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 4th Quarter and Fiscal Year End Operating Results for 2012 Conference Call. All lines have been placed on mute to prevent any background noise. Thank you.
Mr. Galati, you may begin your conference.
Thank you, Tabitha, and good morning to everyone. This morning's report is our relates to our 17 week 4th quarter and fiscal 53 week fiscal year 2012 operating results, both which ended September 2. For comparison purposes, the fiscal quarter year are compared to last year's 16 week 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 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.
For the Q4, to begin with our 17 week Q4 fiscal 2012 operating results, we reported earnings per share of course this morning of $1.39 up 29% from last year's reported 4th quarter earnings of $1.08 Sales for the quarter were up 14%, which of course includes the extra week in Q4 this year, again at 17 weeks this year versus 16 weeks last year. Now 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 Q4 results included a $32,000,000 pre tax LIFO charge that impacted last year's earnings per share by $0.04 This year's Q4 results included a $11,500,000 pretax LIFO charge impacting this year's Q4 earnings by $0.02 a share. Several other items impacting the year over year Q4 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 $26,000,000 pretax or $0.04 a share in this year's Q4. 2nd, 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 Q4 on average the foreign currencies where we operate weakened versus the U. S. Dollar.
This resulted in a $20 roughly a $20,000,000 pre tax or $0.03 a share after tax hit or impact to this year's Q4. That is assuming FX exchange rates were flat year over year, Our foreign currency operating results in the 4th quarter when reported in U. S. Dollars would have been higher by that amount. 3rd, our $900,000,000 pay down of 5.3% fixed rate debt this past March.
This reduced our interest expense comparison year over year in Q4 by approximately $15,000,000 pre tax or $0.02 a share. 4th, as reported earlier on July 9, we completed the acquisition of the remaining 50 percent ownership interest in our Cosco Mexico operations. The impact to our Q4 2012 P and L was twofold. First about a $0.02 per share benefit to Q4 2012 for the 20 12 for the extra earnings we now own if you will and second a one time charge of $8,300,000 or $0.02 a share to our income tax line. This related to the dividend payment from Costco Mexico to Costco U.
S. For the purposes of the year over year comparison in the Q4, these two items relating to the Costco Mexico purchase were essentially a wash to earnings. The earnings accretion from our will continue through the 1st anniversary of the transaction or next July. And finally, a 5th item of comparison. We had an extra week of course this year in the Q4 17 weeks versus last year 16 weeks.
Simply dividing our 4th 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 $1,709,000,000 or $3.89 a share. This compared to $1,460,000,000 or $3.30 a share last year's fiscal 2011. This 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 $20,500,000 pre tax or about a $0.03 hit to earnings.
This compares to fiscal all of fiscal 2011 when it was an $87,000,000 charge or a $0.12 hit to last year's earnings. Lastly on the FX front, the total negative impact of this year's sales was just under $600,000,000 and the earnings hit if you will assuming flat year over year FX rates would have been $31,000,000 pretax or $0.04 a share. Sales for the 4th quarter, again our 17 week quarter as like weeks was up 5% and this included the U. S. Number of up 6% and international up 2%.
Excluding gas deflation, there was ever so slight deflation and a negative impact of FX. The sales increase comp sales increase would be 6% for the total company as compared to the 5% reported. The U. S. Would remain unchanged at 6%, again very little impact although it was minor gas deflation.
In international given the weakness in the U. S. Currencies the weakness in foreign currencies, international and local currencies, the reported 2% number would instead have been plus 7%. September sales results were reported last week on October 4. Briefly for the 5 week September reporting period.
U. S. Comp sales came in at 6%, international at 7% and total company at 6%. And 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, our opening activities and plans. We opened a total of 16 new warehouses during fiscal 2012. And again that quarter ended on that fiscal year ended on September 2nd.
Of those 16, 10 were new in the U. S, 4 in Japan and 1 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 United States and remaining in international markets. During the 1st 4 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.
9 of these 14 will be in the U. S, 3 will be in Canada and one will be 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 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. Onto the discussion for quarterly results.
Very briefly sales for the Q4 again up 14%. Total sales $31,500,000,000 this year in the 4th quarter versus $27,600,000 last year. For the Q4 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 start 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.
So up a little assuming flat year over year FX rates. Overall, for all of fiscal 2012, our average sales per warehouse for the 6 0 8 warehouses we have in operation on an annualized basis was $154,000,000 up 7% from the $146,000,000 figure in fiscal 2011. Moving on to sales by geography. For the Q4, 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% to 8% range. Internationally in local currencies Canada, Korea and Mexico were the strongest and Japan at the weakest. Japan mostly due to cannibalization resulting from the 4 new locations opened this past year in Japan.
In terms of e commerce, costco.comandcostco.ca, sales were up 14% for the quarter and up 9% for the entire year. During the Q4, as I think I mentioned, we're planning to as of the last quarterly report. During the Q4, we launched costco.comapps for both the Android and the Apple devices. And 3 weeks ago on September 16, we transitioned costco.com and costco. Casites to its new platform.
The new platform certainly improves the visibility of the sites when using search engines and also we believe made several improvements the sites from the end user perspective. And lastly, next week we will open our new e commerce site for the U. K, costco.co.uk. We go live next Monday, October 15. In terms of merchandise categories for the quarter, soft lines was the standout before the quarter in the high single digits.
Within food and sundries, comps were in the positive and mid single digits. Hardlines produced positive comps in the mid single digit range as well. Strongest subcategories within hardlines were hardware and loan and garden, which were 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. And 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 on the income statement. We'll start with membership fees. In the 4th quarter membership income was $694,000,000 or 2.21 percent.
This is up 18% in dollars and up 7 basis points and I think representing an increase of $104,000,000 year over year in the Q4. In terms of membership, we continue to benefit from strong renewal rates rounding up to 90% and U. S. And Canada 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 $26,000,000 The benefit from this will continue to show year over year increases throughout the 4 fiscal quarters of fiscal 2013 and into the Q1 of fiscal 2014.
And that of course is based on the fact that we used deferred accounting to book those increases. Our new membership sign ups in the Q4 were up 2% year over year. Last year in Q4, we opened 12 new locations including 4 in Asia and 2 in Australia. Those tend to have outsized new member sign ups as of through opening day. That compares to 6 new openings this year in Q4, which included 2 in Asia.
In terms of the number of members at 4th quarter end, in terms of Gold Star, dollars 26,700,000 up from $26,400,000 at the end of the 3rd quarter. Primary business $6,400,000 both at the end of the 3rd quarter and fiscal year end. Add on business $3,800,000 at year end. That's up a little bit from $3,600,000 at 3rd quarter end. So total households $36,900,000 at year end, up from 36,400,000 17 weeks earlier.
And with cardholders out there from 66,500,000 a quarter ago. At the end of the Q4, we had 12,600,000 executive members, which is an increase of about 245,000 or 2% since Q3 end and that's about 14,000 new executive members per week. Executive members, as I mentioned, represent a little over a third of our member base and a little over 2 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's up a tick from 93.6% at the 3rd quarter end. Gold Star 88.7% at year end, up a tick from 88.6 percent at the end of the Q3. So total U. S. And Canada 89.7 percent up a tick from 89.6 percent and again as I mentioned worldwide 86.4% up from 86.2% at the end of the Q3.
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 4th quarter was lower year over year by 3 basis points coming in at 10.51 percent of sales this year in the 4th quarter, down from 10.54% a year earlier. I'll ask you to jot down a few numbers.
We'll have 6 columns. Basically looking at the 4th quarter and the prior 2 quarters. And each of those quarters will have 2 columns both reported and without gas impact being inflation in Qs 2 and 3 and a minor amount of deflation in Q4. Line items would be core merchandising, ancillary businesses, 2% reward, LIFO in total. So going across, the core merchandise in Q2 reported minus 20 5 basis points year over year and without gas inflation minus 16.
Q3 minus 21% reported and minus 14% and Q4 minus 10% and minus 10% and basically the Q4 columns will be the same in both columns because again while there was minor deflation it was very minor and didn't even change the basis point variances. Ancillary minus 2% reported and plus 2% without gas. I'm sorry, let me correct that one. For the Q2, ancillary was minus 5 and minus 4 without gas. For the Q3 ancillary was plus 7% and plus 8% and for the Q4 plus 1% and plus 1%.
2% reward minus 2% and minus 3% in the 2nd quarter, minus 2% and minus 3% again in the 3rd quarter and minus 2% and minus 2% the Q4. LIFO plus 2% and plus 2% in the second quarter, plus 21 and plus 21 in the 3rd quarter. Recall that last year in the Q3 we had the first sizable amount of LIFO. And in the Q4, +8+8. And then total, in the Q2 of 2012, we reported gross margins down year over year of 30 basis points, but without gas inflation it would have minus 21.
In the 3rd quarter, we reported up 5 basis points total margin. Without Without gas inflation, it would have been up 12. And in the 4th quarter, both reported and without that minor amount of gas deflation, minus 3 basis points. Now I'll focus my attention on the without gas column. Note again that in Q4, the gas really didn't have an effect anyway.
As you can see from these overall numbers, the core merchandising gross margin in the 4th quarter was 10 basis points lower year over year, actually a small relative improvement from the minus 14% in Q3 and the minus 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 has impacted the gross margin matrix, it didn't really do a whole lot here in the 4th quarter. On the core merchandising categories, food and sundries along with fresh foods were slightly higher, while non foods 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 of $11,500,000 this year that compared to a $32,000,000 charge in the Q4 last year. So that represented an 8 basis point improvement to our reported margin year over year. And we believe our margins are fine. Our inventories are clean. We guided great fiscal year end fiscal inventory results.
In all, as you know 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 and A. Our SG and A percentage in the Q4 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 the same six columns for 2nd, 3rd and 4th quarters. Operations, core operations, central, equity, RSUs and total.
So again going across for core operations in the Q2 we reported an improvement of plus 25 basis points. Plus means lower SG and A. Without gas inflation, it was +18. In the 3rd quarter, plus 10 and plus 4 and in the 4th quarter plus 12+13 Central in the 2nd quarter plus 5+4 in the 3rd quarter minus 8 and minus 9 and in the 4th quarter plus 6+6. RSU's minus 1 and minus 1 in the 2nd quarter, 0 and 0 in both the 3rd quarter and 0 and 0 in the 4th quarter.
And in total for the Q2 year over year we reported SG and A lower or plus 29 basis points without gas plus 21. In the Q3, plus 2 and minus 5. And in the Q4, plus 18 and there is a bit of rounding to plus 19. So 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 4th quarter by 6 basis points, with a 2 basis point offset to the health care 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. So overall, a continued focus I think on expense reduction or expense improvement and we think that was evident in the 4th quarter. On the income 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 impaired assets and closing costs within SG and A because of its immaterial amount. I will mention that in the Q4 of 2011 we had a charge of $2,000,000 in the quarter on that line so that's added to SG and A. In Q4 2012 we had a minor charge of a few $100,000 so both minor and historically very minor and we'll reclassify accordingly. In terms of factors that will impact SG and A in 2013, the main items will continue to be sales trends, health care costs and gasoline sales and inflation in terms of looking percentages and the increasing penetration of certain of our international operations, which have overall which generally have lower overall SG and A percentages. In terms of the next line item, preopening expenses.
Preopening expenses were $22,000,000 last year in the quarter as compared to $15,000,000 this year, so $7,000,000 lower or 3 basis points better. Note as I mentioned earlier last year we had 12 openings the quarter compared to 6 this year. All told, operating income in the 4th quarter was up just under 25% year over year from $762,000,000 last year in the quarter to $949,000,000 this year or an increase of $187,000,000 Again, this includes the benefit of the extra week and the other items mentioned In terms of interest and other, below the operating income line, reported interest expense was lower year over year by $14,000,000 with Q4 2012 coming in at $22,000,000 versus $36,000,000 in last year's Q4. These amounts again mainly reflect the interest expense on the previously $2,000,000,000 offering in February of 2,007, dollars 900,000,000 of that of course on March this past March 15 was paid off. And again the anticipated pretax interest savings given that we're essentially paying off 5 plus percent debt and foregoing interest income on a cash that's earning sub-fifty basis points.
That's around $46,000,000 pretax a year. For the Q4, this represented a reduction in interest expense of $15,000,000 and again on an annual basis about $46,000,000 In terms of interest income and other, it was lower year over year by $8,000,000 coming in at $38,000,000 this year in the quarter versus $46,000,000 last year. It was lower year over year largely due to income last year in Q4 related to gains on non functional currencies held by certain of our foreign operations. Primarily this represented the U. S.
Dollars that were being held in Costco Mexico, which of course in Mexico is their nonfunctional currency. Historically, we had always we and our partner had always kept a portion of our cash expressed in dollars. And again, we benefit from that given the weakening peso during this period of time. Overall reported pretax income was up 25% from $772,000,000 last year to $965,000,000 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 4th quarter rate of 35.3%. The income tax recorded due to the Costco Mexico dividend of the $8,300,000 amount accounted for about 85 basis points of our Q4 2012 tax rate And this was offset by year over year 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 Q4. For the quarter, it was $292,000,000 which then for the year was 908,000,000 dollars 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 or non merchandising payables given all the construction activities we have going on. So 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 for warehouse was up $458,000 or about 4%. Last year in the quarter and at 4th quarter end our average inventory per warehouse was 11,200,000 dollars and this year $11,670,000 Electronics was about half of that a little over half of that 240,000 as we've experienced improving sales trends in that department. And as you know, we continue to focus on the bigger ticket items selling lots of things like 60 inches 80 inches 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 Q4 we spent $580,000,000 and for all of 2012 just a shade under $1,500,000,000 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 from as compared to the $1,500,000,000 last year is somewhere in the range of 1.8 dollars to $2,000,000,000 In terms of our dividend, earlier in May, we increased our quarterly dividend 14.5 percent from $0.24 a share or $0.96 a share on an annual basis to $0.275 a share per quarter or 1.10 dollars a share annualized. This dividend this annualized dividend amount represents a total cost of the company of just about $480,000,000 In terms of expansion, quarterly we expect to open 9 warehouses in the Q1 which ends in late November and additional 6 in the Q2, most of which again is before all but one of which I believe is before calendar year end. In the 3rd quarter, which stretches from roughly mid February to roughly mid May, 7% and in Q4, the 16 weeks from roughly mid May to the end of August, 8%.
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 7,300,000 shares at an average price of $84.75 bringing total expenditures over the last several years over the entire fiscal year to 617,000,000 dollars which I believe is about the same as roughly the same within $10,000,000 or $20,000,000 of the amount we spent in 2011. With that, as always, we'll have a supplemental information packet that will be posted on the Costco Investor Relations side later this morning. And with that, I'll turn it back over to Tabitha for Q and A. Thank you.
Your first question comes from the line of John Heinbickel with Guggenheim Securities.
Hey, Richard. It's actually Steve Forbes on for John today.
Hi.
Regarding inflation, when do you expect to see vendor price increases? And what magnitude are the company's buyers talking about?
Well, this is very general. I mean, probably the standout area is things like protein, pork, beef and poultry. And the anticipation is over the next several months given some of the issues with wheat and corn that that will continue to go up. Some of the bakery raw materials for the same reason will go up. And these are 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 the 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, I mean, one basis point of inflation. And there was a little bit again less well less than 0.5 percentage point in the food and sundries categories and a little bit of deflation in things like apparel and electronics. Again, the 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. So 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. And I guess about handling the pass through, do you guys expect to pass everything through or I mean, because I think you said the margin on food and sundries was up for the quarter, right?
Yes. Generally, I mean, look sometimes we do and sometimes we don't. Generally speaking, things like refrigerated pressures, 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. I mean, we like everyone in the fresh foods business are price checking our competition and adjusting accordingly.
Now as you know from history, But generally speaking, there's not those outsized areas. Now 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 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. But those are still small percentages of the total sales.
Okay. And then just looking at expansion over the longer term, obviously, 27% to 30%, as you said, is the largest you guys have done. But what would you say is the principal bottleneck when it comes to club expansion when you get to that high upper 20s range? And then what would you say is your maximum amount of clubs to add within a year that you can execute at a high level?
Well, I mean, we've always, as you know, been hands on. And I think I'm guessing operationally, the collective view is we can easily handle 30, the challenges 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 are some countries where the competitors can appeal you just to appeal you and slow you and which isn't very nice. But 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. So again the pipeline is more filled and I think that's evidenced in the expense the amount that we're doing in some of these countries where it does take longer like of the Asia countries, Australia and the like. So 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. Your question has been withdrawn. Your next question comes from the line of Chuck Cerankosky with Northcoast 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?
Well, I think first the profitability, we really don't 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 can fluctuate quite a bit. Actually on a quarter over quarter basis year over year, it was pretty less than a penny I think of difference. So really nothing to speak up 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 Q4 of last year.
So both quarters had some pretty good profits year over year. And in terms of Chuck the other question was Fuel
comparable gallons.
Yes. Our comp gallons in the 4th quarter were 6% and that compares to 8% in Q3 and quite a bit more in Q in September for whatever reason, I guess because prices were going back up.
Yes. Yes. Yes.
That's it. All
right. Now with what was finished or excuse me, at the end of the fiscal year, what was your square footage?
Let's see here. Yes, it was 86,937.
1,000,000,000 dollars When you're looking at the nice performance you had Richard in the 4th quarter, what elements of the gross profit margin and the SG and A, especially the SG and 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. So all those things are they're permanent for a year. They continue for a year and then it's part of the base. Beyond that, I mean, I think that we sales drive you always heard from us we're a top line company. Certainly, our sales strength relative sales strength has helped us here.
I think the focus on the little things I've thrown out some examples over the last months quarters about the past year one of the focus items is overtime hours. And 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 $10,000,000 $15,000,000 a year, but it's real. And it maybe it goes over maybe you don't even get it all in the 1st year, you get over a couple of years. But those are the kinds of things that we see out there.
Is that sustainable? I mean, 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. And a couple more things Richard. Do you have a full year fuel sales figure that you can give us at this time? And 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 like 12%
or so of sales. The craziness 12% or so of sales. The craziness in California had to do with all the moons lined up bad and 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. And at the peak or at the trough, I guess, we had 16 or so of those stations closed for 1 or 2 days. Happily that ended I believe Sunday, this Sunday and then we're back to normal generally. The impact to us was again it did get people my sense was what I heard was that it was a little bit of a concern that there's gas shortage everywhere and people were topping off their tank.
So 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. So 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. 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 Debra Weintzeck 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 going to come in terms of what markets you're focused on? And also are there any new markets internationally?
Well, the markets in Canada, we opened a couple or 3 a year, maybe sometimes 1, maybe 3, but probably 2 to 3 on average. And Mexico, we'll probably speed it up a little over the last 5 years. I think we've opened 2 locations. So, 0.4 locations a year historically over the last 5 years. It's going to take a little time here, but I would expect that to grow at least 2 or 3 years starting after this year.
We've got 1 or 2 in the U. K. This year after a few years of no growth. But the big expansion for us continues to be in the 3 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. But again, we've got the pipeline to better a little full. The only other things we talked about is Asia is Europe. And I can't we are pursuing in a couple of Western European countries. And if all goes well, maybe 5 years from now, we'll have a few locations open in each.
But it's hard I cannot tell you whether it's going to be 12 months or 30 months before we get our first opening in any country over there. It's just
Okay, great. And then 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 kind of 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. And so part of that is I think just the cycling of perhaps some unusual things the other way. But I think a little of it, not a lot of it, but a little bit has to do with increasing penetration and 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.
And if we can take $20,000,000 to $30,000,000 out of a few $100,000,000 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 number. It's good for us because that member sees it's a let's just say a higher price point item, but the member sees an even greater relative value because those aren't the items that are as competitive out there. So we can provide the customer more and do more. So all those things I think add up.
Okay, great. And then just lastly if I could, I'm interested to hear what you're seeing in terms of early selling for 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 in 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. And we're doing a lot of we have got a lot of TV strength if you will in the 60 inches to 80 inches TVs. So the bigger we do a little better in 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.
Your next question comes from the line of Michael Montaigne with ISI Group.
Yes. 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% to 2% range across the store right now?
No. Low tenths of a single digit. Yes, it's closer to 1%, so not a whole lot. Okay.
And that's across the store.
And then just It's all over the board. I mean, I was looking just at some items. I mean, these are again, these are anecdotal items. But year over year eggs are up 22%. I'm looking down the list here.
Blueberry is 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 percent. So all over the board. But overall, when you take the whole basket of things, very little for the month on annual basis.
And then 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 100 bps less than that just given the other categories?
Not necessarily. First of all, there's no 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 of the extreme inflation categories in terms of talking amongst the buyers. Again, food overall is by no means that level. And then of course, as I mentioned, there's a few things that are ever so slightly deflationary right now like apparel and electronics. So really there's I mean my guess is inflation is going to be very, very low single digits this year as we know of today.
Life could change tomorrow.
And then just maybe for a minute on the competitive side, 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 $7,000,000 impact roughly. I mean, does that make sense to you?
I think hold on a second. I think that's close.
That's correct.
Bear with me one second. Yes. $16,000,000
Okay, great. And then 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 preopening expense for international versus the 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. It could be these are if you just took the number of openings, there's other things that preopening too like when we had a gas station or we opened a depot or we opened all those kinds of things. So generally speaking, I remember this goes back several years, but it used to be like a U. S. Warehouse was $1,000,000 plus or minus a little.
And in international and I say international outside of North America might have been as much as $1,500,000 or $1,300,000,000 but those are guesses. Yes, it's more in some of those countries, but a big chunk of preopening is not just the you can't just take preopening 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 that's going to when it's a new operation. And we've done it consistently from day 1, but there's a lot of other things in there as well.
And 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% to 30% more on average. Sometime I mean, there will be some wide ranges. I mean, 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-30s.
My guess is overseas it could be in the low 40s on average, but it could range from mid-30s to high 50s, I mean, all over the board. But as you know, some of those higher numbers, we can get a better return on investment.
Right. And 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 3 to 6 months currently depending on if you're part time or full time. Each year for the last 2 or 3 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. 1 year it's covering people up to 26 years old.
1 year it's mental health parity. 1 year it's I forget the other ones off the top of my But 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. So we don't think it's going to have a big impact to us like it may to others. But others may do some things that it may be less of an impact to them. I don't know.
But 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 from the line of Peter Benedict with Robert Baird.
Hey, Richard. It's actually Justin Klaper on 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. And 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 2, the adjusted number. And I think what you'll get is something in the 6% or 7% increase range in dollars.
Okay. That's helpful. Thanks. And then the $26,000,000 of incremental over the next few quarters?
Yes.
And it will build a little bit in Q1, recognizing Q1 is a 12 week quarter versus a 17 week quarter. So but in absolute dollars it will build a little. It will build quite a little bit more in Q2. It will build then it will start going the other way, but still pretty sizable numbers in each of these 4 fiscal quarters. It's $0.03 to $0.05 a quarter in each of these 4 quarters.
Okay. Thanks. And just any color on as it relates to traffic conversion rates, average ticket size from the replatforming 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 8 hour period closing the old site opening the new one. And so we'll see over time.
All right. Great. Just lastly, 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 14 almost 15 $1,000,000 last year and $16,300,000 this year. So up 1,300,000 dollars
All right. Great. Thanks. Good luck with holidays.
Yes. Thank you.
Your next question comes from the line of Charles Grom with Deutsche Bank.
Thanks. Good morning, Rick. 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? And it's been a while since I've heard you guys talk about a longer term club target, but with growth in Europe, Australia and 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 high very high 20s. And we're looking at numbers. We had a slide recently that showed over 5 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 5 years from now 5 or 6 in Europe or 8 on the outside, but more likely 5 or 6. And that's if it continues to progress.
We 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 will take some time. So I think again part of the as I mentioned earlier part of the 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 an opening is 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 2, we've had people on the ground in some of these countries where historically we didn't.
Okay. Okay. Fair enough. And then when we look at the complexion of your margin structure here in the Q4, gross profit margins were down a little bit, but SG and A levered. You produced some pretty nice operating margin expansion of about 19 basis points.
When you take a step back and look at your long term earnings algorithm, is that a good recipe for success for you guys? Is that the structure you want to build
out? Well, in the ideal world, as I think Jim said 25 years ago, that we'd sell things we'd sell the membership fee would be a lot higher. We'd keep lowering expense percentages and we keep lowering prices. But ideally, yes, we want to keep doing that, because it makes us more competitive. It keeps driving the business and a bigger wedge between us and others.
But we're also realistic. But yes, that's mission wise that's fair.
And then my last question is just I think I asked this every call, but you guys really do continue to build up cash on the balance sheet and we get a lot of questions from investors about what you're going do with it. And I realize buybacks are steady pace for you guys. But 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.
Yes. Well, I mean 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, but 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 in the the last few years to approaching 2 this year. I think that net and 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 we're doing this year like a couple of extra depots in some of these new countries. So but overall getting that number up $400,000,000 $500,000,000 from where it's been that helps.
Got you. Got you. And then I'm sorry, I did hop on a couple of minutes late, but could you just remind me what the core on core gross profit margin number was this quarter? And then 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 quarter was down 10 basis points year over year and the win and without gas is the same. There was minor gas deflation, but not enough to affect the basis points. So, core was down 10, ancillary was up 1, 2% was down 2 implying about a 1% increase in sales penetration of those numbers. 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.
And then within that core of the 10, any major differences between the other 4 major subcategories?
Yes. Food and sundries and fresh foods were up a little. Hardlines and Softlines were down a little bit more than a little, but not a lot.
Okay. Okay, great. Thanks very
much. Okay.
And 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.