Just over $150,000,000 Again, our supplemental information pack, which includes some useful stats in our cash flow statement as well, we posted I'm sorry, it does not include the cash flow, will be posted on the COSCO Investor Relations site later this morning and 10 Q should be out in a few weeks. With that, I'll open it up for questions and turn it back over to Debbie.
Your first question comes from the line of Debra Weintwij with Citi.
Hi, good morning. This is actually Tina Huang on for Deb. Thanks so much for taking my question. I was just wondering based on what you seen so far in November, can you just provide us an update on your holiday outlook and also address specifically how you guys are positioned from an inventory perspective for holiday? Thank
you. Sure. Well, I can't talk necessarily about how the last week or so was, but what I know I have mentioned and I know what Jim has mentioned when asked in the last even going back a couple of months ago, we approached the Christmas season this far back as September somewhat aggressively, recognizing structurally we feel that, A, we've had great shopper frequency. We have on average a little bit more upscale member that perhaps can weather the economic storm on average a little better. If we are coming in, hopefully, it will pick up some of those discretionary items as well.
And structurally, we can afford to be a little more aggressive because of the types of merchandise we sell and returns that we have. We're in and out of seasons early. So we have continued to approach it with a plus behind it, if you will, versus a caution and that continues.
And is there anything from Black Friday that you observed that you could call out?
Not really. For us, Black Friday, while we do in the last several years, we've done a handout with a few items in it. It's really more of an advertising traditional retail holiday. Certainly, Black Friday is better for us than an average Friday, but it doesn't really pretend anything in our view for us. And it was reflected
JPMorgan.
Thanks. Good morning, Richard. I know you don't want to give forward guidance, but just provided the Mexico consolidation, would you anticipate that minority interest line to be about $20,000,000 per quarter this year or was there something in this quarter that made it pretty high? Just trying to guess that's how we should model that line.
Well, I can't give you guidance on it other than you noted that line, there is that tax benefit I mentioned. So that won't be that high. I think a little under $5,000,000 of that line is a tax benefit because of Mexico.
Okay. So closer to that $15,000,000 maybe?
I'll let you do that. Okay, fair enough.
And then in your 10 ks that you filed last month, you reported a I think about 100 basis point increase in Canada. What was behind that increase? And do you feel like that 4.5% sustainable?
You're talking about year over year?
Yes, year over
year. Well, I think 1st and foremost, Canada's economy overall, not just the Costco has been strong. I mean, we've enjoyed local currency comps for 2 years now in the mid to high single digits in Canada. My guess is that a smaller benefit of that is related to the fact that Sam's exited the market, gosh, a year and a half ago where they had 7 or 8, 6 or 8 locations in the Toronto, Montreal markets. Certainly, that helps a little bit.
But as you might expect, the day that was announced, Jim was the first to remind the buyers, he doesn't want to see big improvement in margins there. So my guess is that's a little of it, but a bigger thing is continuing strong comps up there.
Okay, fair enough. And then my last question is within SGA, you talked about the core being 17 basis points better, 16 basis points from payroll.
Well, part of it I think it's both. I mean, as I mentioned a minute ago, clearly some of us leverage, but I think also our and again, I don't know what the leverage comp number is completely. I just believe and we agree here that it is lower than it used to be. We have focused on it over the last year and a half. Everybody is focused on it, but as many of you know, for years, I've always said there aren't a lot of silver bullets in our SG and A because we're pretty efficient to start with.
Well, guess what? In the tough times of yes, and so keep in mind, as Bob was just mentioning to me, benefits are higher in that number, higher than sales growth. So actually, overall, there was a little bit more improvement and it offset that. So again, there are lots of little things plus pretty good comps. Great.
All right. Thanks.
Your next question comes from the line of Adrienne Shapiro with Goldman Sachs.
Thank you. Richard, another impressive point in the quarter was the core merchandise margins up 19 basis points. Can you just kind of walk us through and help us think about how sustainable that is? Clearly a nice inflection point, but as we head into the Q2, we're up against a pretty tough compare where you had a nice increase a year ago as well. So just kind of help us think about how sustainable that improvement is going forward?
Keep in mind, the big improvement last year in Q2 really related to the year before that when we took about $30,000,000 to $35,000,000 of commodity price markdowns. So the delta a year ago was because of the low underperformance a year earlier. So I don't see that as being a concern this year. Look, one of the things I pointed out a minute ago was that even our overall fresh foods gross margin was up in Q1, notwithstanding a much weaker for us bakery margin because we've been trying to hold prices despite raw material prices going up. You can't do that forever, but we recognize that these a lot of those muffins are sold to restaurants and delis and the longer we can hold that price, the better.
It won't forever, but so we were able to do that and still have pretty strong margins here. As Jim has said before and years ago, I'm not sure I always agreed, but I agree more and more. Margins aren't the issue. We feel pretty good that we have the ability to do a little of that, but we're not going to go crazy.
Okay. And so we're seeing this margin improvement despite the fact that we're not necessarily flowing through some of the inflationary pressures that have yet to that have started to materialize.
First would be fresh foods, bakeries, sugar, the raw material agreements for baked goods or the food court. And again, both of those margins in the Q1 were down year over year because we're holding on. But we're able to do by the way, we probably would have done that even if there's margin pressure in the whole company. Good news is, is we're able to do that and still even within fresh fruits have a good margin. So I think overall, I think we're running on all cylinders as it relates to our merchandising, most cylinders as Jim would say, not all, but in terms of merchandising and our ability to achieve our margins.
Okay. What are you seeing competitors do as it relates to inflation? How aggressive is it out there? And maybe sort of on the heels of Black Friday, how the holiday season has started off compared to how would you characterize the holiday season relative to your expectations?
Question is that we've reentered the season positively and we still feel that way. The first part your question, Adrienne?
I was just saying as it relates to inflation, what you're seeing competitors do with prices given some of the inflationary pressures?
It tends to be all over the board. If you think about Fresh Foods, I think the supermarkets have their own set of pressures. Again, we're stronger and bigger ticket higher end beef items like prime rib and steaks and what have you. And that's where there's a little less pricing pressure. We're still the best value out there, but the ad items that you see up for ground beef and things like that aren't as big of a competitive issue for us and we're able to compete effectively and not be impacted a lot.
Different regions are doing different things on that side with loss leaders. I mean, you get driven crazy in a region or 2, whether it's milk or soda pop or things like that. But as it relates to pricing pressures, I think we would all agree here that we're going to be the last to take prices up. And so far, I think that's happened and that's good for us. And we're able to do that and still show decent margins.
On the non food side, On the non food side, there is you hear about cotton going up a lot. Well, it does, it impacts those items. But it impacts more higher ticket items less than $8 items at the discount stores.
Makes sense. So Richard, let me be
the one to ask the question. Since we last spoke, the Board in California raised the threshold. BJ's talked about raising their membership fee in January. Sales seem to be improving. Understand that you're focused on the holiday season, but maybe just update us on your thoughts as we think about 2011 since it will be 5 years we last saw a membership fee hike?
Thanks.
Right. Well, there's not a whole lot of new news yet other than what you just mentioned. As you know, we raised it from the base membership fee for 45 to 50 and I think it was May, roughly May of 'six. So five years would be May of 'eleven, but we really haven't talked about it yet. I don't think what our competitors do impacts us a lot.
Certainly, our renewal rates, our frequency and the like give us confidence that if and when we wanted to, it would not be an issue as it never has been. But we honestly haven't sat down to talk about it yet. And at some point, I'm sure it will happen, but whether it's sometime in the first half of 'eleven or second half of 'eleven or first half 'twelve, who knows. I'm not trying to be coy here, we just really haven't talked about it yet. It is not because of a lack of confidence in our loyalty and our ability.
Okay. Best of luck.
Your
we've seen a bigger push towards the Asian stores in this year's new store introductions. Is this something we could count on for the next several years? And do you have a longer term target that you're shooting for there in terms of store count?
Yes. If you go back a few years ago when we had the slide that said, this is how many we have by country today and this is what we think the potential is 10 years from now. I think in both Korea and Taiwan, we had at the time 4 or 5 in each of those countries. We felt long term it could be 15. While I haven't seen that slide lately, I think in the past year I saw it and the 15s were 25.
In Japan, when we had 3 or 4 units, the potential for some reason was 49. I don't know why it won't. I don't think that's really changed other than we have committed to a lot more. We have what, 9, I believe in Japan and 7 and 36 in Taiwan. As I mentioned, between those three countries, we've got several openings this fiscal year.
And yes, you'll see a rate of a higher rate of openings this year and in the next few years than you have in the past. But so it moves the needle for the company a little bit. We've great success in those countries. We've had great success in the one year that we have in Australia. We're anxious to get our second one open this coming spring and hopefully third.
My guess is that 3rd slips into Q1 of 'twelve, but we're working to try to get it open. So yes, we'll see. But yes, I think it's like a lot of things around here, it's a big positive for those operations given that they are successful. It's a slight positive for the company overall, but trending in that direction.
And how do the operating margins look on
those stores versus like a U. S. Core store? Margins are higher in the story. Keep in mind, in places like Korea and Taiwan, I mean, I think 8 of our 10 highest volume units are in the 3 Asia countries.
And I wouldn't be surprised if all 10 were if they were a little older. So I mean, it helps when you have 4 or 5 locations in a 15 plus 1,000,000 population city like Seoul or Taipei or Tokyo. So we have met with good success and member sign ups and sales over there. And but we have to just keep opening some units. Occupancy is higher, payroll as percent because sales per location are quite high, payroll as a percent of sales is lower.
But the net of everything, membership fees as a percent of sales tend to be higher. Some of those units have twice the average number of members as our company overall. So again, that has to do with the fact that there's so many so densely populated. And they like American stuff. What we feel that we've brought is not only the unique membership format is American sourced goods, bigger and great value.
And getting back to the inflation question, you said steak price is up 15%. What kind of price elasticity response do you get there? Do you see volumes down a little bit in some of those areas where you're seeing double digit increases?
I honestly don't know. My guess is there's got to be some elasticity. There probably was I know there was huge elasticity as a positive. When the economy first got hit in late 'eight, throughout the first half of 'nine as what I'll call the high end steak restaurants, which were hammered in 2% of all beef raised in the United States is prime. Virtually all of it went to high end restaurants.
There were weeks and months in the middle of 'nine where we represented something like 35% of all the prime steaks being sold in America, including restaurants.
A prime
steak that we might have had as we're selling in the a prime steak that we might have had as we're selling at $18 or $19 a pound for strip steak, but we didn't sell them because the disparity was so different, was down to $10.99 and $11.99 and we could sell a dramatic amount of them even as the $10,000 or $11.99 Choice stake went to $8.99 I'm guessing on these numbers, but directionally that was the issue. So my guess is is there's some elasticity, but they're great. It's been a good business for us.
And did you say your fresh food margin was down a little bit because of inflation?
Our overall fresh food margin, which is the sum of bakery produce, meat and what we call deli packaged items like cheeses and what have you. Our overall gross margin was up in the quarter notwithstanding the fact that our produce that our bakery margin was down because of holding prices while on many of those items. We can't hold them forever, but so far we have.
Okay. And how about on the meats, were you holding there or are you passing it through?
Mostly able to pass most of it through. Again, on ground beef, it might not be able to, but we're selling even though we sell a lot of ground beef, we're selling a lot of steaks and roasts and like that as well, higher end cuts. It's kind of like in the white goods business with refrigerators, the one you see on sale is the base model. But when you go in to buy 1, you want to buy the model with everything on it like with the ice maker and the water dispenser. And so that's not the one that's on sale.
So there's less price competition on that higher end item.
And just a little more color on California doing better. Is it back to reasonable levels?
Or is it still just really benefiting from
the weak year ago? I'd say well, in November it was, over the quarter closing in on it. So yes, it's getting better. But I don't want to suggest that life's great out there. We all know what the underlying unemployment statistics and the economy concerns are, but certainly seems, I think probably the thing that has continued to surprise me is the improvement in shopper frequency.
For 20 years, shopper frequency month, up 1%, 1.5%. All of a sudden starting really before up 1%, 1.5%. All of a sudden starting really before the economy got bad in late late in the spring of late when gas prices approached 4 we started seeing frequency improve. And throughout 'nine, when the economy was really in the doldrums, we continued. And I was the first to remind people that, hey, if we're running if we typically run 1s and 2s and we're running 3s and 4s, a year from now if we're flat, that's not so bad because we got it all that frequency in 1 year.
Well, guess what? We're running 3s and 4s and 5s for 2 years running now.
It would seem And it would
seem to me that with 3s and 4s I think that to some extent, people changed some of their habits with restaurant usage in 2009. I think that competitively, we are still taking market share from traditional supermarkets and that's what drives frequency in our business and that helps.
I would think with the 3s and 4s and deflation shifting to inflation, you should start to see more sustainable comp above 4. Is that fair?
Hopefully. Yes, I mean, yes, if that happens, we'll hope it'll continue.
Okay. Thank you very much.
Your next question comes from the line of Mark Miller with William Blair.
Hi, good morning. Richard, on the average ticket, November ex currency, ex gas and a lot of our discussion I think has been around price changes on like items. Could we spend just a minute on mix? And what I'm specifically interested in is, are we beginning to see a shift from what had been trading down over the last couple of years to more trading up. So within categories and also on moving towards better and best items, I know with the
of all, I think we did a good job per Jim's instructions, the buyers that when the economy got originally got hammered, we tried very hard not to bring price points down. Now did we try some lower price points on patio furniture to get below $1,000 instead of a little above $1,000 on a price point? Yes. Did it sell a little better? Yes.
Did we do that again this year leading into February through April of February through April of 10, 2, bad February through April of the economy? No. And we were actually scrambling to any part of what's pent up demand for the year before. So now are we getting so people are coming I think the tickets come down a little bit, people coming in more, it's gone up a little bit because there is finally a little bit more strength in penetration of what I'll call medium to higher priced food items, discretionary items. I mean our jewelry business has been up in the teens the last couple of quarters, plus several months.
A lot of those categories I mentioned earlier, housewares and sporting goods and lawn and garden are all up in the 10% to 25% range. Actually on a high watermark basis over 2 years net positive. So again, frequency brings it down a little bit. We're finally seeing some strength brings it up a little bit. But we still are, as Jim would say, operate in a healthy state of paranoia because the economy is still a little scary.
But we clearly, we're getting more than our share.
And then is it fair to make a
connection between that second derivative or rate of change on average ticket and payroll leverage? Were this to strengthen further that would presumably help you to get better payroll leverage, all else being equal? Yes, that helps. Okay. My other question is on international club expansion.
Can you just help us look out a few years? I mean, the returns are absolutely terrific. And is there a speed limit we should think about with the infrastructure? I mean, can you get the international club openings up? When can that surpass the U.
S, for example? Could you get it up to 20 per year?
I think it will be a few years. The way I looked at it is that we're probably a 4 or 5 year period. If I think of just like the 3 countries in Asia where we are now, we currently have 23 warehouses, I think, between the 3 countries, all right? And probably for 5 years running, we've averaged between the 3 countries a total of 2 or 3 a year. This year, we'll open 5 or 6 and my guess is over the next 5 years, it could be 5 or 6 a year, hope maybe 6 or 7 or 8, but let's say 5 or 6 a year.
So that's a dramatic increase in rate of increase. It still doesn't get you to your 20. As we open in a second or third European country over the next 5 years, but again, as you've seen from every other new country we've operated in, over 5 years, we might open 3 to 5 units in total in a given country. So we're still pretty hands on infrastructure wise as it relates to again open. Again, I think the first thing is we have ramped up, but not for 20 a year, but we're ramped and let's see how the next 2 or 3 years ago.
Thanks.
Your next question comes from the line of Bob Drbul from Barclays Capital.
Hi, good morning. Richard, I guess the question I have is on the membership fee, the potential for membership fee increase, how should we think about, I'd say, attrition if you were to increase hypothetically the executive membership by 5% or 10% or $5 or $10 given historical attrition on just the gold star increases that you guys have done over the years?
Well, A, who knows, but in the five increases in 25 years, we've never I think we've budgeted as much as 1 point 5% or 2% attrition and I don't think we've ever exceeded 1% even. So it's really never been an issue. As you know, 9 years ago and 5 years, 5.5 years ago, we did when the original started at 100, we were at 40 and then we went to 45 and checked 100 to 100 and then went to 50 and checked 100 to 100. The theory being is get more people to convert and that's happened. I don't know if and when we look at increasing the base fee, what we do with the other fee?
Really, I'm not trying to be coy or cute. We'll let you know after we figure it out at some point. But as it relates to your question of attrition, we don't lose a lot of sleep over that quite frankly.
And I guess I'm just curious on another just like inventory availability from some of your vendors. I guess the one that gets a lot of mention these days is the television categories. I wonder if you might be able to talk a little bit about television category and then we'd also be interested in hearing more on the soft lines inventory availability.
Well, there's a few different things. First of all, TVs are fine. Cameras have been a little certain high end cameras I understand have been there's been some availability issues because of chips or whatever components and these are $1,000 plus digital SLR cameras. The TVs, the availability is back, but recognizing TV sales overall have been down a little bit for us. I assume they have for everybody.
In terms of apparel, the second thing, first of all, is the issue with importing from Asia. There has been some challenges with shipping that affects all of us, not just Costco. So far, we've done pretty well through that. In some cases, there's been a week or 2 additional lead times, which the buyers have been able to build in. And by the way, it hasn't impacted our inventory results or our feel of control over inventory.
So that's not been a big issue. Probably the single biggest thing right now that's a little bit of a pain is some of the electronic toys, the Xbox, the Kinect, we like everybody are being allocated some of the Nintendo items. So we're all it's a good high quality problem to have, but we're all could sell more if we had it.
Got it. And then just one last question for me, Richard, is just give us an update on any of the healthcare cost trends that you're seeing in the business
currently? That's big right now. Again, as I mentioned in Q1, the rate of increase was a shade higher than top line sales growth rather it was closer to 10, 10, 12 than it was 15, 17 in terms of dollar increase.
So that's encouraging a little bit. We're tweaking a few things that
we're allowed to tweak without I
think,
next several years. Again, I think we're finally breathing a little sigh of relief after 2 years of really big growth in healthcare costs exacerbated by opening fewer units, having less turnover and with fewer units having fewer new hires because it takes up to 6 months for an employee to be benefit eligible. Part time hourly is up to 6 months, a full time hourly up to 3 or 6.5 months up to 3.5 months for part time for full time hourly. So without having all those new openings, we had less freebies in the calculation for those 1st few months. And so again, as we ramp up expansion, that helps a little bit.
I think that just does is that dampens that dollar rate of increase a little bit.
Your next question comes from the line of Rob Simone from Cowen and Company.
Hey, guys. It's Rob Simone in for Laura.
I just wanted to touch on the membership fee increase again one more time. I believe on the Q4 call, you guys called out a weaker economy and due to that you're not feeling a lot of pressure to increase the rate in the near term. And I know you just said that you're not going to be increasing the rate or you haven't announced that yet, but could you comment at all on how your view of the macro backdrop has changed for Bob? Thanks a lot.
Well, I think the comment I made was that anecdotally, I remember sometime in mid-two thousand and nine mid to say sometime in the summer of 'nine, I just ask Jim, he says, right now, all things being equal, if we made if now is the time in our own mind that we should historically, every 5 or so years we take that fee up if we feel it's appropriate, given the backdrop of the economy, wouldn't we? He says, no, there's no pressure to do it now. And given the economy, even though we have no concern about its impact on attrition and impact on member loyalty, there's no need to rush into it. And Lord knows that whatever our underlying earnings numbers were expected over the next several quarters, whether we needed it or not to improve our earnings, we wouldn't do it for that reason. We're going to do it when we're ready to do it and we feel comfortable.
And certainly, the backdrop of the economy tempers that enthusiasm, not from a standpoint of ability to accomplish it and accomplish it with very little attrition or disloyalty, but the ability to why be arrogant about it or aggressive about it, let's wait and see. So again, as you know around here, because we not whatever the issue is, whether it's this or any issue out there that we're thinking of doing, it does take us a long time once we decide to do something to do it. We haven't talked about it yet other than anecdotally like what I just said. So I'm trying to beat around the question here, beat the answer to the question because at point, we haven't decided what we're doing. And when we find out, we'll let you know.
Your next question comes from the line of Greg Nielek with ISI Group.
This is Mike Montani in for Greg. My question was actually on ticket first, which was just looking back historically to mid-two thousand and nine, we saw 3% to 4% decline in ticket if you excluded FX and gas. And obviously now we've gone slightly positive. So number 1, just trying to understand if you can help us with the drivers there. I mean, it seems like inflation is an obvious one.
We're getting a little bit of mix, but is there also some improvement in units per basket as well that you could speak to?
I think the I don't have the numbers right in front of me. The units per basket haven't really changed dramatically other than as frequency goes up, part of it is, I used to always say that the typical family member at Costco was coming in every 2 and a half, 3 weeks. But each of those families were still going to the neighborhood supermarket 3 times a week. Well, I think what's happened is that 3 became 2 and a half weeks at our Costco in terms of more frequently. They're still going to supermarkets, but they're buying more of their food items at Costco.
And if they're coming in more often, they're buying a few less items or maybe a few equal number of items, but some of those food items, so a little lower basket. So again, it's the recent relative pickup in the average basket is, I think, less inflation because it's really just starting and more the strength in some of the non food categories offset by more frequency.
Okay. And
then following up on that would be getting back to TVs for a moment. Obviously, last quarter, I believe the outlook was for slightly positive TV dollars and we haven't quite seen as of yet. But I guess looking ahead, it would seem that that's one way certainly to get ticket a bit higher. As you see the units improving a bit with accelerated ASP declines, is there any reason to think that we still wouldn't be able to do positive dollars into 4Q?
Yes, Bob knows. I was just mentioning some of that was roughly through my papers to find the answer Bob gave it to me. In November, units were actually up a little bit. There was a little bit more than that amount of deflationary pricing, which is by the way in the last couple of months the first time for most of 'ten, there was most of the first half of 'ten, there was inflationary pricing improving. So I think everybody's got a lot of TVs and we are seeing some strength.
As the price points keep coming down a little bit that helps. It's driving a little bit, but not a lot. I'm shooting from the hip with this answer, guys, because I don't have any detail in front of me other than when talking about orders in general. One of the things that has driven our TV business is the coupon mailers that we do, what we call the multi part mailers. Throughout a lot of this current calendar year, there's been fewer of that as there was inflation.
There was a lot of pressure on vendors to have to improve. So that many TVs does everybody already have. 3 d is not exactly changing the face of TV sales overnight. And so it's a much slower process.
Okay. And just lastly, actually had a question, somewhat of a macro question.
But if you look at the accelerated depreciation provided for
in the new tax package, so given obviously the member about that as it relates to your business just given obviously the business member penetration that you have, especially I would think around sort of office products, furniture, PCs, etcetera. Have you thought about that or done any work to quantify it at all?
I have not. And I'm not sure if our buyers have either yet since it's pretty new. Again, it can't hurt. It's and hopefully it will help a little. But I'd be remiss if I try to guess what I could be.
Keep in mind, each of these departments are small percentage departments in the total company. So it helps us. It doesn't if furniture and cash registers and PCs and things like that, we're all benefiting would benefit from this, it will help those departments a little bit. But office products for us as an example or majors for us as an example is about 6% of sales and probably half of that is business related and half is not. So if it impacts that a little bit, that's great, but it's still a small piece of the action.
Great. Well, thank you guys. Good luck.
Why don't we take 2 more questions?
Okay. We actually have one more question from the line of Neil Currey with UBS.
Yeah. Thanks for taking the question. Congratulations on a great quarter. Just wanted to ask about Internet sales. Most of my questions have been answered, but when you look across some of the larger retail businesses and you look at the Internet sales, they tend to be significantly ahead of their store sales.
I mean, your Internet sales aren't bad. They were 6% last year and 9% this year, but not significantly outpacing what you're seeing in your stores. And I just wondered what your approach is and whether you might see any changes to your online sales or whether you're not too worried about developing online or whether you think this is a good performance?
I think we can do better. Keep in mind, the average ticket online is still in the high 300s for us. So and it's all discretionary stuff, virtually all discretionary stuff. And that's my choice in our case. We are doing a few things right now to work a little bit.
If Jim were sitting here, then he would say, well, 1st and foremost, we have to have the right items at the right price. And so it's all about merchandising. But I think we can do a better job with several other things. I'm not promising anything other than we agree that even though 9% is better than 6% and 6% was better than a slight negative the year before, arguably a lot of that's because of the nature of the discretionary baked goods we sold. We think there's opportunity there.
And we are working that. I'm not we really are working on that, but it's not going to happen overnight.
Okay. And just on you talked about Asia, but I was just going to ask talked about Asia, but I was just going to ask about the U. K. In terms of those numbers you gave a few years ago in terms of potential store openings, are you still on track for those? Or is there anything in the U.
K. Economy that you see that causes you to revise your outlook and perhaps allocate the capital elsewhere?
Well,
fortunately, capital is not a big allocation issue for us. I think in the U. K, the fact that the economy has been in the door rooms for a couple of years and keep in mind, there's one other unique thing that U. K. Has in our operation.
To make it work for us from the beginning of time, many of our locations are located in and I don't know the exact formal term over there, but they are not retail zoned. PPG-six, I think
it is.
And so because of that, there's a limit to much of our sales can go to the Gold Star member, if you want, that has to go to the trade. And those numbers are typically in the roughly twothree of the sales range, a little bit higher than our company average. So we don't market a lot to Gold Star members. So structurally, it's been a little different business all along, but a good business. I think the fact that the fact that the economy has got hit hard over the last couple of years there has I don't think that we have canceled anything.
There's also a lot of limitations and process to go through. I think I used to say that we might be working on 4 or 5 sites hoping we get approved for one of them and it will finally get open 3 or 4 years from now. And so there is still a harder real estate environment for us over there. The fact that the economy has been so my guess is 5 years ago, we had said, hey, 5 year cents, which is now cost you got whatever 21 or 22 locations there, what we open over the next 5 years. My guess is that number is down a little bit from what we would guess 5 years earlier, but we're still looking at openings and have some plans to open some new sites over there.
I think we've got 3 or 4 that Jim and Jeff have approved our 2 founders and we're working on it.
How would you compare the real estate environment compared to Japan?
I I'm guessing a little bit here, Neil, but I would think that the process Japan is more expensive, but the process of getting them is easier.
Great. Thank you. Okay.
At this time, there are no further questions.
Thank you very much, everyone. Thank you, Debbie. You're welcome.