compared to a $32 million charge in the fourth quarter last year. That represented an 8-basis point improvement to our reported margin year-over-year. We believe our margins are fine. Our inventories are clean. We had great fiscal year-end physical inventory results.
In all, as you heard from us in the past, we remain committed to driving top-line sales as we enter the Christmas holiday season and into calendar 2013. Moving on to SG&A. Our SG&A percentage in the fourth quarter year-over-year were lower or better by 18 basis points, coming in at 9.66% of sales in Q4 compared to 9.84% in last year's Q4. Again, if you would jot down just a few numbers, the same six columns for second, third, and fourth quarters. Operations, core operations, central, equity, RSUs, total. Again, going across for core operations in the second quarter, we reported an improvement or plus 25 basis points. Plus means lower SG&A. Without gas inflation, it was plus 18. In the third quarter, plus 10 and plus 4, and in the fourth quarter, plus 12 and plus 13.
Central in the second quarter, plus 5 and plus 4. In the third quarter, minus 8 and minus 9, and in the fourth quarter, plus 6 and plus 6. RSUs, minus 1 and minus 1 in the second quarter, 0 and 0 in both the third quarter, and 0 and 0 in the fourth quarter. Total for the second quarter year-over-year, we reported SG&A lower or plus 29 basis points. Without gas, plus 21. In the third quarter, plus 2 and minus 5, and in the fourth quarter, plus 18, and there is a bit of rounding to plus 19. Again, that's the matrix that I'll talk about. In terms of the editorial here, again, operations were lower or better by 12 basis points year-over-year as reported. Excluding the negative impact of very slightly deflationary gasoline, the core was actually better by 13.
Within core operations, our payroll as a percent of sales improved year-over-year in the fourth quarter by 6 basis points, with a 2 basis point offset to the healthcare cost lines. Our central expenses were better year-over-year or lower by 6 basis points. This is notwithstanding higher year-over-year IT costs related to our IT modernization efforts of our systems that we have embarked on. Overall, a continued focus, I think, on expense reduction or expense improvement. We think that was evident in the fourth quarter. I will make one other comment on the income statement in terms of formatting. You may note, or you probably haven't noted yet, that we have combined our former income statement line item provision for repaired assets and closing costs within SG&A because of its immaterial amount.
I will mention that in the fourth quarter of 2011, we had a charge of $2 million in the quarter on that line, so that's added to SG&A. In Q4 2012, we had a minor charge of a few hundred thousand dollars. Both minor and historically very minor and will reclassify accordingly. In terms of factors that will impact SG&A in 2013, the main items will continue to be sales trends, healthcare costs, and gasoline sales and inflation in terms of looking at percentages, and the increasing penetration of certain of our international operations, which generally have lower overall SG&A percentages. In terms of the next line item, pre-opening expenses. Pre-opening expenses were $22 million last year in the quarter as compared to $15 million this year, so $7 million lower or 3 basis points better.
Note, as I mentioned earlier, last year we had 12 openings in the quarter compared to six this year. All told, operating income in the fourth quarter was up just under 25% year-over-year from $762 million last year in the quarter to $949 million this year or an increase of $187 million. Again, this includes the benefit of the extra week and the other items mentioned earlier. In terms of interest and other, below the operating income line, reported interest expense was lower year-over-year by $14 million, with Q4 2012 coming in at $22 million versus $36 million in last year's fourth quarter. These amounts, again, mainly reflect the interest expense on the previously $2 billion offering in February of 2007. $900 million of that, of course, on this past March 15th was paid off.
Again, the anticipated pre-tax interest savings, given that we're essentially paying off 5 plus percent debt and foregoing interest income on a cash that's earning sub 50 basis points. That's around $46 million pre-tax a year. For the fourth quarter, this represented a reduction in interest expense of $15 million, and again, on an annual basis, about $46 million. In terms of interest income and other, it was lower year-over-year by $8 million, coming in at $38 million this year in the quarter versus $46 million last year. It was lower year-over-year, largely due to income last year in the fourth quarter related to gains on non-functional currencies held by certain of our foreign operations. Primarily, this represented the US dollars that were being held in Costco de Mexico, which, of course, in Mexico is their non-functional currency.
Historically, we and our partner had always kept a portion of our cash expressed in US dollars, again, we benefited from that given the weakening peso during this period of time. Overall, reported pre-tax income was up 25% from $772 million last year to $965 million this year. Tax rate. Our company's reported tax rate this quarter came in at 35.6%. This is about 30 basis points higher than last year's fourth quarter rate of 35.3%. The income tax recorded due to the Costco de Mexico dividend of the $8.3 million amount accounted for about 85 basis points of our fourth quarter 2012 tax rate. This was offset year-over-year by increasing earnings attributed to our foreign operations, again, which generally have had a little lower rate. For now for a quick rundown of a few other items. The balance sheet was included in the press release this morning.
Some of you have asked me for the depreciation and amortization in the fourth quarter. For the quarter, it was $292 million, which for the year was $908 million. We always look at our accounts payable ratios. On the balance sheet, it shows an improvement from 99% AP as a percent of inventories last year to 103%. A big chunk of that increase, difference there would be the payables on non-merchandising payables, given all the construction activities we have going on. If we take out that and look at just merchandising payables and merchandising inventories, it was about the same year-over-year, 91% last year and 90% this year at quarter end. Average inventory per warehouse was up $458,000, or about 4%. Last year at fourth quarter end, our average inventory per warehouse was $11.2 million, and this year, $11.67 million.
Electronics was about half of that, a little over half of that, $240,000 as we've been experiencing improving sales trends in that department. As you know, we continue to focus on the bigger ticket items, selling lots of things like 60 and 80-inch TVs. The remaining balance of the variance is spread among many departments. Again, good inventory showing, we believe, and good fiscal year-end inventory results. In terms of CapEx, in the fourth quarter, we spent $580 million, and for all of 2012, just a shade under $1.5 billion. In fiscal 2013, our CapEx is actually climbing quite a bit given the increased level of new openings as well as investment in operations and infrastructure, such as depots in both Japan and Taiwan, along with increased investment in IT relating to our systems modernization projects that I had mentioned earlier.
Our current estimate for CapEx in fiscal 2013 as compared to the $1.5 billion last year, is somewhere in the range of $1.8 billion to $2 billion. In terms of our dividend, earlier in May, we increased our quarterly dividend 14.5% from $0.24 a share, or $0.96 a share on an annual basis, to $0.275 a share per quarter, or $1.10 a share annualized. This annualized dividend amount represents a total cost to the company of just about $480 million. In terms of expansion, quarterly, we expect to open nine warehouses in the first quarter, which ends in late November, an additional six in the second quarter, all but one of which, I believe, is before calendar year-end. In the third quarter, which stretches from roughly mid-February to roughly mid-May, seven. In the fourth quarter, the 16 weeks from roughly mid-May to the end of August, eight.
That would bring us to 30 for the year. Now, that's the budget. As I mentioned earlier, we're talking about 27 to 30, and inevitably, there's always a few that fall out, but happy to report that we've got a lot going on between now and calendar year-end. Assuming we added the 30 on a base of 608, that would be about a 5% square footage growth, which would certainly be our largest square footage expansion in years. Also, as of fiscal year-end, our total square footage was 86,937,000 square feet. In terms of stock repurchases, for the year, we purchased 7.3 million shares at an average price of $84.75, bringing total expenditures over the entire fiscal year to $617 million, which I believe is about roughly the same within $10 million or $20 million of the amount we spent in 2011.
With that, as always, we'll have a supplemental information packet that'll be posted on the Costco investor relations site later this morning. With that, I'll turn it back over to Tabitha for Q&A. Thank you.
At this time, if you'd like to ask a question, please press *1 on your telephone keypad. Again, that is *1. Your first question comes to the line of John Heinbockel with Guggenheim Securities.
Hey, Richard. It's actually Steven Forbes on for John today.
Hi.
Regarding reflation, when do you expect to see vendor price increases, and what magnitude are the company's buyers talking about?
Well, this is very general. Probably the standout area are things like protein. Pork, beef, and poultry. The anticipation is over the next several months, given some of the issues with wheat and corn, that that'll continue to go up. Some of the bakery raw materials, for the same reason, will go up. They're still talking in the mid-single digit or a little higher range, but that's a guess at this point. Don't hear a lot on the other areas. In fact, in just our first month, if you will, of this fiscal year in September, we saw essentially company-wide, as reflected through the LIFO calculation, of almost exactly flat. One basis point of inflation. There was a little bit, again, well less than a half a percentage point in the food and sundries categories and a little bit of deflation in things like apparel and electronics.
apparel has more to do, I think, with some of those prices are down from a year ago when they were quite high and still higher than a few years ago. If you add it all up, modest inflation is the expectation, with it being geared more towards some of the fresh food items and raw material food ingredients.
Right. I guess about handling the pass-through, do you guys expect to pass everything through? Because I think you said the margin on food and sundries was up for the quarter, right?
Yes. Look, sometimes we do and sometimes we don't. Generally speaking, things like refrigerated fresh foods, meat and things like that, those prices change daily and weekly, and certainly the input costs change daily and weekly in some cases, and the sales prices. We, like everyone in the fresh foods business, are price-checking our competition and adjusting accordingly. As you know from history, there have been times when we're not going to change the cost of a 16-pack of muffins or the cost of a slice of pizza when cheese went up. Generally speaking, there's not those outsized areas.
That being said, also, things like fresh meat are uber competitive, and we're out there where we can gain a little strength in that area as the higher end cuts of beef and some of the organic aspects of beef where we can show a greater savings and make a little better margin. Those are still small percentages of the total sales.
Okay. Just looking at expansion over the longer term, obviously 27 to 30, as you said, is the largest you guys have done. What would you say is the principal bottleneck when it comes to club expansion when you get to that high, upper 20s range? What would you say is your maximum amount of clubs to add within a year that you can execute at a high level?
Well, we've always, as you know, been hands-on, and I'm guessing operationally the collective view is we can easily handle 30. The challenge is operationally. The bottleneck really has been ourselves in terms of, one, it takes a little longer to find and develop sites in some of these foreign countries like Asia, and subject to other appeal processes. There's some countries where the competitors can appeal you just to appeal you and slow you down, which isn't very nice. At the end of the day, I think we've got a lot more in the pipeline, finally. We have more people devoted to real estate. We have people on the ground physically, in I believe every country, over the last couple of years.
Again, the pipeline's more filled, and I think that's evidenced in the amount that we're doing in some of these countries where it does take longer, like some of the Asia countries, Australia and the like. I think the bigger bottleneck was us, and it's finally picking up a little bit.
All right, thanks.
Your next question comes from the line of Charles Grom with Deutsche Bank. Charles, your line is open. If you have placed your line on mute, please unmute.
Hello?
Next.
Yes, your line is open. Please go ahead. Okay, their question has been withdrawn. Your next question comes on the line of Chuck Tarnowsky with West Coast Research.
Good morning, Richard.
Hi.
I want to go through a couple of things with you. Start with on the fuel. Can you talk about how profitable fuel was in the quarter and what the comp gallons were?
I think first, the profitability, we never talk about how profitable it is. We talk about how it is year-over-year when there's outsized changes to it because it can fluctuate quite a bit. Actually, on a quarter-over-quarter basis, year-over-year, it was less than $0.01, I think, of difference. Really nothing to speak of there. As you know, when prices are going down, profits are up, and there was some of that both this fiscal quarter as well as in the fourth quarter of last year. Both quarters had some pretty good profits year-over-year. In terms of, Chuck, the other question was-
Fuel comparable gallons.
Yeah, our comp gallons in the fourth quarter were 6%, and that compares to 8% in Q3, and quite a bit more in September, for whatever reason. I guess because prices were going back up.
Yeah.
Yeah. That's it.
All right. Now, at the end of the fiscal year, what was your square footage?
Let's see here. Yeah, it was 86,937 ,000, right? 86 million.
When you're looking at the nice performance you had, Richard, in the fourth quarter, what elements of the gross profit margin and the SG&A, especially the SG&A improvement, do you think are sustainable into the new year?
Well, I think the easiest sustainable things for the next few quarters are those things that we've done, like the debt pay down, the Mexico acquisition, and the membership fee increase and how that impacts deferred accounting. All those things are permanent for a year, they continue for a year, and then it's part of the base. Beyond that, I think that sales drive, you always heard from us we're a top-line company. Certainly our relative sales strength has helped us here. I think the focus on little things, I've thrown out some examples over the last months and quarters about the past year, one of the focus items is overtime hours.
I think we showed for the first 40 or so weeks of the fiscal year in one of our budget meetings that while aggregate hours were up 3.5% or so for the year, overtime hours were down 20%, 25%. Not a lot of money, maybe $10 million, $15 million a year, but it's real. Maybe it goes over, maybe you don't even get it all in the first year, you get it over a couple of years. But those are the kinds of things that we see out there. Is that sustainable? What's sustainable is our efforts to do it. I think on the margin side, as I've said in the past, it's more us than them, whoever them is when we're competing with them. We tend to be proactive in it.
We've been asked about the question now that Some of the quote, investing in price is starting to anniversary from when it was being discussed a year ago. Does that mean it's over or there's more of it? Again, we don't talk about that. I can assure you that when things are good, we're going to continue to do things to drive the business.
All right, thanks. A couple more things, Richard. Do you have a full-year fuel sales figure that you can give us at this time? Can you comment on what the spike in retail gasoline prices in California, on the fuel prices there, what's that doing to traffic and gasoline sales?
I don't have anything specific on the total dollars. I think for the year it was like 12% or so of sales. The craziness in California had to do with all the moons lined up bad, there was several days there of incredible supply shortage. As you would expect, we are a major consumer. I think in the greater L.A. market, we have close to 40 locations. At the peak or at the trough, I guess, we had 16 or so of those stations closed for one or two days. Happily, that ended, I believe, this past Sunday, we're back to normal, generally.
The impact to us was, again, My sense was, is what I heard was, is that it was a little bit of the concern that there's gas shortages everywhere and people were topping off their tanks. It created more volume. We saw a little bump in sales at those locations in store, but we were also, in some cases, losing money at the gas pump. My guess is it wasn't a big impact to us on the bottom line. We lost money, no doubt, in gas and made money with a few extra cars in the parking lot coming to get gas.
All right. Thank you.
It's really a blip for a few days in California, Southern California.
Thank you very much.
Our next question comes from the line of Deborah Weinswig with Citi.
Hi, Richard. This is Nathan Rich filling in for Deb today. I wanted to go back to the decision that you guys made to accelerate club growth. I was just wondering if you could provide a little bit more detail on where the international expansion is gonna come, in terms of what markets you're focused on, and also are there any new markets internationally?
Well, the markets, in Canada, we open a couple or three a year, maybe sometimes one, maybe three, but probably two to three on average. In Mexico, we'll probably speed it up a little. Over the last five years, I think we've opened two locations, so 0.4 locations a year historically over the last five years. It's gonna take a little time here, but I would expect that to grow at least two or three a year starting after this year. We've got one or two in the U.K. this year after a few years of no growth. The big expansion for us continues to be in the three Asia countries where we're at, Korea, Taiwan, and Japan, and Australia. Now, all those countries take a little longer because of the complexity. These are building up, not out, on multi floors and it takes a little longer.
Again, we've got the pipeline a better little full. The only other things we talked about is Europe, and we are pursuing in a couple of Western European countries. If all goes well, maybe five years from now, we'll have a few locations open in each. I cannot tell you whether it's gonna be 12 months or 30 months before we'll get our first opening in any country over there.
Okay, great. Also if I could ask a question, it seems like you saw some improvement in food margins, both food and sundries and fresh foods. Those have been trending flat to down over the past several quarters. I was just wondering what caused the change in trend this quarter.
Without looking deep into it, my guess is some of it has to do with the fact that it was a year ago when we were explaining that there were some anecdotal comments I made probably about the fact that we maintain pricing on some highly inflationary cost items like the food court with cheese pizza, like the bakery. Part of that is, I think, just a cycling of perhaps some unusual things the other way. I think a little of it, not a lot of it, but a little of it has to do with increasing penetration in some fresh food items with the KS, the Kirkland Signature name. Some of it has to do with the comment I mentioned earlier about organic. These are small things, but there's more and more of them.
If we can take $20 million or $30 million out of a few hundred million dollars a year of ground beef sales from a highly competitive basic ground beef item and put it into organic, that's good for us because we can sell it because we have that kind of member. It's good for us because that member sees, it's a, say, a higher price point item, but member sees an even greater relative value because those aren't the items that are as competitive out there. We can provide the customer more and do more. All those things, I think, add up.
Okay, great. Just lastly, if I could, I'm interested to hear what you're seeing in terms of early selling for fall and holiday, and if you could comment on TVs in particular, which I think have been pretty good for you recently.
On the latter, the TVs have been strong the last couple of months that we reported, in large part, I think, because we focus on the higher end or the bigger ticket size. We have got a lot of TV strength, if you will, in the 60-80-inch TV. The bigger, we do a little better on those. On seasonal, again, it's still early. So far so good. I don't think there's been anything outlandish plus or minus in hearing from the buyers in the last month of budget meetings. We'll have a little more color at the end of October, which is really the more meaningful month.
Great. Thanks so much and best of luck.
Our next question comes from the line of Michael Montani with ISI Group.
Yeah. Hi, Richard. I was just going to ask you on the inflation side, you mentioned sort of a low single-digit increase this quarter for food and sundry. If you looked across the box, can you just give us a feel for that? Are we talking 1%-2% range across the store right now?
No, low tenth of a single digit. Yeah, it's closer to one, not a whole lot.
Okay. That's across the store.
It's all over the board. I was looking just at some items. These are, again, anecdotal items, but year-over-year, eggs are up 22%. I'm looking down the list here. Blueberries up 37% year-over-year. Conversely, you've got items, always you're going to have some electronics items, but beyond electronics items, I can't tell you why bacon down 17%. Gasoline down a couple of %. It's all over the board. Overall, when you take the whole basket of things, up very little for the month on annual basis.
Just thinking about moving forward, if you could see mid-single digit type inflation on the food side, again, does that translate across the store to something, again, that's maybe a couple of hundred bips less than that, just given the other categories?
Not necessarily. First of all, when we talk about mid-single digit inflation, I was really talking about things like the expectations that our buyers have for things like meat and poultry and pork, which again, are more the extreme inflation categories in terms of talking amongst the buyers. Again, food overall is by no means that level, of course, as I mentioned, there's a few things that are ever so slightly deflationary right now, like apparel and electronics.
Okay.
Really, my guess is inflation is going to be very low single digits this year, as we know of today. Life could change tomorrow.
Just maybe for a minute on the competitive set, are you seeing anything that's noteworthy versus this time last year in terms of how your club competitors are pricing and/or traditional grocers out there?
Not really.
Okay. Just one housekeeping thing was on the FX impact for membership income. I was getting to around a $7 million impact roughly. Does that make sense to you?
Hold on a second. I think that's close.
That's correct.
Bear with me a second.
Yep.
$8 million.
$8 million. Okay, great. Just lastly, with the new store openings accelerating and trying to go a bit more international in terms of the mix there, is it possible, Richard, to give us just an understanding, a little bit of the pre-opening expense for international versus a U.S. store generically and also on the CapEx side, given the step-up, is there a way to bucketize that in terms of, X amount goes towards IT versus new stores?
It has more to do. The international generally is more. If you just took the number of openings, there's other things that pre-opening too, like when we add a gas station or we open a depot or we open all those kinds of things. Generally speaking, I remember this goes back several years, it used to be like a U.S. warehouse was $1 million plus or minus a little, and an international, and I say international outside of North America, might have been as much as a million and a half or a million and three quarters, those are guesses. Yes, it's more in some of those countries, a big chunk of pre-opening is, you can't just take pre-opening divided by number of warehouses and say that's the average for warehouse because you've got a lot of other pre-openings.
Every time we add a gas station, it's a new operation. We've done it consistently from day one, there's a lot of other things in there as well.
Just on the CapEx side as well, Richard?
What's that?
On the CapEx side as well in terms of the cost for warehouse domestic versus international generically.
It's probably 20%-30% more on average. There'll be some wide ranges. I think we said in the U.S. and Canada, generally, that land building and site when we own is somewhere in the low to mid thirties. My guess is overseas, it could be in the low forties on average, but it could range from mid thirties to high fifties. All over the board, but as you know, some of those higher numbers, we could get a better return on investment.
Great. Maybe just the last thing, if I could ask it, is on Affordable Care Act and what you all are hearing right now and doing to prepare for that. Is there anything you can share in terms of the percentage of your employees that would be covered today or the percentage of the coverage that you all provide or anything there would be helpful?
I think we provide as much, if not more than anybody else I know in our space, in general, big retail. All of our employees, both part-time and full-time, are covered. It takes three to six months currently, depending on if you're part-time or full-time. Each year for the last two or three years, and certainly this year and next year, under different parts of the new health care requirements, there's been some additional input numbers into our expense. One year it's covering people up to 26 years old, one year it's mental health parity, one year it's I forget the other ones off the top of my head. At the end of the day, each of these things seem to have added an incremental 1% or 1.5% to our already outsized number.
We don't think it's going to have a big impact to us like it may to others. Others may do some things that it may be less of an impact to them. I don't know. It's fair to say from our perspective, it's kind of been built into our numbers, and we've been able to handle it.
Great. That's very helpful. Thank you and good luck.
Thank you.
Your next question comes the line of Peter Benedict with Robert Baird.
Hey, Richard. It's actually Justin Kleber for Pete. Just a question on the membership fee income. Can you help us understand how much that line item benefited from the extra week?
I think the simplest way to do it, and this is not exact, but I first take this number this year and subtract the 26 from it, because we know the 26 is the deferred accounting for the fee increases. From that number, I'd say, okay, this is a 17-week number, so I divide it by 17 and I subtract that amount from that number, and then I compare the two, the adjusted number. I think what you'll get is something in the 6% or 7% increase range in dollars.
Okay, that's helpful. Thanks. Then the $26 million of incremental MFI from the fee increase that you cited here in the fourth quarter, does that absolute dollar number, should we expect that to build over the next few quarters?
Yes. It'll build a little bit in Q1. Recognizing Q1 is a 12-week quarter versus a 17-week quarter, so but in absolute dollars, it'll build a little. It'll build quite a little bit more in Q2. It'll start going the other way, but still pretty sizable numbers in each of these four fiscal quarters. It's $0.03 to $0.05 a quarter in each of these four quarters.
Okay, thanks. Just any color on, as it relates to traffic, conversion rates, average ticket size from the re-platforming of the online business, or is it just simply too early to tell with that?
Yes, it's very simply too early. It's been a week or so, and the thing I'm most happy about is there weren't any big glitches, and we got it converted in about an eight-hour period, closing the old site, opening the new one. We'll see over time.
All right, great. Just lastly, kind of a housekeeping question here. Within that interest income and other line item, do you have what the interest component of that was?
Sure. Hold on. Actual interest income was almost $15 million last year and $16.3 this year. up $1,300,000.
All right. Great. Thanks. Good luck over the holidays.
Yep. Thank you.
If you'd like to ask a question, please press star 1. Your next question comes to the line of Charles Grom with Deutsche Bank.
Thanks. Good morning, Richard. Just on the new store growth going up to 25 to 30 clubs, should we expect that pace to continue to grow over the next few years? It's been a while since I've heard you guys talk about a longer-term club target. With growth in Europe, Australia, more growth in Korea, Japan, and Taiwan, can you maybe refresh us on kind of where your thoughts are?
Look, given our history over the last several years of under-opening locations, I think we feel very good about this coming year in that very high 20s. We're looking at numbers. We had a slide recently that showed over five years, somewhere in the 125 to 150 locations, which would imply 25 to 30 a year. Europe, again, if all goes well, maybe we'll have five years from now, five or six in Europe or eight on the outside, but more likely five or six. That's if it continues to progress. There's still a few hurdles to get over there in terms of timing. I mean, we will be there, is my sense, but it'll take some time.
I think, again, as I mentioned earlier, part of perhaps the renewed level of confidence that we've got a lot more irons in the fire, and particularly in those countries where the lead time to get openings done, you got to work on more projects to get more open, and even though it takes a little longer. Again, for the last year or two, we've had people on the ground in some of these countries where historically we didn't.
Okay. Fair enough. When we look at the complexion of your margin structure here in the fourth quarter, gross profit margins were down a little bit, but SG&A levered. You produced some pretty nice operating margin expansion of that 19 basis points. When you take a step back and look at your kind of long-term earnings algorithm, is that sort of a good recipe for success for you guys? Is that the kind of structure you kind of want to build out?
Well, in the ideal world, as I think Jim said 25 years ago, that the membership fee would be a lot higher. We'd keep lowering expense percentages, and we keep lowering prices. Ideally, yes, we want to keep doing that because it makes us more competitive and keeps driving the business and puts a bigger wedge between us and others. We're also realistic. Yeah, mission-wise, that's fair.
My last question is just, I think I ask this every call, you guys really do continue to build up cash on the balance sheet, we get a lot of questions from investors about what you're going to do with it. I realize, buybacks are steady pace for you guys. Is there any thoughts from the board to really step up the dividend? It's a lot lower than some of your peers, despite having a much stronger cash and overall balance sheet position.
Yeah. Yield wise it is. We continue to grow it at, whatever, 13% or 14% a year. We always discuss it, informally about what should we do, there's not a great sense of pressure to change our MO at this point. Probably the biggest pressure point is to spend more money on CapEx. I'm glad to see the fact that it's a number that went from the range of 1.4-ish the last few years to approaching two this year. I think that, in 2014, if we continue to expand like we are, maybe it's about the same as this current year's budget. If it's a little less, it's only because of some of the unusual things that we're doing this year, like a couple of extra depots in some of these new countries. Overall, getting that number up $400 million or $500 million from where it's been, that helps.
Got you. I'm sorry, I did hop on a couple minutes late, but could you guys just remind me what the core-on-core gross profit margin number was this quarter? If you could walk through some of the categories within that, outside of gas, I'd appreciate it. Thanks.
Sure. In terms of margins, for the quarter, the core was down 10 basis points year-over-year. With or without gas is the same. There was minor gas deflation, but not enough to affect the basis points. Core was down 10, ancillary was up 1, 2% was down 2, implying about a 1% increase in sales penetration of those members. LIFO was up 8 because of a lower charge this year versus last year. You add it all up, and that's our reported and as adjusted with gas minus 3.
Within that core of the 10, any major differences between the other 4 major subcategories?
Yeah. Food sundries and fresh foods were up a little. Hard lines and soft lines were down a little bit more than a little bit, not a lot.
Okay. Okay, great. Thanks very much.
Okay.
At this time, there are no questions.
Well, thank you everyone, and thank you, Tabitha, have a good day.
Thank you. That does conclude today's conference call. You may now disconnect.