Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the 4th Quarter and Year to Date Results and September Sales Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and Thank you.
Mr. Galansky, you may begin your conference.
Thank you, Ashley. Good morning to everyone. This morning, we reported our 16 week Q4 and our 52 week fiscal year 20 10 operating results, both ended August 29. As well, we're reporting our 5 week September sales results for the 5 weeks ended this past Sunday, October 3. As with every conference call, I'll start by stating that the discussions we're 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. To begin with, our 16 week 4th quarter. For the quarter we reported earnings of $0.97 a share, up 14% from last year's 4th quarter earnings of $0.85 The $0.97 figure for this year's Q4 compares to the current first call estimate of $0.95 Both 4th quarters include certain items that impacted the quarter over quarter comparison. As outlined in last year's year end earnings release, last year's 2,009 Q4 included a $16,600,000 pre tax charge or $0.02 a share LIFO benefit with no corresponding LIFO charge or credit this year in Q4. There were a few items in this year's Q4 that the aggregate, benefited our 20 10 Q4 by about $0.02 a share as well.
So kind of a wash in the year over year comparison of the fiscal 4th quarters. In addition, a couple of other items that impacted the comparison of this year's Q4 versus last year. As I've discussed in think all the quarters this fiscal year, unlike 'nine where we had FX headwinds, this year we benefited and had FX tailwinds, if you will. In the Q4, our foreign currency earnings results when converted and reported in U. S.
Dollars benefited us this year as the dollar relatively weakens so many of the foreign currencies in countries where we operate. In the Q4, we were helped by a little over $16,000,000 pretax or $0.02 a share after tax. That is assuming FX exchange rates were flat year over year on our foreign currency our foreign country operating results in Q4 reported in the U. S. Dollars would have been a little bit lower by that amount.
For the entire year, the impact of FX excuse me, the impact of FX assuming FX rates had remained constant year over year was to increase our total company reported sales by $1,600,000,000 about 1.4 percent of our total sales and increased pretax earnings by $70,000,000 pretax or about $0.10 a share. Again, this calculation simply takes the exchange rates for the prior fiscal year and assume they had remained at those levels throughout this most recent fiscal year. 2nd, as I have discussed previously, the last several quarters, we've experienced higher employee benefits costs, mainly consisting of higher U. S. Healthcare costs.
Total benefits costs were up about 14%, higher year over year. Health within that U. S. Healthcare costs which is the biggest item was up 11%. As I'll discuss later in this call, our overall SG and A percentage was still better or lower year over year in the quarter by, I believe, 12 basis points.
In fact, payroll dollars showing good improvement. While the U. S. Total sales in the fiscal quarter were up 8%, our payroll dollars total company were up 5%. Correspondingly, in the U.
S, our payroll dollars were up 3.2%, whereas total U. S. Sales were up a little over 5%. For the 2010 fiscal year, our net income came in at $1,300,000,000 or $2.92 a share compared to $1,100,000,000 or $2.47 a share last year in fiscal 'nine, up 20% in dollars and 18% on an earnings per share basis. In terms of sales for the Q4, as we reported on September 2, our 16 week reported comparable sales figure showed a 6% increase, plus 4% in the U.
S, plus 14% internationally. As we always do, we take out gas inflation and the impact of FX that would make the 4% reported U. S. Number in the quarter plus 3% and the plus 14% international number, plus 8% in local currency and thereby bringing the reported 6% comp number for the quarter down to a +4%. We also reported this morning our September sales results for the 5 weeks of September ending this past Sunday.
These were with the US coming in a solid 2, international 14 and total company up a little over 5, but rounding to 5. For the 5 week September period, the 2% reported comp would remain at 2% even without the about 0.5% positive impact from gasoline inflation, again, because it started off as a relatively strong too. And given that the U. S. Dollar's relative weakness vis a vis other currencies in the last month, I reported 14% international comp would have been 10% of expressed in local currency.
And again, if you exclude both gas inflation, the impacts of both gas inflation effects, our September comp sales number would be on a kind of a normalized apples to apples basis of plus 4%. Couple of final comments on September, the reported 5% number included a continued strong frequency or traffic increase coming in at 4.3% up in September. And the other piece of that product gets to the 5% or 1.1% increase in average ticket. Of course, the plus 1 point 1% average ticket increase would be about flat excluding the combined positive impacts of gas and FX during the month of September. So essentially a flat ticket, which I believe is actually up a little bit and improving trend over the last few months.
Geographically in September actually both in September and for the quarter, the region's strength relative strength were Northwest, LA, Midwest and Southeast well as Texas. Internationally, all countries enjoyed good comp performance with the exception of the UK which is still probably is the toughest economic environment we're operating in. In terms of merchandise categories, September comp sales, all 4 core merchandise categories, food and sundries, hard lines, soft lines and fresh foods, as you know, those represent a little over 80% of our company sales, showed positive comps in September. In fact, soft lines positive September comps were in the low double digit range, while food and sundries, fresh and ancillary were in the mid single digit range. With respect to September sales, weather reeked a little habit, but I won't lay a lot of blame on that.
There was a little bit of an multi vendor mailer shift the last week of September, which we think pushed a little of the 5th week of September's sales into the 1st week of October, which we're currently in. Other topics of interest that I will review this morning are opening activities and plans. We opened a total of 13 net new locations during fiscal year 2010, which ended this past August 29. Among those 13, it represented 10 new in the U. S, 2 new in Canada and 1 new in the UK.
As well, we relocated 1 unit in fiscal 2010 in Warrenton, Oregon. For 1st school 'eleven, we've greatly increased our expansion plans with a current plan of 29 net new locations, 16 in the U. S. And 13 outside of the U. S.
As well as a couple of relocations currently planned. Since fiscal year end, on August 29, we've opened one new location and it's our it actually is our 8th business center in San Diego, California with 7 additional openings planned before our November 21, Q1 end. Those 7 include 1 in Alberta, Canada 1 in Landover, Maryland, 2 new locations in Georgia and 1 in Atlanta and 1 in North Georgia, and 3 openings in the Chicago market, bringing our presence in the Chicago market to 17 total locations. We now operate 573 locations around the world and that includes the 32 in Mexico. I'll talk about consolidating our Mexico operations a little later in this call as we begin fiscal 2011.
I'll will also review with you our ancillary business results, our online activities, membership trends, a little bit more discussion about Q4 operating results, our stock repurchase buyback activities during the quarter and a couple of other housekeeping items. Okay, so on to the discussion of our quarterly results. Very briefly, again, sales total sales were up 7.8 percent to $23,600,000,000 and again, on a reported comp basis, Q4 comps were 6, normalized to 4 if you take out gas and FX. For the quarter, the 6 represented an average ticket of plus 2% and an average frequency of just under plus 4%, continuing robust year over year frequency increases. Included in the average ticket of 1.9% or 2%, strong FX and about half of it was FX and about half of it was gasoline inflation.
In terms of cannibalization, pretty minuscule right now, a 30 basis points in the fiscal quarter, not that different, a little lower than past recent months and quarters. For fiscal 'ten overall, our average warehouse did 1 $139,000,000 up from $131,000,000 a year ago or 7% increase. Again, that has the benefit of FX and gas inflation. Just our U. S.
Warehouses went from 133, about $4,000,000 to $137,000,000 And as I mentioned in terms of sales comparisons by geographic regions, again, FX helped in all 4 fiscal quarters of 2010. There was actually gas deflation in Q1 of 'ten and gas inflation in Qs 2, 3, and 4. And like September, geographic results, the strongest regions were with again, international and local currencies are doing quite well with the exception of the UK, which is about flat. In terms of merchandise categories, within food and sundries, comp for this, I'm talking about Q4 here, within food and sundries, comps were positive mid single digits, no real standouts, all sub departments were positive. Our hard line sales showed positive comps in the low single digits for the quarter.
Strongest subcategories were in the 10% to 20% range, including sporting goods, hardware, lawn and garden, all tend to be what I'll call mid discretionary items for the home. This was offset by minus mid single digit in majors. About a third of our hardline sales and of course, a big chunk of that is what's going on with televisions. Within the very positive low to mid teen soft line comps, great numbers in housewares, small electrics, domestics, home furnishings and even jewelry was fairly strong coming off with certainly weakness last year. Fresh foods up a little over 5% in this range and all fresh foods sub departments were pretty good.
For the month of September, food and sundries comps were positive mid single digit with deli and cooler in the low double digit range. All departments were positive, sub departments were positive in food and sundries. Overall, slightly inflationary for the month and I'll talk a little bit about what's going on with some commodities inflation in a moment. Hard lines were slightly positive with office, sporting goods and lawn and garden showing the strongest results into the September. Again, majors was negative in the high single digit range with TV comp sales down in the low double digit range and units also down the corresponding amount.
Softlines continue to comp in the double digit range with many department comps in the teens are higher. Fresh foods, meat and produce finished high single digits for the month and meats continued to be slightly inflationary and even though price the produce was high single digits, produce was slightly deflationary in terms of pricing in the month. Regarding inflation, while up through July August, while up to July August, most commodities were not very inflationary year over year, a little bit in June July compared to a year ago. But in the past 2 months, we've seen some big increases on various items. Corn and wheat are up 43% 37% respectively year over year.
That of course down the food chain will affect your proteins, your beef, your pork and your poultry. Hogs are up 69%, cattle up 16% so far. Sugar is up 52%, butter up 35%. The only main commodity that showed negative deflation was Cocoa down about 9%. And talking to our buyers, their feeling is while these high levels of inflation should subside a bit, still expecting some inflationary pressures to many of the food items over the next several months in part because of what I just mentioned.
We've been asked often over the last few months how we as a company are approaching the holiday season merchandise wise. The answer has been consistent, relatively positive and aggressive. Now moving on to the line items of the income statement, start with membership fees. Membership fees were up 9% or 2 basis points up to 533000000 or 2.26% of sales in the 4th quarter. That was a $42,000,000 increase year over year.
Again, a little of that increase in dollars was FX. It doesn't change the percentages because the percentages would impact the dollars would be impacted on all lines including the denominator of sales. But unlike FX, dollars and membership were up 7% or about $36,000,000 In terms of membership, we continue to benefit from strong renewal rates, actually ticked up a little bit lower in recent quarter, continuing increased penetration of the $100 a year executive membership. Our new membership sign ups in Q4 were down 4% year over year in the quarter. That's after being up 2% in Q3 year over year.
It's really not an issue given if you recall that we only opened 2 new units in the prior 2 fiscal quarters of 2010s in Q2 and Q3. And more importantly, in Q4 last year, we had huge membership sign ups at our 4 international Costco openings, 3 in July of last year in Asia and 1 in each of Korea, Taiwan and Japan and our first Australia opening last August in Melbourne. If you take those 4 out of the equation completely, the 4th quarter new member sign ups instead of being reported down 4% were actually up 8%. Overall, fewer openings in fiscal 2010 impacted new sign ups year over year, but with an estimated 29 new locations planned for 11 and more than doubling of last year's expansion figure. We should see increased sign ups as we go through this year.
Now as you know, we always start off with a budget that includes everything that we have planned for the year. In Evidently, there's several in the last 1 or 2 months of the fiscal year as we try to push as much as we can and get them open as quickly as we can. My guess is the 20s what gives me comfort to the 29 will probably be more comfortably in the mid-20s, but that's still quite a big difference from the 13 a year ago. In terms of members, number of members at forehand, Gold Star, 22,500,000, up from 22.2 at the end of the 3rd quarter and up from 21,400,000 at the end of last fiscal year. Primary business, 5.8.
It was also 5.8 at Q3, but around it, it was right at 5.75 and up from 5.7 a year ago. Add on 3.3 consistent with Q3 end and actually down a $300,000 from at 3,400,000 at last fiscal year end. A lot of that has to do with many add ons as they've opted become executive members, basically get out of the get out from under the primary business cardholder and become their own independent member, which is a Gold Star member. All told, 31,600,000 members had member households at Q4 end compared to 31,300,000 at Q3 end and 30 point $6,000,000 a year ago, including spouse cards $58,000,000 at year end compared to $57,400,000 at Q3 end and $56,000,000 a year ago. At August 29, our 4th year end, paid executive memberships totaled 10,336,000.
In the quarter, this 16 week quarter, an increase of $427,000 or 4% increase during the Q4. That's about $27,000 a week increase. Executive members represent about a little over a third of our membership base and a little over 2 thirds of our sales. In terms of membership renewal rates, they continue strong, up 1% to 2 10ths of a percent in the past few months. If you look at our U.
S. And Canada because we have some of the other countries are so new, you always start with lower rates. Again, the number was up 2 10ths of a percent to 87.7% in the 4th quarter from 87.5% in Q3. Going down the gross margin line, our gross margin for the 4th quarter was higher year over year by 4 basis points, 10.89 versus 10.85. As I always ask you to do to jot down some numbers, We'll do all 4 quarters of the fiscal year.
So going across Q1, Q2, Q3 and Q4, those would be 4 columns. The line items would be core merchandising. 2nd line item would be ancillary businesses. 3rd line item would be the 2% reward, which as we increase penetration, that has a hit to a margin. LIFO would be the 4th line item and then total.
Again, going across merchandising core in both Q1 and Q2 on a year over year basis, it was represented plus 15 basis points and Q3 down 10 and in Q4 up 5. Ancillary minus 20 in Q1, plus 16 in Q2. A lot of that has to do with gasoline deflation turning to inflation in Q1 and Q2 on a year over year basis. In Q3, plus 6 basis points and Q4, plus 8. 2% reward of minus 3, minus 1, minus 3 and minus 1.
LIFO, minus 1, minus 4, minus 4 and minus 8. Again, that has to do with no LIFO credits or charges this fiscal year compared to LIFO credits last year. And if you add them all up, Q1 of fiscal 2010, on a year over basis, our reported margin was down 9 basis points, in Q2 up 26, in Q3 down 11 and in Q4, up 4. Now, let me give you a little color now that you have that chart in front of you. As was the case in the last fiscal quarter, again, this requires a little explanation.
In the Q4, our core merchandising gross margin shows here up 5 basis points year over year and ancillary business gross margin, again, gasoline being the biggest impact in this number, contributed plus 8 basis points. First, I'll add that on a standalone basis, our gasoline gross margin Q4 was up 25 basis points, but keep in mind, it's still a very low margin business compared to the rest of the company and it well in excess of 800 basis points in many quarters. Our gasoline business and its inflationary price trends during Q4 this year impacted our total gross margin comparison. So again, that's why it was plus on that line, but it actually has a negative impact to the Q4 line to the core and I'll show you how that works. Sales penetration of our higher margin core business was down a little more than 1 percentage point in Q4 year over year.
So whereas sales penetration of our ancillary business where gasoline sales were much lower margin business was up about 1%. So our gross margins of every category of our core merchandise and food and sundries, hardlines, softlines, fresh foods were each higher year over year in Q4 by an average in fact of 20 basis points. Its aggregate lower sales penetration year over year caused it to have a slight positive impact. That's the 5 basis points you see in that column in our matrix. I might add in Q3, I mentioned here that the core standalone core merchandise gross margin was up 20 basis points year over year in Q4.
In Q3, the core gross margin increased year over year by an average of 14 basis points. So a good trend so far in the last few quarters. The impact from growing our executive member business, again, the results in a higher 2% reward, which impacts the sales line, moved Q4 down by 1 basis point. In terms of gross margin outlook going no major issues, margins are fine and we'll see what goes on with LIFO credits and benefits. At this juncture, we're through the 1st month, we're ever so slightly deflationary, but as a company, but as I mentioned, we're experiencing some inflation right now in some of these key commodity categories.
Moving on to SG and A, our SG and A percentages Q4 over Q4 were lower or better by 12 basis points coming in at a 10.17 compared to a 10.29 in last year. Again, we'll ask you to jot down a few numbers and why don't we do the same 4 quarters. Core operations would be the 1st line, central second line, stock compensation or equity compensation, the 3rd line, quarterly adjustments, the 4th line and then the total. Going across Opcore operations on a year over year basis in Q1 were higher or worse by 16, so I put a minus in front of that because it's worse. Q2 flat year over year, Q3 better or lower by 14 basis points, I mean Q4 better or lower by 9 basis points.
Central, a minus 3 in Q1 or higher, a plus 2 in Q2, a plus 4 in Q3 and a minus 1 in Q4. Stock compensation, minus 3, plus 1, plus 5 and 0 and quarterly adjustments plus 18 minuteus 12, plus 17 and plus 4. All told, in Q1, SG and A was higher year over year by 4, so minus 4, in Q2 a minus 9, significantly better by 40 in Q3, again, chunk of that's the adjustment column, the quarterly adjustment column and plus 12 or better by 12 basis points in Q4. Now let's start with Q4 here. Operations were lower or better by plus 9 year over year.
A big component of this is due again to the gas price inflation, which again while it has gas has a much lower gross margin, it has a very low close to 1% I think SG and A. So just like with gross margin percentage where it hurt, it correspondingly helped our SG and A by 7 basis points in Q4. So within that plus 14%, 7% of that has to do with that. Our central expense was higher year over year by 1 basis point and not a big issue. I think depreciation was a little higher year over year, but there were lots of little things that went plus and minus.
Our stock compensation expense was up slightly in dollars year over year, but flat as a percent of sales given that Q4 sales were a little better. Q4 year over year percent in terms of US healthcare costs were higher by 11 basis points. That's of course within the core. US healthcare costs were up 11% in the quarter 17% in the year. If you recall, in the first half of fiscal year 2010 and in fact in the second half of fiscal 'nine, we had not only healthcare inflation, which we've always experienced, but also the double whammy of lower units and less employee turnover, so less freebies.
As we ramp up expansion over the next year, we should see some of that come back, not all of it, but a little of it. And as I mentioned earlier, our payroll percentage have improved nicely for us. Part of that's the attention that we like many companies out there have spent during the last couple of years with a bad economy. I think we're all getting a little better. Overall, pretty good SG and A performance given current sales levels and increased benefits costs.
In terms of factors that will impact our SG and A experience in 2011, again, the main items of course are sales trends, healthcare costs, gasoline inflation and deflation and of course some warehouse expansion initiatives. There are lots of little things, but it seems to be working and that's a good trend at least in the last few months. Next on the income statement, preopening expense, 12,000,000 last year in the quarter or 5 basis points, down improvement or lower by 3,000,000 to 9,000,000 in this year's 4th quarter, so basis point better. We had roughly the same number of openings, 6 last year and 1 less this year, 5. Bigger issue is that last year, as I mentioned, we had 4 international.
Those units over there have significantly more pre opening expense per location, so no real surprises here. Asset impairment closing costs, last year, we had a charge of 27, this year, a charge of 3,300,000. All told, operating income in the 4th quarter was up 15% year over year from 598,000,000 last year to 689,000,000 this year, a $91,400,000 increase. Below the operating income line, reported interest expense was higher year over year by $1,500,000 with Q4 coming in at 34,700,000 of interest expense versus 33.3 a year ago. Nearly all of that reflects the interest expense on our $2,000,000,000 debt offering that we did in February of 'seven.
Recall that $900,000,000 of that is 5 year paper, which will be repaid in March of 2012. That will be nice given that the interest rate is north of 5%, which was the interest income rate at the time, but not anymore. And the remaining 1,100,000 will have another 5 years, so it won't be until 2,008. Interest income and other was quite a bit higher year over year by 10,300,000 in the quarter coming in at 29,600,000 in the 4th quarter. Interest income was actually lower by $2,000,000 Again, we all know what's happened with interest rates and short term interest rates.
The bigger chunk of the delta $10 plus 1,000,000 a combination of higher earnings in Mexico and some FX gains. These FX gains relate to where our foreign countries are buying when they have in their respective country foreign denominated upcoming payables based on open purchase orders for merchandise. I'll use Canada as an example where they're buying some goods from the UK or US and require that. That goes plus and minus. It happened to be a decent plus this quarter.
Onto the tax rate, our company's reported tax rate this quarter came in at 36.1%, a bit higher than last year's Q4 rate of 35.2%. There's always some discrete items that go both ways. The net change of a few discrete items was the culprit here actually given increased foreign earnings our increased relative increase in foreign earnings relative to total earnings. And some of these countries on average are our corporate and tax rates are a little lower than the U. S.
Rates. The underlying rate is actually a little lower, but there's always going to be some discrete items as well. Now for a quick rundown of other usual topics. I won't spend any time on the balance sheet since that should be in the that was in the press release. But I will give you you're always calling to ask depreciation and amortization in the quarter.
Depreciation and amortization was 246,000,000 and for the year, 794,000,000. The balance sheet, which again was the press release, strong debt to cap ratios, plenty of financial strength, lots of cash. We're trying to spend some cash both on increased stock repurchases and ramped up an expansion over the next year. I'll talk about that in a minute. Our average inventory per warehouse was up 184,000 per warehouse to 10,400,000 or about a 2% increase.
That helps our turnover, given that sales increases were higher than that and also helps our AP funding even though we take all terms and discounts and pay as early as possible based on those incentives. Our reported AP ratio, accounts payable as a percent of inventories, a year ago in the Q1 end was 101%. This year was 105%. Now that, in fairness, includes non merchandise payables like construction payables. But if you take that out into a merchandise accounts payable, the merchandise, actual merchandise, the 84% at year end, a year ago year end up to 89%.
So, the same trend up 5 percentage points, so nice showing there. Within the $184,000 increase, about a little over a quarter of it was FX. Of the remaining part, food and sundries was up about 175,000 Hardlines was actually down about 115,000. And again, FX was the rest of it. Good inventory showing.
Our inventories came in clean at year end and we feel good about going into the holiday season as well. In terms of CapEx, we spent 411,000,000 in the Q4 and for the year, 155,105,000,105,500,000. Our current estimate for 11, again given the dramatic increase in the level of new expansion will be in the $1,500,000,000 to $1,600,000,000 range. Also, I want to mention our dividend. Earlier in May, we increased as we have done in each of the last 6 May's.
We increased our quarterly dividend from $0.18 a share a year earlier to this past May, dollars 0.255 a share on a quarterly basis, so $0.82 on an annualized basis. That represents total cost of the company of about $360,000,000 Cosco online, as you know, in 'nine compared to 'eight, it was down I think 5% or 6% in sales, still quite profitable. As you know, the cornerstone of our .com is limited items, but ticket items. Certainly, big ticket subscription items weren't helped in 'nine, post late 'eight and the sales in 'ten versus 'nine were back up to a little bit above the high watermark from the previous year. These rules again were impacted in the past year given our big ticket discretionary items and the economy, but seem to be back on track with a plus side in front of it.
In terms of expansion, in 'nine as you recall, we opened 16 net new units including 1 in Mexico and 10, 13 net new units. And in fiscal 'eleven, again, our current plan is 31 total new units including 2 relos of 29 net. Those 29 include 8 in Q1 and 2 in Q2 before calendar year end and the rest in the second half of the year. Within the 29, there's 16 in the U. S.
And 13 outside of the US, 3 in Canada and then 10 other international. So picking up our international plans. Again, if I was a betting person, as history has shown, the 29 probably is a solid mid-20s number, still a lot better than than the 13 2016 in the prior 2 years. In terms of common stock buybacks, since the beginning of our buybacks back in June of 'five, we've now through fiscal year end, we have repurchased a total of 98,700,000 shares at an average price of $54.39 a share or just under $5,400,000,000 Total authorizations, aggregate authorizations from our Board from that time until now was 6,800,000,000. So we currently have a little more than right around 1,400,000,000 authorized.
Now on that amount, 400 expires in mid November of this year with the remaining 1,000,000,000 expiring in mid November late next year. My guess is that we will leave a little on the table from that remaining $400,000,000 It really doesn't matter. I think as I've shared with many of you over the past, on an ongoing basis, our Board has looked to have us and with management here to buy back on a generally regular basis with the exception of that year during the downturn in the economy and the concerns about liquidity of cash. We had plenty of cash, but there was concern about liquidity of it. But I would assume that if and when we do repurchase and need more authorization, that will be easily forthcoming.
As you know, in the Q3 was a ramp up to almost 2,000,000 shares or about $115,000,000 In the 16 week Q4, we bought 7,800,000 shares for 439,000,000 Again, long term, we're most likely buyers and we'll continue to watch the market. I will say right now, we bought less in the last few weeks per share because what we have to do is a 10b5 filing to be able to buy during blackout periods. And of course, this is our largest blackout period over the last several weeks of 6 or 7 or so weeks because of year end earnings and sales releases. We have to put in place, if you will, a buying matrix prior to that. Well, at the time we put that in place, the stock, I think, was in the mid-50s and who would have thought it would get this high so quickly and that's been a good thing and we'll readjust that going forward.
Our supplemental information packet, is that going out, Dave? That's also going out. So you see that on our website. It will go up by noon and will be posted in the Costco Investor Relations site later this morning. One last housekeeping note, effective start of fiscal 'eleven, so August 30, we began consolidating the results of operations of our Mexico joint venture.
Historically, these operations were treated as an equity method investment. Thus we only reported our 50% share of the joint venture's net income within our non operating other income line on our income statement. At the beginning of 2011, we were required to adopt a new accounting standard, which makes it appropriate to fully consolidate Costco Mexico joint venture into our statements. In effect, it adds approximately 2% to 3% to top line sales, assets and liabilities. 100% of the venture's financial statements are now included will now going forward be included in our P and L and balance sheet.
And then the 50% portion held by our joint venture partner, the earnings that will be backed out at the bottom of our income statement to offset the fact that we only own 50% of it. Such that there's no net effect to the Costco's bottom line, but just another little thing to confuse you over the next 4 fiscal quarters. With that, I'll open it up for questions and answers and I'll turn it over back to Ashley.
Your first question comes from the line of Charles Grom with JPMorgan.
Thanks. Just Richard, it looks like you said just want to make sure I heard you right that the core within the core was up 20%. So that's 20. Can you walk through each of them and give us a little bit of color if possible?
I mean, they were all I think the lowest of them was a high single digit and the highest was high 20s, I believe. I have it right in front of me, but they were all pretty good or low 30s. They were all pretty good.
Okay. And then on the SG and A growth in the quarter, it was up in terms of dollar 6.5%, which was the lowest of the year. Do you think that's a pretty good proxy for us as we look forward over the next 4 quarters?
Well, again, with the caveat that we don't provide guidance, I mean, so far so good, at least trend wise. Certainly, there's a lot of focus on expenses around here, recognizing we don't do the simple things like just change benefits to employees. And as you know, in March, we looked at our top of scale increases for the upcoming 3 years. And even in the midst of a terrible economic downturn, we gave pretty good numbers out to our 90% of employees that are hourly in our company. So notwithstanding that, we are I think, I have gotten a little better out there and I think some of those things will continue.
We also like a little sales increase.
And I think if I heard you correctly, you said that the average store in the U. S. Does $137,000,000 I was wondering if you could kind of go into the state of California and particularly A. And San Diego and give us a little bit color on how productive those stores are. I know they're more productive, but I guess one, how much more productive are they?
And then also how more profitable are they? And if you've got any sense for how much that hurt your earnings over the past few years given the softness in that state?
Well, and remember, what we call and we operate our San Diego region includes San Diego, some of the some cities east of that like El Centro and San Bernardino as well as Colorado, Arizona and New Mexico. Now of course, Phoenix hasn't been so swell either. And the Southern California market, if the average is 137%, my guess is we're in the mid-1 50s, maybe the high 150s. Bob and Jeff are sitting here saying the low 160s. And recognizing we've got some 250s down there too.
But certainly, as comps even when we were 2 years ago when comps were healthy for the company, relatively speaking those regions were always a little lower because they're more mature and we've done more cannibalizing. And so while they've shown particularly LA has shown some relative strength in the last couple of months quarters, it's relative strength. It went from low to slightly negative comps and it's trough in the last year and a half to a very slightly positive. And clearly, 0 to 1, 0 to 2, even though it has a plus sign in front of it, it's tough to leverage those expenses. So again, it's less it's improving and but it's certainly been our toughest region from operating leverage standpoint.
Okay. And then my last question is regards to the trend. It sounded as if the last week of September was a little bit softer. Was that true in California? And I guess can you explain away what happened in the NBM?
It looks like the number of days were pretty consistent year over year and the timing was consistent. So if you could just explain that?
The single biggest thing is while they were both NBM's, I believe it had more to do with the tail end of a year ago, it was this last year, it was that week, week 5 was the 1st week of a new NVM. This year in that corresponding week, it was the last week of an old NVM. Clearly, you get a lot more bang for your buck in the 1st week than your last week. And again, as we've said over the last several years, these things have become more important and good. And certainly with the frequency increase, the fact that many of the items are what I'll call things for the house, both food and sundries and mid priced non foods items, instead of some of big ticket discretionary items, they're important to us.
Okay, great. Thanks very much.
Your next question comes from the line of Deborah Weinstein with Citigroup.
Great. Thanks so much. Richard, it's been quite some time since you've raised your membership fee outside of the economy at this point in the game. Is there anything else that's holding
you back? Not really. But again, when asked the question, I remember posing it to Jim, probably mid-two thousand and nine the first time, well before we would even consider something. But as all things being equal, I think the factors that don't give us any concern about increasing it is our renewal rate strength and our member loyalty strength. And certainly, Executive Member helps out as well, that loyalty.
That being said, I think that all things being equal, we would wait a while given the economy. Now wait a while doesn't mean forever, but it also doesn't mean we have to do it the 1st day of whenever X is. And at this juncture, we don't feel any pressure to increase it. I think a few weeks ago, when one of you guys was probably on the phone was talking to me on the phone and asked a question, I said, if you're a betting person at some point in the next couple or so years, yes, I don't know if it's 9 months from now or 7 months from now or 18 months from now. But if you look over the course of the next few years, my guess is there's an increase.
But right now, if we had a decision was today, we wouldn't do it today just because let's not do it in the face of the bad economy. But we certainly feel comfortable from a competitive standpoint and from a loyalty standpoint.
Okay. And then turning our focus to real estate, will more of your new stores be outside of U. S. Going forward or is there something unique about 2011?
Well, I think maybe this it's a big jump for us in 1 year. I don't think it keeps jumping, but it will keep going up, yes, overall. We all you have to do is look at our segment analysis. We've had some good results and recognizing these happen to happen over time as I think Jim has said a couple of times to some of you, every new country starts with a trail of tears. It takes 5 plus years to get to a bottom line profitability in many of the you go back a few years ago, I think using simple examples like Korea and Taiwan, at the time we had maybe 4 or 5 units in each and today we have 6 and 7 units respectively in those countries in Taiwan and Korea.
I think if you would go back to some of those charts that we said how many will we have 10 years since. If you go back 3 or 4 years ago, that 10 years hence number was 15 for each country. I think our feeling now is 25 plus. Who knows where the actual number will be, but certainly we feel more confident. In Australia, the percentage increase will be huge because we have one unit.
And our competitors, the 2 biggest retailers out there and we feel are fighting us at every juncture to slow down the process. But we'll get a second unit open in the Sydney 1st in Sydney, in the Sydney area this coming calendar year. And certainly we'll open more there. And as you know, Mike Sinegal, who opened and ran Japan, which is very successful and growing nicely, moved to Europe in the past year. And my guess is we'll announce something over the next year.
But again, it will take a few years to get something that's meaningful to our company.
And is that 10 years hence number in the U. S. Kind of a 600 number?
I think right now we're at 4.25 ish in the U. S. In terms of number of warehouses, a little higher. 4.37. I think over 10 years, that would be 17 a year.
To get to 600, that would be like 16 or 17 a year in the next 10 years.
That's not
out of the question. Again, in a year where we opened 6 or 7, it seems not plausible, but again, there'll be a light number this year. My guess is, if I had to be give an honest guess of what 10 year census, it's probably at least 550 and probably not more than 6.25%. We just opened our 8th business center. We'll see how that continues to go.
That could add a few extra a year, not this year, maybe 1, but so we'll see. But we feel that there's still plenty opportunities. And keep in mind, as I mentioned in the release, we just it was 10 or so years ago, we opened our first Chicago unit, although there are not a lot of barren Chicago's for us in the United States. But we just next month, we're opening or 2 months from now, we're opening our 15th, 16th and 17th units in 4 successive days.
Okay. And then last topic, I think last year your e commerce business was $1,600,000,000 How should we think about that in terms of your focus and your investment? And where do you think that can go in terms of as a percentage of sales or just kind of as a key focus in terms of future growth?
Well, I think you and others on the phone, many of you have known us for a long time. I mean, Jim has stated often that he thinks even when we at $1,000,000,000 and arguably growing at 30% or 40% a year a few years ago that this should be a $5,000,000,000 business down the road. Now I don't know if down the road is 5 years or 10 years, but it's going to keep growing. It's all as you know, it's all about focus on merchandising. We're not going to tweet and we're not going to gift wrap and there's some things we're not going to do.
Certainly, the last year and a half has been tempered with big ticket discretionary items. We're encouraged what we've seen again in the last few months on some things. We're not going to go crazy on it. It's a nice profitable business. It has some benefits to our warehouse as well sometimes when some vendors will sell us there first until and then ultimately hopefully we can talk them into the rest of the company.
So again, our initiatives will be I think methodical and continue to grow. But again, it's a nice chunk of business, but if I just look put blinders on and looked at just bottom line excitement, I think the foreign expansion over the next few years given its profitability is probably more important in the next few years. Who knows where it goes from them? There certainly many of you and probably you're correct, we've got a wealth of information and great opportunity to push e commerce in the future and we'll do it in a methodical way.
Great. Thanks so much and best of luck.
Thank you.
Your next question comes from Robbie Ohmes with Bank of America Merrill Lynch.
Thanks. Hey, Richard, two quick questions. Just one follow-up on inflation versus deflation. I think you said produce was deflationary. Can you talk about why that was deflationary, maybe a little bit more?
And also what else is maybe deflationary and maybe work into that how you're feeling about TVs and the outlook for the TV business for the rest of the year? And then the second question is just on the competitive environment, what you feel like you're seeing out there from Walmart? And also, I don't know if you guys have looked at or thought about what Target's launching with their RedCard, I think in a week or 2 here with the 5% off for all the customers with RedCard and what you think about that program competitively? Thanks.
Well, first of all, when I talk to Jeff Lyons, who heads up all fresh foods and is always entertaining to hear what's going on out there, With produce, it's as much and produce and even some poultry and fish, it's as much what's going on with hurricanes and tornadoes and heat and cold and Russia deciding not to export wheat and the impact that wheat skyrocketed and the view is it skyrockets a lot more than it should have just based on that comment by Russia. What China does with consumption of nuts, which where some nut prices have doubled and tripled in the last 6 to 9 months. So there's a lot of things going on out there. Produce specifically, if you ask Jeff Lyons, it's more crop production and weather and rain and pestilence driven than anything else and not the economy. Economy might be a little like and again, if you look at Nuts, I hear the biggest reason I hear from our buyers has to do with the ever increasing rising middle class for limited resources, higher end commodities like pistachios and pine nuts and things which have skyrocketed.
But again, those are small dollar amounts to the total company. In terms of TVs, for a number of months starting probably in early calendar early to mid calendar 2009, again this had more to I'm sorry early calendar 2010. It had more to do again with rising demand in countries like China. I think it was January, February was the 1st month ever that the Chinese consumer bought more TVs than the American consumer. That tended towards some modest inflation in a category that's always been deflationary and extreme deflationary when the stuff hit the fan in late 'eight in the economy.
That is kind of subsided and turned around. I think last month, we actually had slight deflation for the first time in several months in the TVs. Pretty consistent with what our buyers have told us and what I shared with many of you as you've asked over the last many months. By the way, that lack of deflation and modest inflation, again, partly because there was demand elsewhere in the world, That impacted us, as you know, in a bigger way because of the MBMs. We drive a lot of business.
A year ago, on one SKU of $1,000 SKU of a TV over 3 weeks, we might sell $20,000,000 to $30,000,000 of that one item. There were not a lot of promotional $100,000 $200,000 $300 off on flat screens over the last several months. That's starting to turn more in November December, not to where it was, but a lot better than it has been the last several months. As it relates to the target of 5% card, We understand how Affinity works, certainly our executive member success. As I understand it, the 5% off is on not only on the RedCard or the Target credit card, but also on the debit card.
I understand the credit a little better from the standpoint that there's income associated with APRs and late fees and carry balances and what have you. On the debit that becomes a more expensive proposition. It must be working for them because they're rolling it out. I think ultimately, I can't answer They have to. How long will they do it?
I assume they'll do it as long as it drives business in the right direction. Who does it impact most? It impacts their direct competitors in my sense first. Certainly, other traditional discounters like Walmart and Kmart and like perhaps some of the apparel discounters. It's not a positive.
Everybody that incrementally goes in there one more time and buys anything that also is Costco member may not buy something at Costco. We don't think it's a big impact to us, but it certainly doesn't have a plus sign in front of it. And we're watching it. I don't think you need to worry about us doing a 5% card. We've done quite well with our executive membership and I think it will be interesting to see what their direct competitors do.
Great. Thanks a lot, Richard.
Your next question comes from Peter Benedict with Robert Baird.
Hey, Richard, couple of questions. First, just trying to understand the impact of consolidating Mexico. I mean, you mentioned the 2% to 3% lift to sales in 2011. Should we think about membership fee income growth lifting a similar rate, maybe 2% to 3% incrementally? And then how does Mexico compare to the rest of the business in terms of gross margin profile and operating margin profile?
Yes. First of all, again, the bottom line doesn't change because instead of just adding half of Mexico's earnings to our interest income and other line as we've done historically, we now put in the whole income statement and subtract half of the earnings on a new line down below, I feel what it's called non controlling interest line, which is below pretax. It's kind of pretax before that and then that and then pretax. And When we get to the Q1, well, I'm sure I'll add another line item to my matrix because what I'll have to do is you're adding 2% to 3% to the denominator. It's about a $2,000,000,000 business in expressed in dollars.
It will wreak a few basis points of havoc with margin and SG and A, but not much because it's not that different than our current company. Overall, it's more productive, but overall it's also a lot less volume per warehouse. The volume per warehouse is in the 60 plus range, not 130 plus range. But even at those volumes, volumes, we have great wages relative to competitive down there, but a lower percent of sales than up here. Margins are comparable.
Margins are comparable, SG and A is a lot better.
Okay, great. And I look forward to the new line items on the next call. When we think about the U. S. Healthcare costs, I think you said that was up 17% in 2010 with it being up about 11% in the 4th quarter.
Any initial thoughts on where that's going to be in 2011?
Well, I don't know completely. There's a few small initiatives that we can do. Of the initiatives that we want to do, we can't do right now because of the new federal legislation that we start making some changes. Certain things that are going to impact healthcare for all companies in the U. S.
Over the next 5 or 6 years under the new health federal healthcare, you'll lose the ability to bring those in over the next 5 years. And I think that was a way to guarantee that companies don't change things recognizing ours are very generous to start with. So I think that's impactful than to other companies over the 5 years. I think the biggest thing that will help us a little or mitigate it that hurt us over the 4th quarter starting in Q3, 'nine through Q2 of 'ten was this fact that if you go back to 'eight, beginning of 'nine, about 82% of our U. S.
Employees were covered with healthcare. They were eligible and covered. That and the only reason the other 18% or so weren't is because they're new employees anywhere from 0 to 6 months. And if you're part time is that part time hourly, it takes 6 months to become eligible, full time hourly 3 months. Well, the fact that we went from 25 or 6 units a year down 13 and 16 and 10 9 and 13 and 10 and the fact that in a bad economy even existing employees are reducing their relative turnover because nobody is leaving the job, not that a higher percentage are eligible.
In 1 year, we went from 82% to 91% or 2% participating in our eligibility plan. So on top of what I'll call 10% -ish inflation, you had another 10% -ish percentage of employees in the healthcare plan. That is not going to go back to 82% in a year, but it should be a mitigating force to whatever inflation is. And so if I had to guess, it's high single digit, maybe a little higher. You will have to wait and see.
Okay. That's helpful. And then just lastly, and you had a nice core gross margin increase in the Q4. You talked about the heightened level of inflation that's starting to come through the business next few months. How should we think about the inflation impacting kind of outlook for core gross margins going forward?
Well, I don't think it has a big impact. We've always said that when prices are increasing, we want to be the last to raise it. But we're also not we're not going to get hurt by it, except for that one time in late 'eight. But a little inflation I think will be helpful. And again, those numbers that I gave out in those selected lines are huge.
They'll be coming back the feeling is they'll come back down a little bit, but it'll still be pretty big. Those impacts many items, but not every item. So I think and of course private label has are looking to save some money. And so I think overall, as I've said many times, a little inflation net will be okay. I don't think we get hurt a little bit by holding on to lower prices longer than we have excess inventory in those categories.
We buy in usually when there's a price increase announcement on a consumer brand, the manufacturer will let us say and other big retailers, those are other retailers buy 1 to 6 weeks at the prior price. And so we'll hold our price as long as we can.
Your next question comes from Mark Willkamath with Morgan Stanley.
This is actually Joe Parkhill in for Mark. I was wondering if you could talk a little bit more about your September U. S. Comp versus August. I know you mentioned there is a difference in timing in the MVM, but is there anything else that changed between the 2 months as far as categories go or perhaps regional perspective and the deceleration of the comp?
Regional perspective and the deceleration of the comp?
Not a lot. And I'm not trying to imply that the 5 it's broad based. My guess is the 5 was certainly stronger than the 2s and 3s we enjoyed in a few months prior to that. Was the 5 a slightly less strong 5 or around the down to 4? I don't know right in front of me.
But arguably going from a 5 to a 2, that's 3 percentage points. Maybe there's a percentage point or so of delta in those that maybe half of it's a little piece of it's rounding and half of it's real and half of it and the other piece is not. So it's not dramatic. I'm not certainly not trying to imply that it was all timing in 115 degrees in LA. It's not.
Okay.
And the problem is, again, we're not we of course don't sit around and try to be economists and say it was because of labor statistics or housing starts. Generally, we feel good based on how last week was or feel bad based on how last week was. So but we know that week to week it's more volatile than it used to be. I don't think we've changed I know we haven't changed our view about how we feel about in terms of seasonal stuff going into Christmas, whether it's original trimetry and wrapping paper and some toys, those have generally been pretty good. And as you may know that during earlier in the year with things like even like patio furniture in January through April, we were scrounging for stuff a little earlier.
Now some of that arguably is pent up demand. But at least for the seasonal stuff, we feel pretty good about it so far.
Okay. And then on the international comp, the comp seems to accelerate between August September. Is the inclusion of Mexico accretive to the total comp? Or is there any other change in the comp trends across the different countries?
No. Mexico well, first of all, for September, no, Mexico is really a non issue. It's about the same. Asia is very strong. The U.
K. Is a little weak and Canada actually has been Canada is a 70 plus unit, dollars 12,000,000,000 division that country that is as old and predictable as the U. S. And their economy up there has been very robust the last 2 years. They didn't have the banking and financial markets issues that the U.
S. Had other than some carryover from the U. S, but nothing like the U. S. And the natural resource benefited.
And so we have underlying costs in Canada over the last 2 years probably averaging above 5, I mean 6 or 7. So, that's it's been really fun up there.
Okay. Thank you very much.
Your next question comes from Mark Miller with William Blair.
Hi. Good morning. I also have a question on international and I know we'll get the details with the 10 ks, but I was hoping you could provide perspective on the year to year margin improvement in fiscal 'ten for the U. S. And the non U.
S. Businesses. And then since you're getting very good margins outside the U. S. Now, I was wondering if you think there will be a long term margin lift to Costco as international grows faster than the U.
S?
History would say yes. As but we would yes, I would also say that you never know what tomorrow brings. But history would certainly impact that in a positive way.
Richard, do you have the margin numbers for fiscal 'ten U. S, Canada, other international?
Yes. You mean segment analysis? Yes. I don't think I think that will come out in the 10 ks and but trend wise, it should be good.
Do you think you got more margin improvement outside the U. S. Given the stronger comps?
Yes.
Okay. And
then We
should have higher margin warehouses outside the U. S. To start with.
And then looking at the international business, I mean, do you think we're at mature level on profitability or Where is that? I'm sorry. Are we at a mature level on margins? Can that go higher? Or as you add more units, does that kind of cause that to be kind of flatter from here?
Well, again, I think internationally, our margins are quite strong. If anything, you don't want them to get a lot stronger because Jim will say they're too strong. I think we feel very good about where we are internationally and in Canada, frankly. Really, if you look at it, the U. S.
Has been the greatest challenge over the last couple of years in part because we that's where some cannibalization occurred in part because of places like Phoenix, these higher sales volume places like Phoenix, LA, San Diego that has had the weakest relative comps. And so the toughest expense would equal higher healthcare costs. And so that's been probably more of a challenge in the U. S. Again, I am cautiously optimistic that the focus we said it for 26 years.
We're doing more about it in the last 18 months as all companies are. The focus is on expenses and we're not going to take the easy way out and just not give a bigger smaller we're not going to give a lesser increase to the top of scale hourly. We're very proud of the fact that we did that. We're not going to take out take a piece of the healthcare benefit down to try to mitigate costs. We are doing a few things to manage that a little better.
But where it comes down to is what things and again, 90% of everything or 90% or more percent of everything is in the warehouse. What can we stop doing that we're doing well, but we shouldn't be doing. And I think that the ongoing commitment and reality of sustainability helps. As I've said before, sustainability rhymes with profitability. It's not just helping margins a little bit, but when you've got when you're moving tens of thousands of pallets on a given item, in some cases, fewer pallets in the warehouse, it's labor in the warehouse.
So we're focusing on and I'm not trying to be coy, but there's a lot of little things that are helping us right now and I think that will continue and boy would it be nice to have a little more sales to go with it because that would really improve it. I think we done pretty well and one of the reasons in the call I talked about payroll dollar increases being less than sales dollar increases. That's a relative improvement for us over the last since comps had fallen a year and half ago.
Okay. Thanks, Richard.
Our next question comes from Adrienne Shapiro with Goldman Sachs.
Thank you. Just Richard, following up on your last point, recognizing, as you said, there are a lot of SG and A warehouse expense initiatives that have been working as of late. I mean, if you could give us a little bit more examples or perhaps, if you were to harness all these little things in aggregate, what sort of opportunity that could present when you've kind of summed them up?
I don't want to do that because it's a slippery slope. And again, I'm not trying to be coy. We're starting to see some of the benefits of some of that stuff. Again, we could do a couple of easy things that would equal this quickly. Actually, some of the things that we're doing are going to are working and will continue to work.
And I hopefully that each of the next couple of quarters will show that progress, but I can't really give you a number.
Okay. As long as it exists. On the holiday, when you described holiday, you kind of used the words positive and aggressive. And I'm just wondering maybe could explain what you meant by that? Is that inventory?
Is that pricing? What does that mean heading into the holiday positive and aggressive?
I meant it one way, inventory. I mean, we feel good about the stuff we're getting in the door and we feel good about selling through without risk of big markdowns. We've had good sell through on some seasonal stuff. Even in again, I know everybody wanted to see a little higher number on comps in September. The reality is that a little of its MDM timing related, a little bit of other excuses.
At the end of the day, it was a little worse than it wasn't as good as August, but it really hasn't changed our view and frankly hasn't changed our success with some of the season items. That actually has been pretty good. So I think we feel and the customers coming in. So it doesn't help when televisions, which are or major what I call we call majors, televisions being by far the largest component of majors, which is a 6% of our company sales is down 10% instead of being up 4% or 5%. So all these things that impacts a little bit, but we feel very good about apparel.
We feel good jewelry has been a surprise recognizing it was down a year ago, but has been a pleasant surprise in just the last couple of months. Small category, but nonetheless. There haven't been any great exciting things in electronic games in the last year or 2 in terms of new consoles. So that tempers it a little bit. I'm just I'm shooting from the hip here with things.
The core stuff is doing great, fresh foods, small and medium priced non food items. We were with a group a week or so ago talking with Dennis Napar, Head of Non Foods. And in the last couple of months, we're seeing 10% 20% comps, which even on a combining these comps for a year ago comps over a 2 year period were above the high watermark nicely in of these categories. So it's not all bad out there. And hopefully we'll see that one single number improve a little next month, but we'll have to wait and see.
Okay. And just following up as far as being a little bit more aggressive on the inventory front, any specific categories that there are some investments being made? And how we should think about as discretionary seems to be having some signs of life, the perhaps positive mix shift as it relates to margin heading into the holiday season?
I'm less thoughtful or concerned about margins. It's really across the board. I mean, majors, domestics, apparel, we've got some great things in apparel, whether it's outerwear or which arguably outerwear was a little weak in Los Angeles when it was 112. But actually it wasn't, I stand corrected. Dennis last week told us that that was one surprise even with the heat down there.
But partly it's availability of some products.
Okay. And then just lastly, recognizing it's still a tough backdrop and I know you don't provide guidance. But when we think heading into 2011 and you think about sort of the tailwinds, headwinds that you've seen up until now and what you're seeing ahead of you as it relates to kind of sales, expense opportunity, Maybe shed some light in terms of how you think about where we are in terms of more tailwinds and headwinds in 2011 and where you think the sources of opportunities are on the line items as we think about next year? Thanks.
I think overall we feel pretty good not knowing what happens tomorrow. I mean, I'm not again, it's I know you're trying to get more out of me here. But we I think the comment about aggressive going merchandise wise into the holiday season makes me feel good. I'm still not thrilled about healthcare expenses and pending legislative change that will impact everybody in the next few years. But the double whammy of reduced openings and more people in the plan percentage wise that will subside mitigate that a little.
Expansion, I think is a positive, particularly international expansion. And sure as Jim was sitting here talking to you guys and you asked about margins, he says, guys, we're not going to go crazy, but margins are fine. And I think that's a good way to look at it. Despite everything that everybody is doing out there, our view is we're still the toughest and we've got room there and we've been smart about how we can improve margins without doing the wrong things. Keep in mind over the last 8, 9 years since the introduction of Executive Member, we've hit the reported margin line by about 105 or so basis points and margins are okay.
So that was offset with something And notwithstanding the fact that we're constantly being the most competitive out there in our view. So we feel pretty positive, but I don't know there's different levels of viewpoint out there. But over here, I think we feel pretty good going into 11. I can't again, I can't quantify it.
Thank you.
Your next question comes from Dan Binder with Jefferies and Company.
Hi, good morning. It's Dan Binder. Just wanted to touch on the consumer electronics business a little bit more. I know you said TVs continue to be soft in September, but you also mentioned that you thought the it sounded like the vendor sponsorship might get better in November December. I was just wondering if you can give us a little bit of color on what you're expecting in terms of sort of the increase in promoted items in the mailers versus what we've seen in recent months?
And also I was wondering if you could comment on your computer business in September also.
Yes. I think if we look forward and I'm sorry, the first part of that question, somebody was telling me something here, I'm sorry.
Yes. I'm just trying to understand when you talked you mentioned that TVs were still soft in September, but you thought it could change in November December. It sounded like it was tied to vendor sponsorship. And I was just curious what kind of improvement we were going to see in items promoted in the mailers. Is that going to be a meaningful increase over what we've seen recently and if you can quantify it?
Well, on TVs, our units in September were down in the low double digits and dollars were down in the low double digits. And talking to buyers, the expectations for November December will be up in the low single digits, just I. E. Better, but we'll have to wait and see. In terms of computers, dollars were down a like amount, low double digits.
And I think there was I'm not sure in my notes here, I don't have anything about inflation or deflationary. We tend to have as prices and computers keep going down, we can add more things to it.
Some are arguing that the iPad is cannibalizing computer sales to some extent. Just a minute, it's cannibalizing discretionary dollars that the consumer has to spend. Do you anticipate getting the iPad at some point soon?
I don't anticipate getting it between now and Christmas and who knows what future holds. So at this point we don't have it.
Okay. And then lastly in terms of the I don't know if this falls within guidance or not, but from the standpoint that you have some understanding of what your expenses look like on health care and what are you thinking point is on comps as we head into the New Year? Is it still 4% or 5% or closer to 3% or any color you can give us on
that? Well, we know as a starting point Q4 had leverage, positive leverage. I think we're only 1 month into 1 4 week period in terms of our own P and L into this fiscal year. We still showed a little bit of leverage with a little lower comp. So that's encouraging.
But I can't quantify it exactly. It's harder than it ever was. I think whatever those leverage points were 2 years ago, they're lower today because we've got a little better, but probably not as low as others out there.
Okay, great. Thanks.
Your next question comes from Colin McGrath with Bernstein.
Good morning, Richard. I think if you look at the core, core merchandise margins up 20%, that's the best performance in a while. Can you give us any more insights? It sounded like it was across the board, but what drove that? And I know you've added or adding a pretty good little bit of private label this year in terms of the number of SKUs.
How much of an impact was that and what are you seeing there?
That's a little bit of the impact. It's all of the above. I mean, it's that it's we've talked over the last few years about margin initiatives on some items flowing through some items flowing through the depots. It really is all of the above. The strength of fresh foods, which is on average a higher margin at the higher end of our range of margin acceptability.
And so again, I think all those things have helped us.
Okay, great. Thank you.
Your next question comes from Laura Champin with Cowen and Company.
Good morning, Richard. Just a quick one on the inventory buys into holiday. I think you've already mentioned that your expectations for TVs are looking up. But otherwise, are there any changes in the way you're allocating those dollars? If you could just speak generally across categories, that'd be great.
Well, I think relatively speaking, some of those mid priced non foods categories, we've got more aggressive because our numbers in the last several months have continued to go up. I think it was even if I go back 6 months ago, I don't have the numbers in front of me, but when I go back 6 months ago, some of those same categories were showing 10s and 15s in comps. And more lately, they're showing 10s to 25s. And so we probably got a little more aggressive on that. Domestic apparel, jewelry, again, the last couple of months have been a little better.
So we've turned that quarter, I think. And fairly seasonal, we've ramped up from a year ago, trim a home trees, gift items.
And you've got the flexibility that you can step up just on trends you're seeing in the most recent months?
My guess is we have more flexibility than others based on limited SKUs. Again, structurally, I've always said this, we even in things that are truly seasonal and truly fashionable like apparel, we're into fashion basics. And so for us, fancy means a different design of crewneck sweater or a different color of a slightly different normal color of a dress shirt, nothing too fancy. So and same thing goes with housewares and things. In our view also is, a true seasonal stuff, we're in the season early and out early.
We always have a little bit of ability to be more aggressive structurally because we don't have risk of giant markdowns in our view relative to others, other traditional retailers in those categories. So again, I think all those things help us and certainly the confidence of the fact that customers are coming in more frequently and continue to do so and continue to renew more loyally, more regularly, all those things give us confidence as to. So we it's kind of not fair sometimes, but we have less risky items even in risky categories relative to traditional retailers. And if we make a mistake, it's usually not giant markdowns. I mean, the one time we got hammered a little bit with extra markdowns was in late 'eight, where in June, July of 'eight, we're committing to patio furniture coming in in January through March of 'nine, but certainly then something bad happened in October, November of 'eight.
So and for us even then it wasn't giant, it was a small category with big markdowns. So maybe it was, I don't have the number in front of me, was an extra $10,000,000 or $15,000,000 of markdowns, a couple of cents. Yes, but not the end of the world. So I think those things give us the ability to be more aggressive.
Got it. Thank you.
Your next question comes from Gregory Zelnick with ISI.
Hi, thanks guys. Really two questions. It sounds like the payroll growth just 3% in the U. S, it's an impressive number. I'm just curious, do we expect that to just accelerate a bit as the store growth accelerates?
Or can you actually keep it that sort of level? Then I had a follow-up.
Well, it's going to certainly will grow as we grow our locations and certainly not every location starts off at the average. But first of all, a lot of that growth, let's say, take growth in Asia or the payroll percentages are a little lower there than here. So that mitigates it a little bit. I would clearly if you add people, but now when you add new locations in new markets where you're hiring new employees, they're all starting generally vast majority of them are starting at the bottom of the scale. And it takes 4, 4.5 years to get to top of scale for full timers and 6 to 7 years for part timers.
And of course, now you have turnover on top of that that helps you in terms of just average payroll dollars. So I think at the end of the day, yes, you don't keep it at that low percentage, but it doesn't grow faster than there's nothing about opening a bunch of new units that cause it to go up higher at a higher rate.
Got it. And then second is you let off the call by mentioning that benefits were up 14% and healthcare was up 11%. Is the healthcare in the benefits number or is that a separate number and just explain the workers' comp what's actually in that?
Healthcare is the biggest chunk. I believe a piece of it was also with benefits as you're saying this, I'm knowing why I should have mentioned it back then too. It was this past year that we had a change in floaters, I believe. And correct me if I'm wrong, Dan. Dan, there's somebody here in my office.
One of the reasons that total benefits costs increased to 14% and health care costs within that, which the biggest component increased 11%. There was the floatering holiday change that added to which is really not that I should have taken that out. So my guess is the 14 to 11 is not as different as it appears. I think that's the biggest chunk of that delta.
Sort of a step function change to a new level.
Yes.
And now you run at that going forward. Great. And then the last question was on the buyback. I mean, clearly, you've ramped that up, but at the same time, the share count is steady. And I know you've got your convertible and options, etcetera.
Could you help us out in terms of what sort of buyback you think we need to commit from a capital standpoint to maintain the share count and really how much the shares can fall if we keep buying back at $1,000,000,000 plus a year rate?
Well, if you just even took $1,000,000,000 as an example times $63,000,000 $69,000,000 which is on my screen right now. That's 15,500,000 shares. You'll reduce share count. Keep in mind, Q4 was a big relative annualized ramp up compared to Q3. And of course, compared to Q2, we only had 1 week of purchases at the very end of Q2.
So a dramatic increase. So but on average, if it's a 16 week quarter, if you bought back every week, you only had half of that impact in the quarter and an eighth of that impact to the whole year. So on an annualized basis the year, you had very little net increase relative to the aggregate number of shares, but so much of it was well, almost all of it was skewed in the second half of the year and probably 70% of it was skewed into the Q4 of the year. And so I think on a more regular basis using your $1,000,000,000 number as probably a decent guesstimate whether it's lower or higher in 2011 we'll see. But using that number right now on an annual basis, what are we adding Bob to the or shoe count?
4. Maybe 4 a little under 4,000,000 dollars And as the stock goes up, there's a little dilution in the what is a continually declining number of remaining in the money stock options that is a little additive as the stock went up. My guess is that something close to that $4,000,000 a year is the net increase from equity compensation. And you're probably talking using the $1,000,000,000 example in today's stock price, you're talking a $10 plus 1,000,000 reduction in average shares. Once you get through a cycle of a year of buying, because during the year, you're it's kind of like if you bought $1,000,000,000 on average equally during the course of the year, it only is a $500,000,000 of reduction in the number of shares.
That's helpful. Thanks a lot.
Your next question comes from Chuck Cerankosky with Northcoast Research.
Good morning. Richard, back to the holidays and talking about being more aggressive on inventories. About pricing? How are you guys looking at a particular category or item? Are you if you could sell something for at a great value at $100 or $110 with an extra feature, I'm just making this example up, are you leaning towards the higher or the lower kind of price point in that mid value discretionary range?
We're always looking for the higher features the more features and more value. Once you then have the item, you try to figure out. Yes, I think it will impact margins more is going to be once we have the item, which is the most we think we can put into an item in terms of quality and gadgetry and quantity and everything else in quality, we then get to a price point. Now what will happen inevitably there'll be something in your example even that let's say the full price point is 100 and Well, we're not going to do $104.99 we're
going to do $99.99
So that generally tends to hurt you a little bit. But overall, we're trading the customer up not down, which is a bigger positive impact than my little example I gave there.
And that's so the economy notwithstanding its Costco's merchandising as usual?
Yes. I mean even at the trough of the economy a year ago when big ticket discretionary items were weakest, We really didn't shy away. Let's take something as in the summer of 'nine furniture, chest of drawers, bedroom sets, dining room tables. We actually and again, if you heard Dennis Knapp and Foods and Craig, who was Head of Merchandising at the time and now President, Jim, they were talking more about, guys, it's the items you have, get the right items. And we actually did even at the trough of the economy on furniture, we were a little conservative, but we did pretty well.
And of course, the same thing with patio furniture this fall, we did a little better than we expected. So I think we're not shying away from a lot of big ticket items. Clearly, we understand that $30 to $70 items for the home, whether it's domestic, housewares, small electrics are in. And whether it's a doormat or new dinnerware, those things are doing pretty well for us.
Turning to gasoline, Richard, what were gasoline sales last year? And how are you feeling about the profitability of that category into fiscal 2011?
Yes. Chuck, the exact number, roughly about $6,000,000,000 Gas, if I had to say anything about the gas business, it has been ever increasing profitable in terms of lose money on a full P and L basis, the total on any rolling 12 month period, just to gradually inception, we're profitable. And fiscal relatively The other thing I'll say about the gas business is that relatively speaking, the level of a good month a good week and a bad week terms of P and L is not as extreme. A bad week a couple of years ago used to be $3,000,000 a loss, a good week $5,000,000 or $6,000,000 a bad week today is less than $3,000,000 and a good week is $10,000,000 There aren't many of those by the way, but so it's a little less volatile and a little more positive, but nonetheless it requires a fixed stomach lining. But again beyond that, so A, it's a pretty good business for us.
B, it drives your percentages a little wacko, but B, it drives people into the parking lots. And we've seen that time and again, particularly when gas bikes and local news stations talk about it, we get lots of free press. In terms of sales by the way, sales for 10 were $6,200,000,000 dollars compared to sales of just under $5,000,000,000 the year before. And in 2,008, dollars 6,800,000,000 but that's all pricing. Pricing skyrocketed in $8,000,000,000 fell some at $9,000,000 came up a little in $10,000,000
Got you. All right, Richard. Thank you very much.
Why don't we take 2 more questions?
Your next question comes from Diana Katz with Lazars Capital Markets.
Hi, thanks for taking my question. My first question was on traffic. It's been consistently very strong. Is it possible to segment out how much of the increase is reflective of taking share from club competitors or groceries?
Quantitatively, no. My guess is more of it comes from non warehouse clubs other than when we go into a market that was entered earlier by a competitor warehouse club like the Midwest. Certainly, I think as we entered markets where somebody else had a stronger presence than we have currently going in, that helps us a little bit or vice versa. I think probably the biggest thing that has helped us in the last 2 years is when the economy really hit the fan and people were not eating out as much. I'm not just talking about the fancy business steak houses, I'm talking about the reasonably priced.
The family of 4 or 5 that was going out 4 nights a week to eat dinner for $80 or $90 As that got hurt, who got helped? Supermarkets and Costco. And again, I've said before, as the economy was heading south very fast in late 2008 and early 2009, we really didn't know was this going to be a help or hurt to us from the standpoint of frequency because out out the answer and thankfully it was yes, they are going to go there. And they can't and yes, they will temper their purchases of big ticket items for a while. But at the same token, they are coming in, they are buying more food.
And as long as they're coming in, they're buying something incrementally and maybe it's something that's $30 $40 not $500 but they're doing it.
Great. And then could you just elaborate a little bit more on what you're doing specifically in the in the merchandise categories within soft lines to continue to drive such strong comps? You mentioned also increasing inventory buys in apparel for holiday. Is that increasing private label? Are you looking at increasing more branded fashion basics?
It's really an item business. Within apparel, it's certainly we had a big increase last year because late 'eight hit, there was lots of high end brands. For the most part, we maintain good relationships with those new vendors that had sold us directly for the first time. But incrementally, there's not a lot of new. But we are also more aggressive on what we buy.
I mean, this is a small number to our company, but there's an item for kids and it's an item that I don't want to I'm not trying to be cute, but I don't haven't got permission to tell the specifics of it. But if you think about this goes back a couple of months ago as we're looking at the seasonal apparel items, not even seasonal, but just kids clothes for back to school. And there are items that retail for $20 to $35 in traditional retail stores, branded well known items that were worth making commitments on single items of 6,007 or 4,000 to 600 1,000 units of an item where we're going to be instead of $29,090 or $34,99 we're going to be at $14,99 and make a full margin. So it's not just the availability of a new branded golf shirt, it's a lot of the branded basics that people are coming in more frequently, they're buying this stuff.
Great. Thanks very much.
Your last question comes from Lloyd Zitman with Bernstein.
Thank you. My question has been answered.
Okay. Well then, we get one extra question. Go ahead.
Joe Feldman with Telsey Advisory Group.
Great. Thanks guys. I guess I'm the lucky one. So a quick question on ticket. It seems like the trend has been a bit stronger.
And I guess we're just wondering if there's anything in particular that's giving you confidence that it will continue to remain strong. I mean, it seems like pricing is still a challenge and you don't want to pass on too much. So, anything there that you can about Richard?
No, I think confidence level has to do again starting with structural things like in our business, we can afford to go more aggressive than our traditional retail counterparts on many of the discretionary items. The fact that when something is weak out there, we can buy a lot of it and those manufacturers take notice of us. I think on the fresh food side, it's been clearly an ongoing continuing strength of ours. Both of our direct competitors, San Jose and BJ's, I believe, have reduced their commitment to certain bigger ticket non food categories as they've stated in the last year. That helps a little, not a lot.
So but all of the above gets back to, I don't think there's any specific area. I mean, the good news about us is that our $76,000,000,000 or whatever $1,000,000,000 is 30 or 35 different subcategories from mayonnaise to tires to clothing. So even when something is bad, we're not getting hurt too bad as a company and when something is good, it's helping us, but not like the whole business.
Thanks. And then just one quick follow-up on the stores. Any change in the type of stores you're opening? I know in the past you've talked about trying some mall based stores. Should we see more of those this year?
Should we see more urban stores? Any change in size, just especially given that you're to open 29 this
year? Well, urban is probably not the best word to use. In terms of mall stores, I think we're up to like 10 or 12 of them. And I know there's probably 5 or 6 that have been announced over the next 12 to 18 months. That has more to do when the economy got hammered.
And if you think about a traditional mall, which had 4 anchors, 2 department stores, and in many cases now are owned by the same parent and the Sears and JCPenney. And in some cases, one of those 2 have, you know, Penney and in some cases, 1 of those 2 have finished their lease and closed. Not a lot of that, but there's been a little of that too. And needless to say, malls have struggled. And so we tend to be the one new thing that we can bring to that parking lot that are high end destination shoppers.
And so again, it's not earth changing in terms of the number as percentage of our total units, but it's a positive. In terms of footprint, certainly what we do in places like Korea, Taiwan, Japan are a lot different than what we do in the U. S. Several of those units are $50 plus 1,000,000 capital requirements rather than 30 plus and it has to do more with the fact that it's a much smaller footprint and the 140,000 to 150,000 feet of retail might be spread 70 on each of 2 floors with 3 or 4 floors of parking above and below it. So it's but that's that being said, Jim and Jeff Brotman, Jeff, of course, runs real estate here, our Co Founder and Chairman.
But Jim and Jeff are constantly telling our real estate people, don't bring me a double decker parking lot in Atlanta or whatever because it is more expensive and it's more operating expensive and let's be disciplined about it. But so I think it's less about in terms of size of units in general, I think our prototype still is in that 148 range. We've done a few 160s and we're also Jim is making them look Jim and Craig are making everybody look at some markets 140s. I mean, let's we don't have to go crazy sometimes. So there's no big pendulum shift though here.
Got it. That's helpful. Thanks and good luck with this quarter.
Thank you, everyone. We're in budget meetings most of the day, which just coincides with every 4 weeks we have a 2 day budget meeting. So Jeff and I and Bob will be in that. We'll take a break every hour, hour and a half to hear a few calls. But today, there'll be a lot more return calls tomorrow.
Thank you very much.
This concludes today's conference call. You may now disconnect.