Thank you for standing by, and welcome to the Q1 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. Thank you. I would now like to hand the conference over to your speaker today, Mr. Richard Galanti. Please go ahead.
Thank you, Cindy, and good afternoon to everyone. I will start by stating that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements except as required by law. In today's press release, we reported operating results for the first quarter of our fiscal year 2021, the 12 weeks ending November 22nd.
Reported net income for the quarter came in at $1.166 billion, or $2.62 per share, compared to $844 million or $1.90 per diluted share last year. This year's first quarter included tax benefits of $145 million or $0.33 per share, $0.16 of which was due to the deductibility of the $10 per share special cash dividend to the extent received by the company's 401 plan participants, and $0.17 related to stock-based compensation. Last year's first quarter included a $77 million or $0.17 per share tax benefit related to stock-based compensation as well. This year's results also included the cost related to our COVID-19 premium wages of $212 million pre-tax, or $0.35 per diluted share. Net sales for the quarter increased 16.9% to $42.35 billion, up from $36.24 billion last year in Q1.
In terms of our first quarter comp sales metrics on a reported basis for the U.S., we reported a 14.6% figure. Excluding gas deflation and FX impacts, the 14.6 for the 12 weeks would have been a 17.0% increase. Canada for the 12 weeks reported 16.2%, ex gas and FX, 16.8%. Other international reported at 18.7%, ex gas and FX, 17.7%. All told for the total company, we reported a 15.4% comp sales increase, and excluding gas deflation and FX, the 15.4% would be 17.1%. E-commerce on a reported basis for the 12 weeks was 86.4%, and excluding FX, 86.2%. In terms of Q1 comp sales metrics, traffic or shopping frequency increased 5.5% worldwide and plus 7.6% in the U.S. Our average transaction size was up for the company 9.4% in the quarter year-over-year and up 6.5% in the U.S.
These include the negative impacts from gas deflation and the positive impact from FX. Foreign currencies relative to the U.S. dollar positively impacted sales by about 30 basis points, and gasoline price deflation negatively impacted sales by approximately 200 basis points. Going down the income statement, membership fee income came in at $860.9 million, up $57 million or 7.1%. Ex FX, it would've been up $54 million or 6.7%. During the quarter, we opened eight new units. In terms of renewal rates, our U.S. and Canada renewal rate as of the end of Q1 2021 was 90.9%. That compares to a quarter ago of 91.0%, and worldwide it was 88.4%, which was the same as it was a quarter ago.
The U.S. and Canada rate of 90.9 compared to the 91.0, this 0.1% decline was primarily a result of what we believe to be deferred renewals in Canada due to the pandemic. For example, traffic or frequency in our Canada warehouses in Q1 came in at a minus 1.3% compared to a plus 7.6% figure in the United States. By the way, the U.S. renewal rate was the same at both quarters end. In terms of number of members at Q1 end, total paid households at Q1 end was 59.1 million, up from 12 weeks earlier Q4 end of 58.1 million. Total cardholders at Q1 end was 107.1 million compared to 12 weeks earlier, 105.5 million. Also at first quarter end, paid executive memberships totaled 23.3 million, an increase of 642,000 during the fiscal first quarter. On to the gross margin line.
Our reported gross margin in the first quarter was higher year-over-year by 50 basis points, coming in at 11.55% of sales compared to 11.05% a year ago. Excluding gas deflation, the 50 basis point increase would be 30 basis points. If you jot down two columns of numbers here to shed a little light on the components of gross margin. On a reported basis in Q1 2021, the core merchandise margin year-over-year was up on a reported basis 83 basis points, plus 83. Second column without gas deflation would have been plus 66 basis points. Ancillary businesses, minus 15 basis points reported and minus 20 ex gas deflation. 2% reward, minus six basis points and minus four. Other, minus 12 and minus 12.
If you add up the two columns on a reported basis, again, gross margin is reported as a percent of sales year-over-year in the quarter was up 50 basis points on a reported basis and ex gas deflation up 30 basis points. The core merchandise component gross margin it shows was higher by 83 and up 66 ex gas deflation. Similar to last quarter, we had a sales shift from ancillary to core. This resulted in a higher contribution of our total gross margin dollars coming from the core operations versus last year. Looking at core merchandise categories in relation only to their own sales, core- on- core, if you will, margins year-over-year in the quarter were higher by 65 basis points. Fresh Foods was again the biggest driver here.
With strong sales in Fresh, we benefited from efficiency gains and labor productivity and significantly lower product spoilage. Food and Sundries, soft lines and hard lines, the other three main core components, all had higher margins year-over-year in the quarter as well. Fresh Foods was the driver. Ancillary and Other businesses gross margins, as I showed you here, was lower on a reported basis by 15 basis points and minus 20 ex gas deflation. Most of the impact coming from Travel and to a lesser extent from gas, optical, hearing aids, and food courts. Costco Logistics, which is our name for the acquisition of Innovel that we did several months ago, impacted ancillary margins by minus six basis points, a slight relative improvement from the prior quarter year-over-year. 2% reward, nothing surprising there.
The other, the minus 12 basis points, all of this was attributable to the cost of the COVID-19 of $53 million of the $212 million total amount previously mentioned. These are the direct costs for incremental wages allocated to our manufacturing, production, and fulfillment operations. All told, even with the $53 million of COVID costs hitting the margin, Q4 year-over-year gross margin on a reported basis ex gas still up 30 basis points year-over-year. Moving to SG&A. Our reported SG&A in the first quarter as a percent of sales was lower or better year-over-year by 15 basis points, coming in at a 10.15% of sales compared to a year earlier, first quarter of 10.30%. Ex gas deflation, the 15 basis improvement would be 32 basis points of improvement. Again, jotting down two columns of numbers, reported and without gas deflation.
Core operations in Q1 on a reported basis was lower or better by 49 basis points, so a +49, ex-gas deflation a +62. Central, +1 and +3 basis points. Stock compensation, +3 and +4 basis points. Other, -38 and -37 basis points. Summing those two columns up, total reported SG&A year-over-year was better or +15 basis points and ex-gas deflation +32 basis points. SG&A is the core. It shows ex-deflation improvement of 62 basis points. This excludes the COVID costs, which I'll talk about in a minute. There was just basic significant leverage with strong core merchandise sales increases.
In terms of other, the minus 38 or minus 37 basis point number ex gas deflation, these were our incremental costs from the COVID-19 or $159 million of the $212 million total number that we had mentioned earlier. The premium wages have been extended through January 3rd at this time. Again, even including these $159 million of COVID-related premium pay expenses, SG&A year-over-year improved nicely. Next on the income statement is pre-opening expense, $22 million this year in the first quarter compared to $14 million a year earlier. We had 10 openings, eight net of two relocations during the quarter, and four openings gross, three net of one relocation a year earlier. Last year's $14 million number did include a couple million dollars related to pre-opening on our poultry complex, which was opened and went into business right before the beginning of Q1.
All told, reported operating income for Q1 2021 increased 35%, coming in at $1.43 billion this year compared to $1.061 billion last year. Even a higher percent increase, of course, it would have been higher had not we had those premium pay. Below the operating income line, interest expense was $39 million this year versus $38 million last year. Interest income and other for the quarter was lower by $6 million year-over-year. Interest income itself within interest income and other was lower by $22 million year-over-year, due in large part to lower interest rates, offset by FX and other, which was higher or better by $16 million year-over-year. Overall, reported pre-tax income in Q1 2021 was up 34%, coming in at $1.42 billion this year compared to $1.058 billion a year earlier.
In terms of income taxes, our tax rate in the first quarter of fiscal 2021 was 16.8% compared to 19.1% in Q1 last year. Both years' tax rates benefited from the tax treatment of stock-based compensation, as mentioned earlier. This year's tax rate in the first quarter also benefited from the tax deductibility of the special dividend payable to company 401 participants as discussed, that portion payable to the 401 participants, as discussed earlier in the call. This fiscal year's effective tax rate, excluding these discrete items, is currently projected to be between 26% and 26.5%. In terms of warehouse expansion, as I mentioned, in the first quarter of this fiscal year, we opened eight net new units. Our plan for the year is somewhere in the 20 to 22 range, none in the second quarter, and five or six in Q3, and seven or eight in Q4.
As of Q1 end, total warehouse square footage stood at 117 million sq ft. In terms of capital expenditures, in the first quarter of 2021, we spent approximately $893 million. Our full-year CapEx spend for fiscal 2021 is still estimated to be in the $3 billion-$3.2 billion range. In terms of e-commerce, our overall e-commerce sales in Q1, ex FX, increased at 86.2% year-over-year. A few of the stronger departments, Food and Sundries, housewares, pharmacy, OTC, and health and beauty aids, small electrics, and TVs and other electronics. Total online grocery grew at a very strong rate in Q1, nearly 300%. The comp numbers that I mentioned, the 86.2% figure, follow our usual convention, which excludes these third-party same-day grocery program as they come in themselves and shop at our warehouses and then deliver to our members.
If we include the third party same-day in our e-commerce comps, the 86.2% result would've been just over 100%. Innovel, now rebranded as Costco Logistics, continues to grow and we continue to push more big and bulky items to the site. In the past quarter, we added an in-cart scheduler this quarter, where members can select specific delivery dates for most big and bulky items, and made improvements to our call center with specifically trained agents as well. That continues to grow nicely. Lastly, a couple of fun sports items just loaded two days ago. We have a Babe Ruth autographed baseball for $64,000 and a Ty Cobb autographed Louisville Slugger bat for $160,000. We've also recently sold a number of memberships for Wheels Up, a private jet service operator. Now turning to COVID and some of the issues and impacts surrounding it.
From a sales perspective, similar to our strong sales results this past summer in our fiscal fourth quarter, we have continued to enjoy strong sales results during the first quarter of fiscal 2021. We continue to generate strong sales in Food and Sundries, health and beauty aids, and Fresh Foods and the like. We've also benefited from improved sales in products and items for the home. As people are spending less on air and travel and hotel and dining out, they seem to have redirected at least some of those dollars to categories like electronics, furniture and mattresses, exercise equipment, housewares, cookware, domestics, et cetera. As mentioned earlier, sales in most of our ancillary businesses were slower year-over-year in the quarter, travel, gas, hearing aids, and food courts.
From a supply chain perspective, a 40,000-foot view, if you will, most factories are up and running, our suppliers, and in many cases, production capacity has been increased. However, even higher increases in demand of some products are still creating some supply issues. There are instances of 50%, or 100%, or even more sales increases of an item, and if we could procure more, we'd have even higher sales. Examples would include things like exercise equipment, certain major appliances, certain electronics items, as well as certain housewares and small electric items. On the transportation front, there have been some container shortages at origin, as well as some congestion at destination ports here in the States. The latter, typically two to four days, but a little longer in some cases. We're managing through it and expect relief not until March or so of 2021.
The past few weeks, there have been some challenges that you may have read about in the industry in terms of delayed delivery times of items, just given the number of items being shipped now through third-party carriers. While this may reduce some sales if members are not confident in timely holiday delivery, we, like others, I'm sure, have done a couple of things. We've adjusted our stated expected delivery times on our side and reminded people to shop early. In our case, we took several hundred non-food online items that are also online and are providing same-day delivery through Instacart, including items like AirPods, and Instant Pots, and laptops, and many over-the-counter and health and beauty aid items, as well as some other home essentials. In terms of Food and Sundries, continued limits on some paper goods.
Demand and sales went up as COVID began spiking again. Our toughest areas, nitrile gloves, surface cleaning wipes, and sanitizing sprays. Also, in some cases, some paper goods. Overall, dairy items are in good shape, as well as proteins and produce on the fresh side. In terms of our holiday merchandise planning and results, Halloween, we went into it a little more conservative in terms of costumes and Halloween-specific candy items. We came out of Halloween with pretty clean inventory levels. Christmas, as I think I mentioned on the last earnings call or responding to a question, we went a little more basic in terms of needs and uses for the house. Very strong. We've gone into it with fundamental items for the home, like housewares, TVs, electronics, even added items like barbecues and pressure washers and furniture items.
A little less, we had cut back a little bit on seasonal items like holiday decorations and gift wrap and some of the candy and food gift baskets. In some instances, we've already sold through those inventories. Our warehouses overall have remained open and are mostly back to regular hours with an additional hour on many mornings for seniors and persons with disabilities. Warehouses are still following social distancing and sanitation guidelines, and in some jurisdictions, we have to limit occupancy. Since May 4th, as you may recall, we've required members and employees to the warehouses to wear masks. Since November 16th, we've required face shields for those unable to wear a mask. Some of these initiatives, of course, will extend well into Q2 of this fiscal year.
Finally, in terms of upcoming press releases, we will announce our December sales results for the five weeks ending Sunday, January 3rd, on Wednesday, January 6th, after market closes. With that, I will open it up to questions and answers, and I'll turn it back to Cindy. Cindy?
Thank you. At this time, if you would like to ask a question, you may press star one on your telephone keypad. Your first question comes from the line of Simeon Gutman from Morgan Stanley. Your line is now open.
Hey, everyone. Good afternoon. Richard, I wanted to ask, following on, you talked about some of the merchandising plans around Halloween and Christmas. You're going to begin to lap some pretty massive surges in growth when you get into the thick of 2021. I know you don't guide, but you're probably planning inventory purchases. I wanted to ask how you sort of manage with a pretty wide range of outcomes. I don't know if you have any guideposts to thinking about some of the gains you're making in Fresh Foods as far as the spoilage and the markdowns that don't seem to be happening. How do you plan for lapping some of those as well?
There's a few different things and time periods that will be in question. If you recall, there was a big surge in frequency and sales results the last week in February and the first two or three weeks of March when people were coming in and hoarding, in our view. Of course, we were running out of everything, basics from water to paper goods to cleaning supplies and things like that. Beyond that into April and May, there were some issues as there was some COVID spiking at many fresh protein plants, meat and poultry and the like. It's hard to project completely. I think of late, we have tried to build a little extra inventory where we can in some of those key things that aren't going to go out of style, like paper goods and cleaning supplies.
Then you get the next rush of spiking, and whatever extra inventory you had, it goes away pretty quickly. Look, we'll continue to work around it. I think in some cases it's a little easier in the sense that we have fewer suppliers to deal with, fewer items to deal with. Arguably, in other cases, given our huge volumes, that creates its own challenges sometimes. I think the bigger challenge is going to be post May last year and this past year in June is when we saw kind of sales strength, not just in those key essential categories like Fresh Foods and Food and Sundries and paper goods and health and beauty aids, but also on the non-food side, items for the home, if you will, and those types of basic items. Again, people spending some of those dollars.
Look, some things will improve and some things may be degraded a little bit. Some things that are degraded may take a while, and not everything's going to happen. A light bulb is not going to go off one day and everything's going to get better from a food standpoint in terms of restaurants being open. I think we're in it together and we feel pretty good that we've got a good format to serve our members well and we'll go from there.
As far as, I don't know, events, I know road shows, I don't know how prevalent they've been. Your mailers, are there things that you can change the cadence of, either to get more aggressive? Grocery, you've taken a huge amount of share this year. Is that an area you're going to lean into stronger? Just curious how you're thinking about the merchants are prepping for the upcoming year.
Well, as it relates to promotional forms that we do like the MVM mailers or even online type of mailers. Needless to say, some of those have been changed because some of the big size items that are always in there, like paper goods, like cleaning supplies, in some cases, we've had to eliminate some of those items from the mailer. We put other items in. In some cases, it's done fine. In some cases, it's a little bit less of a sales increase. That's not just going forward. That's been in the last few months as well that we've changed those things. I think we've been pretty good at pivoting and adding new items.
I think the examples for Christmas, while we may have maybe even went a little too deep into cutting back, not that they were big cuts, but we're running out of some of those decorative things a week or two earlier than we would have liked to. We also, though, have found success in lots of essential, basic, fundamental items. I think the first Christmas, we probably brought in barbecue grills and pressure washers to market, and they're doing well because people are buying gifts for the home.
Thank you.
Your next question comes from the line of Mr. Mike Baker of D.A. Davidson. Your line is now open.
Hi. Thanks. I was a little bit curious on the holiday trends. Two questions really. One, by trying to advertise and get customers to spread out their sales and come in a little bit early, do you think there was any pull forward of holiday sales into November from December? A second part of the holiday question, I think you said that you're out of stock quickly in some of the seasonal items. Do you think you could have been a little bit more aggressive on the seasonal stuff? How much do you think your sales could have been up if you had done that?
Well, first of all, in talking to the buyers, they definitely feel that some of the merchandise and sales were pulled forward into November, not only from December, but even the week of November. There's been articles out there about Thanksgiving and overall, not at Costco specific, but just in general about what's going on online and what have you. Certainly some of that got pushed forward. In terms of some decorative things, there are examples where instead of buying 10% more this year of a given item, we bought 10% or 20% less. We still bought a lot. It's not like we cut our order back by half. In retrospect, we probably could have sold a little bit more. I don't have a dollar number. It's probably not that meaningful. For every negative, there's another positive.
Needless to say, our comps overall have been very strong.
Yep. Oh, that's fair. If I could ask one more, I guess unrelated question. The MFI, the 7.1% increase, that's better than it has been. A nice acceleration there. Any color as to where that acceleration came from what had been more in the 4% or 5% range the last few quarters?
Well, I think in terms of shopping frequency?
No, membership income.
Oh, membership.
No, the M-.
Correct.
I'm sorry. Okay. I didn't hear the first part of the question. I think we opened a few more units than we did a year earlier. Without looking that deeply, that's probably most of it.
Okay, fair enough. I appreciate the color.
Thank you.
Your next question comes from Chuck Grom of Gordon Haskett. Your line is now open.
Hey, thanks. Hey, good afternoon, Richard. When you look at your online offering, can you remind us where it stands in terms of total mix of business and also level of profitability relative to the store? Looking ahead, what categories you may start going into more?
Well, I think in store, of course, in warehouse, we've got about 3,800 active items. Online, we typically have somewhere in the high single digits, 1,000. Call it 9,000 plus. I'm sorry.
Seven.
In terms of percent of sales, it's about 7% of sales. Now, we don't include in that number, as I mentioned, third party sales like the Instacart Same Day Fresh because their employee or contracted employee is coming into Costco shopping just like any other customer would come in the shop. You could add a little bit more to that. In terms of what we call online is about 7%. I think it was 6% in fiscal 2020 for the entirety. Of course, it was halfway through the year when you saw e-com percentages increases jump dramatically with the advent of COVID.
Just level of profitability?
Overall, e-commerce is a little less profitable. It's profitable. Category wise, you've got merchandise categories that don't include some of the highest gross margin components of our business, like fresh, like apparel in a big way in terms of the penetration. You've got electronics, which is a lower than average margin business, both in store and online, and it's a much bigger percentage of penetration online. Those are examples. Certainly, the profitability of e-commerce has been helped with the types of comp sales increases we've had over this past year. Also over this past year, there's some of the cost inefficiencies of growing it so fast in terms of fulfillment, as we are continually adding locations where it can be shipped out of and getting closer to the customer as this overall size of the business has grown a lot. Yeah.
As I mentioned earlier, in the investment in Innovel, or what we're calling Costco Logistics, that was, as we expected, a hit year-over-year to margin, simply because it's being ramped up and upgrading.
Got you. Just to follow up on Mike's question, I pardon my near term orientation of it, but when you look at the comp in November and the fall off at the end of the month, albeit still strong, just when you look back, if there's any learnings onto why you think sales fell off, and I'm curious if the revenue trends have started to bounce back?
Our best guess is it's complete pull forward. The fact is people have been marketing bigger ticket items and some of those types of holiday items earlier in November.
Last Friday was promotions for the whole month.
Yeah. Bob here mentioned that Black Friday promotions this year, more of those things we promoted earlier in the month.
Everybody.
Not us, but everybody else out there, too.
Got you. All right. Thanks a lot.
Your next question comes from Mr. Michael Lasser of UBS.
Good evening. Thanks a lot for taking my question, Richard. You outlined some nice holiday gifts that some people on this call might be considering getting for loved ones this season. When you look at your sales compared to the rest of the consumable retail landscape. Most others are seeing a deceleration in their comp, whereas Costco is seeing an acceleration in its comp. Why do you think that is? Is it simply because members are coming in to buy the discretionary goods and loading up their baskets with the consumable items?
We definitely think that be essential and recognizing that people clearly are coming in to buy food and key cleaning items and health and beauty aids and the like. That gets you in the door, certainly in our view, given that money's being spent on other things in normal years, perhaps is being spent more for things for the home. We have that as well, I think that has helped us in that regard.
Okay. It really comes down to mix and just that Costco is a good strong. There's nothing else to really compare.
I'm biased. I'd like to think part of it is, people feel, hopefully, at least relatively safe coming into a big, wide open box environment where we've done, we think, a pretty good job of social distancing and other safety protocols.
Okay. In the core on core gross margin increase, it seems like it's a function of just the strong sales, allowing Costco to be able to sell through better than it might otherwise have been able to. Is that right?
Yeah, I think most of it is strong sales, which shows its brightest colors with Fresh Foods where you've got two cost components that have improved dramatically, spoilage and labor productivity. That has certainly helped. I had one other thought on it and I can't seem to come to mind. Sorry. Less promote. The other, Michael, is I think you've all read about this from an industry perspective. There's been less promotional activities out there. While we're still giving great values on things, when you look at TVs in general, while prices have come down across the board, just because they always do over time, and these seem to be getting better, bigger and less expensive. There's not the kind of promotional money being thrown at it by the manufacturers because they haven't had to. I think that too has had some impact.
That's helpful. I hope you have a great holiday. Thank you.
You as well.
Your next question comes from the line of Mr. Scot from RBC Capital Markets.
Not even an attempt there. Hi, guys. Scot Ciccarelli. I believe some of the products you guys sell, via your website or e-commerce are for members only, but not all of them, or it doesn't look like that from a labeling perspective. Assuming it's not just a labeling difference, how much of your e-commerce sales are coming from members?
Oh, virtually all. There's some who probably use it, but they have to log in. I believe part of the challenge is on some items, as we work with our suppliers, and ourselves as well, we want you to have to sign in to see the prices.
I got it. Okay. Richard, what's the update today regarding how much of your e-commerce sales are being drop shipped from vendors versus delivered through Costco?
Less than 50.
About 50/50.
A little less.
A little less than 50 is being drop shipped.
Got it. All right, appreciate it. Happy holidays.
Same to you.
Next question from Karen Short of Barclays. Your line is now open.
Hi. Thanks very much. A couple questions I wanted to ask. First, just on COVID and wages. The 212 you called out obviously gave us the breakout on the impact on cost of goods versus SG&A.
Yeah.
That was a little higher than the number, I think the $14 million per week that you'd guided. I am wondering if that's what the delta would've been, because that would've gotten us to about $168 million. I am wondering if you can give a little color on what the other cleaning component might be would have been in this quarter and then how to think about it into next quarter. Presumably, just like I asked last quarter, that January 3rd date is probably not the end date, I would assume.
Well, we'll find out. Needless to say, I can't comment on that, but a big chunk of the difference of 14, or I may have rounded, honestly, down to 14 and now it's rounding up to whatever. At the end of the day, there's more hours is the biggest delta. More cumulative hours.
Okay.
We haven't changed the.
Okay. The cleaning component?
That's relatively small.
Okay. I'm wondering if you could give a little color on the expansion of the Instacart relationship. You obviously listed a couple of SKUs that you've added on to that with respect to the third party. Can you give a color on what the markup is on non-food items versus food? Give a breakdown on what that would be for members versus non-members on the markup?
Well, I can't be that specific. Over the last three or four years, we've continued to work to lower the effective average markup across the board on items. There's some discretion on some to be a little lower than that, and some can be higher, but there's an average, which includes both their markup plus whatever other fees that person is spending, whether it's a per delivery fee or per monthly fee to Instacart. Given some of the unique issues near the end of the year with the high demand for shipping and the capacity issues out there with the third-party shippers, given that Instacart has always come in, we've added some items to the fray. In some cases, there is a maximum markup on those that is, in many cases, quite a bit smaller than that mid to high teen number, percentage wise.
Okay. Just last question, in terms of the MFI, obviously, I think January of 2021 would be the new timeline in terms of the tax deductibility in California. Is there any thoughts in terms of timeline, in terms of how you would think about an MFI or a membership fee increase? I think in the past, you've historically done that when you've actually seen, counterintuitively, traffic slowing, and it seems like you may be looking at slower traffic just based on tough compares as we get into parts of next year.
Right.
Philosophically, color on that.
Well, historically, as you know, for 35 years, we've effectively raised the basic fee $5 every roughly five years. I say roughly, it could be five and a half years. The executive membership has been raised. Originally, it started at $100, now it's $110, then $120. The last time we did the increase was, I believe, was in June-ish of 2016. Five years. It was June of 2016. It'd be four years. Are you sure? Yeah. We'll check on that. It was June of one of the years, either 2016 or 2017, but it would be five years from then that we might look. You mentioned that we've done it when sales have been stronger or when sales have been weaker, when the economy took a hit or whatever else. We look at it somewhat independently of that.
We look at it and we feel, have we improved the value of the membership by more than that respective $5 or $10? I'm not suggesting we might wait or not. Time will tell.
Okay. Thanks.
Historically, we've always felt very good about when we've done it, that certainly the value proposition has been enhanced at a much greater multiple than the $5 or $10.
Thanks. Have a great holiday.
Thanks. You, too.
Your next question from Oliver Chen of Cowen.
Hi. Thank you very much. Hi, Richard. Regarding what's ahead with vaccinations, do you see a role that your pharmacy will play in that? Also, in this dynamic environment, how are you thinking about managing inventory versus sales as we look forward to, hopefully, a pathway to vaccination, et cetera? Thank you.
I believe we, the country, are currently in the first phase of the vaccination process. We are not participating in that. I believe phase II, which will be just a short period down the road, our pharmacies will also be part of the many pharmacies throughout the country that are going to be providing the service of vaccinations for that. We're in phase I. We are in phase I in the state of Alaska only currently. I think throughout the country, we plan to be in phase II, which will be the big push after this first initial round. In terms of managing inventories, well, while space is not infinite, certainly the cost of carrying a little extra inventory isn't very expensive right now, given the very low interest rates.
At the end of the day, as I mentioned a little earlier, I think we plan positively in terms of how our sales have been. To the extent that, in the example of those seasonal items, we came down a little bit, but not a lot, and I think we'll continue to do that kind of planning. A lot of times on items that are short, but there's certainly the only risk of having some extra paper towels for a few weeks is the risk of having them. There's not any obsolescence or markdown risk on it. We will always try, in times when there's more of that available, we'll build up a few extra weeks of supply. Overall, I don't see a big change in our inventory turns or payables ratios.
Okay.
They're dictated more by comp sales than anything. When we were enjoying, pre-COVID, a 6%-8% comp sales number, payables as a percent of inventories was whatever the number was. When we saw the big increase in comps, you saw the payables as a percent of inventories going up.
Got it. That's very helpful. On the topic of e-commerce, as we think about longer term growth rates as well as new customer acquisition that you're seeing in engagement online, what are some of the major catalysts for innovation going forward that you'll implement or that you're looking to implement? How do you think growth rates may evolve as, hopefully, reopenings occur eventually?
Well, look, we as much as anybody want things to get back to normal from a business standpoint, but most importantly from a personal standpoint. Over the next couple of years, God willing, starting with this process of vaccinations and the vaccines and hopefully a big chunk of this progress by the beginning or during the summer people will get out more and we'll be going back to restaurants and the like. Will that have an impact on our food sales? Of course, it will. Some of this positive will be sticky. Some of the new members will be sticky. We'll go from there. I think that there are lots of attributes to value and customer loyalty. Certainly the best prices on great quality merchandise that the member trusts, in our view, is the biggest attribute and that's where we start from.
E-commerce is certainly and the acquisition of Innovel in terms of big ticket items and having a great service at a great value for those items we think helps us. Ultimately, we still want our members to come into the warehouse. When they come in, they see the items, and they're more likely to buy some of those items and certainly driving them in with great value and great quality is what we're all about.
That's helpful. Last on that logistics, Costco Logistics part what should we know about as we model that going forward in terms of the margin headwinds and the dimensions around the size of that business relative to total? Thanks.
Well, the only two data points we've given you is in Q4 year-over-year, it was about I think an eight basis point margin hit into Q1, which we just reported for this new fiscal year. It was a six basis point margin hit. As guessing games go, assume that there'll be constant improvement in that over the next several quarters so that it won't be a negative. Now mind you, that doesn't include any benefit we get from increased sales of those items and the margin associated with that. When we bought this thing, we knew that it would be dilutive from an earnings standpoint for certainly the first year and perhaps into the second year, hopefully on a decreasing basis. Certainly the first two quarters would indicate a little of that.
At the end of the day, we think those companies that have had their own infrastructure to be able to do last mile delivery and installations, it's a positive. Certainly the home improvement companies have done that, the retailers and it worked out for us and we're excited about what we can do with it.
Thank you very much. Happy holidays. Best regards.
Same to you.
Your next question from Edward Kelly of Wells Fargo. Your line is now open.
Yeah. Hi, Richard. Good afternoon. You mentioned freight. I was hoping you could provide just a little bit more color on the headwind and then you talked about an improvement maybe coming in March. Any more color behind that?
Not really. Before each call, I'll sit down with the head of merchandising and some of the other senior people in merchandising and just get the color on their departments and what's going on. It was a by the way comment that with things coming from Asia as an example or in general, there's container shortages and so it may take a few extra days to get things onto a ship or the ship may go sailing not full in some cases. The same thing is on some of the big ports in the United States like on the West Coast particularly they mentioned two-four days of delay. Again, two-four days is not a lot, but when you're moving inventory fast, once you've ordered it, you want it built and put on the ship and get here and onto our floor.
It's not a big deal. The comment was I said when will it improve and said probably not until February, March. That's what I threw out. Not any more impactful than that.
Okay. I just had a question on e-com and just digital strategy generally. Any updated thoughts on buy online, pick up at store? It has essentially kind of become a standard offering across the industry and we've obviously accelerated a lot of digital adoption. Just curious as to whether you're rethinking that at all.
We're not rethinking it. We continue to look at it and scratch our heads a little bit. At this juncture, we don't have any current plan to do so.
Okay. Just lastly for you, fuel, I think gross profit per gallon this quarter was probably up quite a bit. I look at the OPIS data, it looks like maybe double. Is that about right? What did gallons sold do this quarter?
Gallons sold were down, not down as much as they had been at its trough a few months ago and you're right on margins. Not a double, I can't give you any quantitative number there. In terms of margins were up year-over-year as a percent and gallons were down year-over-year.
Okay. Thank you.
Your next question from Chris Horvers of JPMorgan.
Thanks. Good evening. Wanted to follow up on the holiday pull forward question. Was curious what the merchants are thinking about how the season progresses, particularly as we get close to Christmas. Some retailers think that given the earlier cutoff time to get the gifts in time for Christmas, that there could be a big brick-and-mortar surge. I think other retailers are saying that, no, it just started with Prime Day and it's just been a pull forward, so don't expect anything unusual close to Christmas. Curious what your merchants are thinking.
Well, the merchants are feeling pretty, I would say aggressive with a small A. They feel that, again, some of it was pulled forward, but they're still And again, running out of some gift wrapping paper two weeks before you wanted to is not the end of the world, but every sale is a sale that we want. In the same token, bringing in fundamental items that if you end up having a few extra SKUs or a few extra quantity of certain SKUs the day after Christmas, it's not going to kill you because it's not stuff that's seasonal that has to be marked down in a big way.
I think that we're going into it recognizing that our sales overall, particularly brick and mortar, have done well, that we're basing our assumptions of what we're going to do even over the next two weeks positive relative to this. Recognizing that there could be some pull forward and there could be some because of the dates got a little longer on shipping. At the end of the day, we agree with you, that could help the in-store experience, and we'll see.
Got it. You called out travel and gross margin as a big impact there. Is there something around the accounting of that? You hadn't called it out prior. Maybe it was just because it's a relative to other things in the ancillary business. Is there an accounting thing? Is there seasonality to that? Would we expect that to sort of get worse for some reason?
What the accounts make you do is just like in the 10-K, you got to rank them in order of dollars. In the case of travel, first of all, it's a very high gross margin business to the extent that we're simply acting as a broker, like on car rentals. There's sales and no cost of sales equals gross margin or very little cost of sales. Only when we curate an item and take ownership of it, if you will, like 100 cruise ship weeks or whatever, I'm making this example up, where you sell $100,000 of something and make a few 1,000 dollars or $5,000 of margin, that's a 5%. You have big chunks of that business that are 80-plus percent margin.
It's a business that started to show a little bit of life as we entered summer, but with the spiking of COVID in the last several weeks, that has dissipated quite a bit. Even some of the life that occurred in the summer were bookings out for Christmas. Some of those are being canceled as you would expect them to be. It's the rank order of them, which one hit harder a little bit.
Got it. The last question is on price gaps relative to peers and club and grocery, have they widened? Where do you see them now? I think if you go back to this 2009 timeframe where you sort of lap peaked food at home inflation and you lap some food at home wallet gains, you seem to get more aggressive on price. Just want to get your thoughts on where you see the price gaps now and how you're thinking about that into 2021.
Well, when we look at our comp shops compared to other warehouse clubs as well as comp shops specifically on certain items and other traditional retail formats, we feel very good about our competitive moat, if you will. We don't think that's an issue at all for us right now, but we're the ones that keep pushing the limits further.
Got it. Have a great season, guys. Thanks.
Thank you.
Next question from Robert Moskow of Credit Suisse.
Thanks for the question. Richard, you mentioned that manufacturers, I guess, for packaged goods, they're not promoting as much, not giving as many discounts as usual because they don't have to. At any point, do you think that could flip the other way? If so, what would drive it? Is it just availability of supply or maybe a more intense competitive environment?
Gosh, when I find out, I'll let you know. What's happened, of course, with everything, both the strength in electronic items, TVs, AirPods, and everything else in between, and laptops, and the demand for those things is enormous. In some cases, some shortages of supplies in general, even if capacity is going up, it could go up a lot more. It's hard to say.
Okay, I was thinking more on the lines of packaged food. We've heard some categories putting promotions back in. Do you have any insight into that?
Okay. I don't. I'm sorry.
Okay. All right. Thank you.
Next question, Melich of Evercore ISI.
Richard. Hi. Hey, it's Greg Melich. I think that was me. Actually two questions. One, was there any grocery inflation showing up? We see CPI for grocery picking up and there's less promotion. What are you guys seeing there?
Very little.
There's something, but it's nothing like 4% or 5%, some of those other numbers we see out there.
Oh, it's not even a percent.
Not even.
It's very little. Three values. That was triple values.
On cash, the special dividend, congratulations on keeping it special and getting it done. You should be back a little under $10 billion of cash. What's the right number that you want to run the business with, either still during COVID or even on the other side of it?
Keep in mind, there's a chunk of it that is weekend debit, credit card receivables that could be $1 billion or $1.5 billion. There's upwards of just under $1 billion that is related to insurance captives and the like. There's a $2 billion-$3 billion that's overseas in different countries, which for whatever reasons, it's the last money you want to bring back because of whatever withholding or other taxes related to it. At the end of the day, someone asked the question after we announced the $10 dividend, we could have done more. The answer is we could have, but why rush? Right now, we still don't know what's going to happen with COVID-19 and what may happen next year in the economy. We'll probably have a little more cash than normal, than pre-COVID-19, if you will, but that's okay too.
Last, where are average wage rates today? We know the COVID is up. Thanks for helping us there. Where are we now before all that?
You mean the average U.S. hourly wage?
Yes.
I think we're in the well, ex the $2. Yeah. We're either right above or just approaching $24 average in the U.S.
Approaching $24 in the U.S. The changes for the base wage going up, you did that was completed when?
In March, I believe, last year. March,
Last March.
Last March, beginning of March.
March 19. Not the beginning.
March 9th? March of 2019. I believe it was near the beginning of March, whatever that Monday start for that weekly pay period was, or biweekly pay period. That was $2 across the board.
Right. The COVID stuff on top of it.
Excuse me?
The COVID was on top of the actual wage rate.
Yes.
Right. Got it. Great. Good luck. Have a great holiday.
Thanks. You too.
Next question from Rupesh Parikh of Oppenheimer. Your line is now open.
Good evening. Thanks for taking my question. I wanted to ask, Richard, just some of the countries where you have lower COVID infections, China, Australia seems to be normalizing now. Has purchasing behavior in those markets returned back to where it was maybe pre-pandemic? I'm guessing Australia is probably a better read than China.
They're both strong. They're stronger comps.
From a category perspective, have you seen the category shift to, I guess maybe where they were pre-pandemic, if you look at the mix?
Kind of normal.
Well, I don't have that detail in front of me, unfortunately. When I look at comps by country in local currencies, in most countries, we're back to normal, if not a little better.
Okay. Okay, great. Then, just in the U.S., just given we've seen spikes in infections, and California's had more restrictions recently put in place, just curious if you can just comment on anything you're seeing more recently, just in terms of changes in consumer behavior or traffic to your stores?
The only thing that I've noted is that when it first started a few weeks ago or when the California, everybody was waiting for California, in California, everybody was waiting to hear what the new restrictions was going to be in terms of lockdowns. There was a spike in shopping, and people were coming in. We had particular strength over a couple week period when more spiking was occurring.
Okay, great. Thank you. Have a great holiday.
Thank you. You too.
The next question.
We'll take two more questions, Cindy.
Okay. Your next question from Kelly Bania of BMO Capital.
Great. Thanks for fitting me in here. Richard, just wanted to go back to the buy online and pick up at store question. It does seem like a lever that maybe you could pull one day that's already been pulled by pretty much everybody else in retail. I guess just given the massive growth that you've seen with Instacart and your third-party partners there just does clearly seem to be a segment of your membership base that's willing to pay a premium or that markup for that service. I'm just curious if you've thought about even a markup type structure for pickup or even like a higher price point membership for a pickup type service.
As it relates to general conversations about it, those are topics that are discussed. One of the challenges right now is a lot of the buy online and pick up in store traditional retail promotions are the same price as what you can come in and buy it for. Somebody's paying for the picking it up and storing it and waiting for you to pick it up. I think that'll shake out too over time. Somebody has to pay for it, either the company or the customer. I'm not trying to be cute. We're looking at all those things, we haven't made any decisions to go forth with it.
Okay. Just maybe quick follow-up, you mentioned the 7% e-com penetration from a sales perspective, but just curious if you could share just the percent of your maybe membership households that are engaged with Costco from a digital e-commerce perspective.
Yeah, we don't give out that information yet.
Okay, thanks.
As you might expect, it's growing.
It's been growing. Yeah.
Of course.
Your last question from Steph Wissink of Jefferies.
Thanks. Good afternoon, everyone, and thanks for squeezing us in. I just wanted to follow up on Rupesh's earlier question, but ask it a slightly different way, which is looking at your cohort of new members that have joined really since kind of the third quarter of last year. Any performance distinctions or category mix distinctions that might give you encouragement that those members might be a bit more sticky going forward or might be a bit longer lifetime value customers for you into the future? Thank you.
We don't have a lot of that information yet. Recognizing that some of them signed up because of COVID and because we can deliver food, it's fresh, or we can serve them online. There's not a lot to go on yet.
Okay, thank you.
Well, thank you, everyone. Hopefully, you have a happy and healthy holiday season and on to a better 2021. Have a good day.