Good day and thank you for standing by. Welcome to the Quarter 3 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. Richard Gilanti, sir, you may begin.
Thank you, Sarah, and good afternoon to everyone. I'll start by stating that these discussions will include forward looking statements within the meaning of the Private are in the 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 Q3 of fiscal 2021 to 12 weeks ended this past May 9. Reported net income for the quarter was $1,220,000,000 or $2.75 per diluted share. Last year's 3rd quarter net income was came in at $838,000,000 or $1.89 per share. This year's Q3 included $57,000,000 are in the range of $0.09 per share in COVID-nineteen related costs. Last year's Q3 included $283,000,000 pretax or $0.47 per share of COVID-nineteen related costs.
Net sales for the quarter increased year over year in the quarter by 21.7 percent from are $44,380,000,000 to $44,380,000,000 this year from $36,450,000,000 a year ago. Comparable sales for the Q3 of fiscal 2021 are as follows. In the U. S, on a reported basis, comparable sales were up 18%, ex Gas inflation, up 15.2 percent Canada, on a reported basis, up 32.3 percent ex both gas and strong Canadian dollar ex gas and FX, up 16.7%. Other international reported plus 22.9 percent, ex gas and FX, plus 13.1%.
All told, company reported comp sales of 20.6% And again, ex gas and FX, 15.1 percent up. E Commerce on a reported basis was 41.2%, ex FX was up 38.2 percent and that's on top of a year ago in Q3 when it was up 66.1% in Q3 a year ago versus the prior year to that. In terms of Q3 comp sales metrics, traffic or shopping frequency increased 12.5% worldwide and plus 11.9% in the U. S. Our average transaction or ticket was up 7.3% worldwide and up 5.7% U.
S. During the 3rd quarter. And these numbers include the positive impact both of gas inflation and FX. So adjusting for that, they would be in the 1.8% and 2.7% in the U. S.
Adjusted for those. Foreign currencies relative to the U. S. Dollar positively impacted sales by approximately 2.90 basis points And gasoline price inflation positively impacted sales by approximately 260 basis points. Are going down the income statement.
Membership fee income reported for the Q3, dollars 901,000,000 or 2.03 percent of sales. Again, we had strong FX and so adjusting for that out, the $86,000,000 reported increase would have been up 60 $7,000,000 so ex FX of 8.2 percent on a reported basis, up 10.6%. In terms of renewal rates, The U. S. And Canadian rate came in at 91.0 percent, the same as it was at Q2 end.
Worldwide, our total company renewal rate was 88.4% at Q3 end or 0.1% lower from the prior quarter end. China entered the Renewal calculation for the first time this fiscal quarter. 1st year renewal rates generally lag those of later years and excluding China, the worldwide rate would have actually improved oneten of 1% versus the prior quarter. In terms of number of members at Q3 end, both member households and total cardholders, at the end of 3rd quarter, total paid Households, dollars 60,600,000 up from $59,700,000 12 weeks earlier total cardholders, dollars 109,800,000 are up from $108,300,000 at the end of the Q2 12 weeks ago. At Q3 end, paid executive membership totaled 24,600,000 members, an increase of $817,000 during the 12 weeks since Q2 end.
Moving down the gross margin line. Our reported gross margin for the quarter was lower year over year by 35 basis points, coming in at 11.18% compared to a year ago at 11.53%. As I usually do, I ask you to jot down a few numbers, 2 columns, both the reported year over year change in gross margin and the second column ex gas inflation. Merchandise core reported are minus 52 basis points year over year and ex gas inflation, minus 29 basis points. Ancillary and other businesses reported plus 2 basis points and ex gas inflation plus 7 basis points 2 percent reward, Plus one basis point and minus 2 basis points.
Other, plus 14 basis points in both columns. Total therefore reported gross margin again year over year was reported down 35 basis points and ex gas inflation down 10 basis points. The core merchandise component is that you show here was as I mentioned here was down 52 basis points year over year on and down 29 on ex gas This is primarily a function of sales shifting from core to ancillary versus last year as we begin to revert back to more historical sales penetrations. Recall last year we saw a significant shift of sales out of ancillary and other businesses and into the core. In terms of the core margin on their own sales, In Q3, the core on core margin were better by plus 27 basis points, with non foods up significantly, rebounding from last year's lows, Food and sundries flat year over year and fresh foods down from last year, the latter still strong by historical standards.
Fresh, as we've mentioned over the last few quarters, is lapping exceptional labor productivity and low product spoilage that occurred from the outsized sales that began a year ago in Q3 with the onset of COVID. Ancillary and other business gross margins, again, ex gas inflation was up 7 basis points are year over year in the quarter. We have a lot going on here as of last year. As last year, we had closed the hearing aid and optical departments And had severely limited the service and selection at our food courts for most of Q3 last year. Gas had a particularly good quarter a year ago, which had helped offset some of those closures a year ago.
This year, we're showing margin improvement in optical, food court, e comm and hearing aids, are somewhat offset by gas. The 2% reward was again on excluding gas inflation was are lower by 2 basis points, indicating higher sales penetration to our executive members and the rewards associated with that. And other is plus 14 basis points. 9 of the 14 basis points is attributable to lower COVID-nineteen costs year over year, $44,000,000 hit to margin in Q3 a year ago versus a $14,000,000 hit to margin this year in Q3. Last year, we incurred 10 weeks of the incremental $2 an hour premium wage.
That portion you see here relates to the labor associated with our fulfillment manufacturing businesses. This year, we incurred 2 weeks of the incremental 2 dollars an hour premium wage as the program was discontinued at the end of the 2nd week of Q3 after 52 weeks are in place. The other plus five basis points or $19,700,000 came from accruing a reserve last year in Q3 for certain third party gift cards and ticket that were adversely impacted by the onset of COVID. One other comment, as I discussed during our March 4th Q2 earnings conference call. In conjunction with the discontinuing of the $2 an hour premium pay, we implemented a permanent wage increase for our hourly employees as well as most of our salaried manager employees, which took effect in week 3 of this fiscal quarter.
Since it's a permanent wage increase going forward, its impact is simply in our reported numbers and not separated out as COVID related. Moving to SG and A. Our reported SG and A in the 3rd quarter was lower or better year over year by 107 basis points. Again to jot down these following two columns of numbers. 1st column is reported and 2nd column excluding gas inflation.
In terms of operations, Year over year, plus 37 basis points, meaning lower or better by 37 basis points ex gas inflation, plus 20 basis points Central, plus 4 basis points and plus 1 basis point stock compensation, plus 5 and plus 4 Other plus 61 and plus 61. For a total on a reported basis, again, SG and A year over year was lower or better by 107 basis points on a reported basis and excluding gas inflation better by or lower by 86 basis points. Again, looking here, the core operation was better by $37 and plus better by $20 excluding the impact of gas inflation, A good result, particularly given that we implemented the permanent dollar an hour wage increase for the last 10 of the 12 weeks that comprise Q3. Central, nothing surprising there, same with stock comp. And other than the plus 61 basis points, ex gas inflation, 56 of the 61 was attributable to the lower cost from COVID, 239,000,000 hits SG and A in Q3 a year ago compared to 44,000,000 in Q3 this year.
The balance or plus 5 basis points or lower by 5 basis points was $18,500,000 were costs associated with the acquisition and integration of INNOVELLO YURICO. Next on the income statement is preopening expense. Basically, this year, it came in at $10,000,000 $2,000,000 higher than the $8,000,000 in Q3 of fiscal 2020, nothing out of the ordinary with the preopening this quarter. All told, reported operating income in Q3 'twenty one increased 41% coming in at $1,663,000,000 this year compared to $1,179,000,000 a year ago in the quarter. Below the operating income line, interest expense was $40,000,000 this year versus $37,000,000 a year ago.
Interest income and other for the quarter was higher by $6,000,000 or better by $6,000,000 Interest income was actually lower by $2,000,000 year over year due to lower interest rates. Additionally, FX and other was higher by $8,000,000 year over year. Overall reported pretax income in the 3rd quarter was up reported pretax income was up 42%, coming in at $1,650,000,000 this year compared to $1,163,000,000 a year ago. In terms of e commerce, are e commerce sales, as I mentioned earlier I'm sorry, before I go to e commerce. Our tax rate in the 3rd quarter came in at 25.2% compared to 26.7 percent a year earlier.
This quarter benefited from one time discrete tax item that benefited our number. For all of 2021 based on our estimates, which of course are subject to change, we anticipate that our effective normalized total company tax rate for the year to be in the 26% to 27% range. A few other items of note in terms of warehouse expansion. In Q3, we opened 6 new warehouses, 1 in the U. S, 3 in Canada and 2 internationally.
We also have plans in Q4 to open 7 additional ones, 5 in the U. S. And 2 others internationally. That would put us at a total of 21 net new warehouses for the fiscal year, 23, which included 2 relocations, so 21 net. In addition to the 21 planned openings for 21, we are looking to open about 25 new units net new units in each of the next two fiscal years, including a second warehouse in China in fiscal 2022, which would be the end of towards the end of calendar 2021 and a third expected to open in late calendar 22, which would be early fiscal year 2023.
Regarding CapEx, the Q3 fiscal 2021 spend was approximately 1,030,000,000 Our full year CapEx spend is now estimated to be in the $3,300,000,000 to $3,500,000,000 range, increased a little from our estimate made 12 weeks earlier to include the recent $340,000,000 purchase of a distribution facility on the West Coast to support our big and bulky delivery activities. Now going turning to e commerce. Again, e commerce sales in the 3rd quarter ex FX increased 38.2 percent year over year. Stronger departments included jewelry, home furnishings, sporting goods, hardware and majors, Which of course includes both everything from appliances to consumer electronics. In terms of Costco Logistics and an update there, we anniversary the purchase of Innovell, now called Cosco Logistics this fiscal quarter.
Cosco Logistics continues to drive big and bulky sales with the U. S. Ecom sales on these items up 53% during the quarter. Costco Logistics fulfilled about 70% of all U. S.
Big and bulky orders And we also continue to add some new big and bulky vendors. Overall, we've improved delivery time on many items from up to 2 weeks In several cases, now 5 to 7 days. As well, we've taken several items that were previously vendor drop shipped and are now being Direct import is allowing us to not only speed up delivery, but reduce prices to our members. From a supply chain perspective, port delays are continuing to have an impact. We are utilizing additional carriers in some cases to help Some of that.
Containers and pallets are also facing shortages. Anecdotally, 35% to 50% increase in incoming containers this year versus a year ago. Some of that's pent up demand, but just from the low points a year ago. The turnaround of a container hitting the U. S, delivering its contents and being back at the U.
S. Port ahead back overseas has gone from approximately 25 days to 50 days. So a combination of things in terms of delays. Ship shortages are impacting many items from an inflation standpoint, some items more than others. And again, as I mentioned with regard to containers and shipping, transportation costs have increased as well.
Despite these issues, we continue to work to mitigate cost increases And supply chain delays in a variety of different ways as best we can. The biggest way we've handled supply The biggest way we've handled supply chain delays is adjusted ordering and front loading, if you will, orders of many items. We think we've got that pretty well under control. This will continue the feeling is that this will continue for the most part of this calendar year. We've had a lot of questions about inflation over the past few months.
There have been and are a variety of inflationary pressures that we and others are seeing. Inflationary factors abound. These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays that I mentioned, increased demand in various product categories, some shortages, various shortages of everything from chips to Oils and chemicals supplied by facilities hit by the Gulf Frees and storms and in some cases, higher commodity prices. Some inflationary sound bites, if you will. Price increases on items shipped across the ocean with suppliers paying up to double for containers and shipping.
Are price increases of pulp, paper goods, some things up 4% to 8% plastic and resin increases from trash bags to plastic cups, plates, etcetera, and plastic wraps Metals, aluminum foil, mid single digit cost increases, also cans for sodas and other beverages higher import prices on cheeses, The combination of the product itself as well as some FX strength of some foreign currencies as well as freight, Anywhere from 3% to 10% increases on certain apparel items, not all. In terms of fresh, higher protein prices, For example, meat overall year over year is up 7%. Beef in the last month has been up as much as 20%. Some of that is due to feed and labor and transportation costs, as well as restocking some of the additional increased demand coming now from institutional needs as restaurants start to reopen. And the list could go on and on.
Now all this being said, I was asked back on our March 4th Q2 call At what level we felt inflation was running overall at that time with our goods. I stated that our best guess was somewhere in the 1% to 1.5% range. As of today, we'd guess that overall price inflation at the selling level and excluding our gasoline sales would be estimated to be probably more in the 2.5% to 3 point Some items are up more and some items the sale prices haven't yet changed and some items are even down a little bit. We think we've done pretty well in terms of controlling that as best we can, but the inflation pressures abound. In terms of sampling and demos in the warehouse.
As you all know, we eliminated our popular food sampling and demo activities in our warehouses last March at the onset of the pandemic. As various states opened and closed last summer and fall, we tried a few sampling events, a few single serve items like cookies and crackers, are takeout only, no cooked or prepared sample items and a few enhanced talking demos such as items for display only. I'm happy to report that over the next couple of weeks, we're beginning a phased return to full sampling. This will come in waves. The first wave of locations, about 170 of our 550 ish locations in the U.
S. Will be activated by the 1st week of June, with most of the remaining locations returning towards the near or towards the end of June. The first wave will actually determine how fast we roll out and what and when restrictions are lifted. I'm sure there will be a few states that with unique are lifted. I'm sure there will be a few states that would need restrictions as well.
Increased safety protocols will are and will be in place, including all samples prepared behind plexiglass, prepared in smaller batches for better safety control and distributed to members 1 at a time. Food courts, same thing as well. I'm pleased to report that our food courts are also coming back over the next few weeks in a bigger way. Last March, again, in 2020, as the pandemic took hold, we paired back the menu basically to hot dogs and pizza and soda and smoothies, and We've eliminated all seating, those takeout only. We began several weeks ago adding back tables and seating at a handful of outdoor food courts in a few states.
Over the past few months, we've also added back a few more food items, including bringing back a new and improved churro, which will be at all U. S. Locations by the 4th July And adding a high end soft ice cream to replace our frozen yogurt. And by June 7, we plan to have tables and seating back at most locations, But with more physical separation, tables of 4 instead of 6 and 8 and about half the seating capacity as we had before. Again, these are still subject to are doing this in waves and see how it goes and subject to any additional state rules or restrictions in a few cases.
Finally, in terms of upcoming releases, we will announce our May sales results for the 4 weeks ending this Sunday, May 30, are on next Thursday, June 4th after market closes. With that, I will open up to questions and answers, and I'll turn it back over to Sarah. Sarah?
Your first question comes from the line of Michael Lasser from UBS. Your line is open.
Good afternoon, Richard. You outlined a variety of inflationary pressures that you're seeing in the business. How is this going to impact Taco's gross expect this to be a pressure point, especially as you lap a period of strong gross margin gain given the good sell through last year?
Well, I mean, we'll have of course, Michael, we'll have to wait and see. I mean, our view is, is that while historically we want to be mitigate those increases and work with our vendors and try to be as efficient as possible to lower those pressure points. Some of it will pass through and some of it has passed through. From a competitive standpoint, our view is, is it has not really impacted our margins in any big way. Some of the inflationary pressures, some very simple examples might be things like are $4.99 rotisserie chicken and our $2.99 40 pack of water, those have stayed the same, Notwithstanding there's been some pressure on some cost components of these items.
So those are already impacting our margins a little. And I don't I think overall relative to competition, that's not going to be an impact a big impact of where we go margin wise.
Okay. My follow-up question is on the value of the Costco membership. Amazon is enhancing the value of its membership With more media and content, Walmart continues to focus on the value of its membership offering. Do you think these factors are influencing the pricing power that Costco has to raise the fees associated with either the gold or executive membership. And do you feel like there's been a sharp increase in the value of a Costco membership over the last 4 years, such that as you approach the normal cadence of when you typically raise your fees, you could do it this time again.
Sure. Well, look, we focus first on driving more value. And I would like to think that some of the Benefits that we've had in terms of strong business over the last not only the last year with COVID, certainly we've been helped by the fact that we've been deemed an essential business and The strength in fresh and food items has helped quite a bit as well in buying things for the home. But I think we've gained market share on top of that And that's all about value. I mean, our model is our view is our model is intact as it relates to The best prices on the best quality goods and services and certainly our buying power keeps improving in that regard.
We've added things as it relates to different forms of procuring the merchandise, whether it's in store are big increase like many people with e commerce. Certainly, our acquisition of what's now called Costco Logistics has been a big boon for our we believe for our sales strength and competitiveness in those areas. So we think from a value proposition standpoint, the value of what we offer our members keeps going up. As it relates to fee increases, historically, we've done it about every 5 years. So we would expect now to start getting questions since it's a year before that.
And our answer is pretty straightforward. We'll have to wait and see. But we certainly feel good about are competitive position.
Sounds great. Thank you so much and best of luck. Thanks.
Your next question comes from the line of Simeon Gutman from Morgan Stanley. Your line is open.
Hey, Richard. The core on core, I think you said up 27, and I know you don't guide on this. I just want to ask maybe about the puts and the takes. If you talk about categories that are higher margin that have yet to recover on the positive side. And then on the other side, the spoilage and some other things that helped you last year sort of come back.
So just trying to think, are there more good guys than bad guys and just another way to think about the gross margin core on core going forward?
Sure. Well, there's always different pieces to that equation. As I mentioned, one of the things that we mentioned over the last few quarters was Particularly strong fresh foods margins with higher labor productivity and much lower product spoilage. While again, we're still above where we were pre COVID, it's come down a little from its peak a year ago in Q3, are still nonetheless better than historical numbers. One of the things that I mentioned picked up was non foods.
Again, the strength that we've seen in non foods has continued. It really started in the summer when people buying things for their home. Outside of that, certainly, I would expect on an ancillary business, take a guess out of it for a minute because that goes up and down at with a lot of factors causing it, who the heck knows. Are but at the end of the day, if you look at some of the other ancillary businesses, I would expect to see, of course, margin improvement with optical and hearing aid Relative to a year ago for sure, even in Q4. Same thing with travel.
Travel is coming back as we see on the news every night. Travel is coming back in a big way with the improvement with COVID as well as probably a lot of pent up demand. And we're seeing that ourselves in our travel business. And that's a high margin business, although a small piece of the total sales action for the company. So I think Overall, we seem to figure out how to get there in different ways.
Even something like Costco Logistics that in the last 3 or so quarters, I pointed out it was a 5 to 7 basis point hit to margin. It's finally anniversary some of that and hopefully we'll start to show some improvement. But there's little things like that that might show you a little improvement in the future. So but overall, it gets back to Our ability to price our goods for great value and being competitive and still hopefully improving the bottom line will continue. But will let you know each quarter.
Okay. Sorry about the noise, but one quick question on Inflation, it sounds like maybe other retailers are raising prices, but we're just picking
your prices up and not letting them lag.
So I guess you're seeing the demand staying healthy or you're seeing the environment just irrational all across the board and that's allowing you to take pricing At the same time as the end of cost go
up. Well, look, I think first of all, we look at what we can do with our own blinders on. There's been a lot of CPG companies both in paper goods, soda pop that have announced increases And many of them are sticking because we and other retailers are aware of the underlying costs associated with it. I think we I'd like to think we can do as good a job as any given our purchasing power and limited number of SKUs that can mitigate that as best we can. To the extent that those are happening, the fact that on average, our competitors are taking those probably as fast as not a little faster than us is a positive, but we've taken some price increases on things that have gone up.
Okay. Thanks, Richard.
Your next question comes from the line of Paul Lejuez from Citigroup. Your line is open.
Hey, it's Tracy Kogan filling in for Paul. I had a question about your customer, the Customers that you've gained over the past year during the pandemic. And I was wondering if you could talk about maybe the demographics of that customer and what the repeat purchases have looked like and how their spending might differ from your core group of customers? Thanks.
Right. What's I guess most interesting is, is other than from an age standpoint being a demographic that The next young generation of Gen Z or millennials before that and Gen Y or whatever else, we're getting our share of them. We did see over the as COVID hit, there was of course a spike not only there was a big spike, a big increase with same day fresh delivery in many in most cases with us with our relationship with Instacart and also doing ourselves 2 day dry grocery and some other items. And again, anecdotally, we know that we've that we garnered some additional members that way. On the 2 day, since that is done via mostly UPS, you may have we've gotten some members that are outside of our geographic market areas of fiscal warehouses, but Not a big giant number.
So overall, I think if anything, we've seen our continued strength of adding net new members To existing warehouses, certainly opening new warehouses helps and perhaps getting a few related to The online next day delivery of fresh and things like that. Beyond that, again, when we see who from again from an age demographic, we're getting we think that we're getting our Good share of younger people as we did in previous. That was historically that was sometimes a concern of some on Wall Street. Is this for the older generation? And what we're finding is, as long as we keep changing our product mix to gear towards our To who the member is, in our case, when you see what we've done with organics over the last 10 years or more now and Summer sporting equipment and you name it, we get our fair share of those people.
Great. Thank you.
Your next question comes from the line of Chuck Groom from Gordon Haskett. Your line is open.
Hey, Richard. Inventory dollars were up about 27%, which is much higher than you guys currently run. Are curious if there's any pull forward of items. And I guess, how do you feel about the currency of the position right now?
I think what's interesting is It
was a little
lower last year because we were just being hit with it. And so while we were scurrying to get merchandise in, we would also if you recall back in March early April as We were realizing like everybody else that this was going to last longer. We were starting to cut back where we could seasonal orders and might have reduced our patio furniture needs for the Part of the summer season and some of our Halloween needs and Christmas needs. And then we found out that we needed even more. So probably some of it has to do with the fact that it being a little lower.
And then as what I talked to earlier in this call about front loading and buying early, that's we are happy to have some extra inventory. We clearly have a lot of we have plenty of cash to do that. And certainly, the cost of buying forward a little bit on some of these things is de minimis relative to What we earn on our cash.
Okay, great. That makes sense. And then just on the consumer, curious what you're seeing over the past few weeks I mean, over the past couple of months from a behavior perspective, both frequency into your clubs, basket sizes, particularly in states that are further along in the reopening process?
Well, again, it's hard to figure all of this out because so many things were happening particularly last year in April, May, June timeframe. What we saw is the states that opened a little early, we started seeing a little bit more shopping frequency a little earlier Like Texas and Florida, but not in a meaningful discernible way. Trend wise, yes, but not Like, let's wait for that everywhere. But even in states that have been a little bit more closed, I mean, the U. S.
In particular has opened up quite a bit in the last Month, month and a half, as evidenced by new CDC guidelines and I think the spring weather in general. And so and just to pent up interest in doing that. So I think a lot of that's already in there. In other countries, in Canada, there's still some For much of the last fiscal quarter, and about 38 of the 101 or 2 Costco's in the Canada, one of the main provinces, There was limitations on we had to cordon off non essential items or so non food items. We can only sell food and cleaning supplies and paper goods and health and beauty and the like.
So that but that's even that is I think in a big way pretty much over.
Okay, great. Thanks. And then just last one for me. COVID were down meaningfully here in the Q3. I'd imagine relative to the $281,000,000 that you booked in the Q4 last year, you'd expect them to come down a lot.
Is that a fair assumption for 4Q?
Yes. Yes, again, a big chunk of that is the $2 an hour premium, which has been eliminated. And again, mind you that there'll still be a chunk related to the dollar permanent mostly dollar permanent wage increase that we did.
Got it. Thanks a lot.
Your next question comes from the line Karen Short from Barclays. Your line is open.
Hi, thanks very much. Actually, I'm just following up on that last question. So looking at your sales growth versus your SG and A growth and recognizing that within SG and A dollars, you did still have The $2 for part of the quarter. I mean, it's been it's a much wider gap than we've seen for a long time, like even kind of looking at pre COVID. So I'm wondering if there's anything you could point to on that specifically and how to think about that going forward?
And then I had one other
Sure. I think 1st and foremost, it's sales, it's strong sales. This is a business that We know the benefits the operating leverage we got when we could do a 7% comp instead of a 4% or 5% and Enjoying the comps that we have now, that's the biggest single piece of it. If anything, in the quarter, Health care costs probably were a little higher because people weren't going for their regular doctor visits a year ago in Q3. And so that was probably a little bit of hit.
But What offsets all those types of anecdotal things is strong sales and just Core labor costs.
Okay. And then Gas
as well, Taking gas inflation out of there would reduce that a little bit.
Right. Okay. And then my second question are actually maybe 2 more. With respect to the membership fee, obviously recognizing the value of the membership fee to your members, how are you thinking about timeline on the next possible increase? Just because I think we did anniversary What would be the 5 year mark?
No, actually the 5 year mark is next June.
Okay. And so what's how are you thinking about that philosophically?
Philosophically, I get to think about not thinking about it for several months. No, jokes aside, again, we feel good about our member loyalty needless to say with our renewal rates. We feel very good about are competitive position, but there's we really haven't given it a lot of thought yet.
Okay.
And then just my last question. In terms of Ecom, obviously, you gave us the percent of sales and the growth that doesn't include 3rd party. Can you actually give us a number can you just give us an update on where that stands when you include 3rd party in food?
Yes. I think it's my guess is it's probably not as impactful now. Yes. The 3rd party, most particularly the same day fresh delivery, really peaked last, I want to say May or April, late April. And where it was huge.
And I mean, it was tenfold increase. And it's now probably halved, are still huge relative to pre pandemic, but so it's not as impactful as it was. So again, I think there are a couple of quarters where we had Couple of quarters ago, we had like an 86% comp in e commerce and we said that if you added back the stuff that we don't put in there like same day fresh since Yes, 3rd parties come in and buy it in the warehouse and take it to you. That 86 that 85 or 86 was up towards 100. If you just this is shooting from the hip here, but that was 15 percentage points.
Let's assume it's 5 to 8 percentage points, But certainly not 15.
Okay, great. Thank you.
Your next question comes from the line of John Hakan Buckle from Guggenheim. Your line is open.
Hey, Richard, let me start. POSCO Logistics, where are you guys now with capacity utilization? And where will you be when you add this new facility? And to the degree that costs are coming down, have you yet invested in price? Were you investing more in delivery timetable, quickness of delivery?
Well, we were improving not to say that we don't have A few complaints every day from someone that we screwed something up. But at the end of the day, we're improving in a big way. We actually were aggressive on pricing immediately. It's kind of like when we went into a new country like France or Spain, we're pricing in low volume less efficient departments like Fresh as if we were doing a lot of volume. And so those are examples where it's hurting us to start with as it relates to We're going to price the goods or lower the price of a mattress or a furniture set delivery based on what we can do before we actually do it.
Now that's thankfully catching up for itself with itself. In terms of capacity, it has a lot of capacity. As I mentioned, Right now, about 70% of our big and bulky is now delivered through Crossrail Logistics. Some of it was being delivered by 3rd parties that were doing fine, but now we're doing it ourselves. That business, as I mentioned, is continuing to grow very handily, Not only for us, but industry wide with furniture and things for the home, exercise equipment, TVs and the like.
And We think that we have tremendous capacity available. What we bought was at a capacity of less than 50% of what it had been doing itself a few years before. But again, Those aren't completely you can't completely compare those 2. What we just bought was a huge Facility and acreage that will allow us to do more big and bulky and recognizing so many things come in from overseas and big and bulky And it's again on the West Coast in California. And so it's going to help us continue to grow that business.
We think we have a lot of growth. Way before COVID and more big and bulky and everything else, recall in the U. S. What we saw over the last 5 years, I think it was 5 years ago, we said In just white goods when all we did was sell them in store, we did about $50,000,000 and the year pre COVID, 3 years hence, we did about $750,000,000 or something. We're well beyond that now, both natural growth as well as what COVID has done in terms of people buying things for the home And then us being able to become more competitive on pricing.
We've seen items not across the board, but items where we've lowered the price by 10% 15% or more greatly improved the delivery time and are driving that business.
And then just real quick, lastly, the cold and frozen delivery program, the 2 day program, how is that being fulfilled? And how do you think about that conceptually, right, in terms of consumer uptake versus the dry grocery that you did previously?
It's really too early, John, to tell. We just started that 3 weeks ago and something that are people in that operation wanting to try. In business centers, we think it's something that lend itself well to our business customer needs as well and we'll see.
Thank you.
Your next question comes from the line of Scott Mushkin from R5 Capital. Your line is open.
Hey, thanks for taking my questions. So Richard, I actually wanted to get back at this big and bulky that we were talking about before. Are hoping you can maybe size the opportunity. Obviously, you guys are putting a lot of money into it. What kind of maybe you can give us like what percentage of your sales are in those items now, where do you think it's going to go?
Like how much do you think you can drive sales? I was just wondering if you could do anything to size it, because it's obviously a big focus the company and a big capital investment.
Yes. I don't have that detail in front of me. We're seeing 30% 50% increases on items within some of those categories, Yes, everything from outdoor patio furniture, indoor furniture, to mattresses, to exercise equipment, to TVs along the way.
And is your expectation to bring in more vendors and I don't know how many SKUs you're offering, but they will have more SKUs and how are you thinking about It's your membership base.
Anything on Yes.
I mean, first of all, I think that when we look at our 3 to 5 year plan, we think there'll be outsized growth certainly For the next 3 plus years, we'll see. In terms of adding SKUs, yes, but we're not going crazy. Certainly, there's more SKUs online furniture sets, Sofa and chair sets, we might have 1 or 2 on display sometimes in a warehouse. Will have a dozen or so online. So we are adding both vendor names as well as Additional selection, but still greatly limited relative to the traditional retail of those items.
Perfect. And then my second question is something we've talked about all the time and go at it again. It's just on the openings. I know you said 25 this year 2022 and 25 and 23, I guess. I mean, obviously, our research suggests you guys could do a lot more.
And I know we've talked about the I guess the hard thing of getting the right locations and everything else, but What would it take to get that to 30 to 35 again on a more permanent basis? And is that something you guys would kind of strive to do because it clearly is the market opportunities there?
Hello?
Excuse me, sir. This is the operator. I'm sorry. The line of the speaker got disconnected for a
second.
Should I just hold on? Are
there for a second here.
Okay. So everyone got disconnected?
No, sir. Just the line of the speaker.
Okay.
2nd in a row.
No.
There you are back.
Hi, sorry about that. Scott, let's go back to your question. I apologize.
That's all right. So my question was, I don't know what did you guys hear any of my question or no?
You can start again.
Okay. So basically you said fiscal 2022 2023, 20 25 clubs and 25 clubs. We've talked about this a number of times about Trying to get that number up. Obviously, the market opportunity is there. Can you beef up the real estate department?
Like what's the What's holding you guys back to getting the 30% to 35% again, because it looks like the opportunities there at us with our research?
Well, I think some other countries tend to be a little slower and challenged, But we have beefed it up. That's one of the reasons I think that I went out as far as I did by saying 25 in each of the next 2 years. We feel relatively confident that the all the irons that we have in the fire right now, both U. S. And Canada as well as other parts of the world, we feel good about, we've got a lot of things going on.
Now going from 25 to 35, I'm not sure we're prepared to do that yet. Could we do it? Yes. But Certainly, in some of the countries that are smaller, we like to go slow. And I mean, we picked up the pace in China by now having 2 ready either under construction or getting ready to be under construction and to open over the next 18 months.
And for us, that's faster than we would have gone. And you'll see more announcements both there and elsewhere over the next Few quarters.
Terrific. Sounds like a lot of good growth ahead. Thanks, Richard.
Your next question comes from the line of Rupesh Parikh from Oppenheimer. Your line is open.
Good afternoon. This is actually Erica Eiler on for Rupesh. Thanks for taking our questions. So first, I wanted to touch on your services business. So if we look at travel and optical and food courts, is there any way you can help us frame at this point how much of your service businesses have recovered versus 2019 level?
Well, there's a few different things. I mean, if I look at travel, I think in the last month, we probably had 10 of our top 15 days ever in our history, so even at holiday time in 2019. Part of that again though is to pent up demand. So we'll see where it normalizes out. Right now, both car rentals, we also pivoted And added in addition to while cruises are still down, they're being booked again now, but still down.
We did a big push starting several months ago to negotiate and offer some great deals on other what I'll call U. S, Mexico and Hawaii Type trips, vacation trips. Yes, so bookings, they're not revenue yet, but bookings are particularly strong now. In hearing aid, you had a little bit of the same issue. When they were essentially closed down because of direct one to one contact when you're getting fitted for hearing aid, There was a lot of pent up demand that we've seen and we continue to see, the same with optical.
We think that will continue to be normalized, but we'll have to wait and see. Food courts is probably going to take another several months. Having tables out there will help, expanding the menu will help. And of course, pharmacy didn't really ever see a big dramatic downturn.
Okay, great. And then your food categories have held up really well in spite of lapping the difficult comparisons last year. So maybe just an update on how you're thinking about food at home consumption from here?
Well, I mean Our 40,000 foot view of that is that what was gained because of food away from home stopping a year ago. And while it picked up some with takeout and delivery, it's now starting to improve a little bit. But some of that's going to be sticky. I don't know what the exact number is going to be, but our view is, is that it still certainly hasn't reverted back. Yes, I mean, restaurants are just beginning to open in a bigger way.
In many cases, still people are reluctant to go in. In many cases, the tables are further separated. So some of that's going to continue for the next 6 plus months is my guess. Beyond that, when all is said and done, will some of it still be sticky? Our view is probably.
The fact that we as a company have have done a pretty good job of staying in stock. And certainly the quality of our fresh foods, I think that we not only benefited from that. I'd like to think that we gained market share from other traditional food retailers in that regard, particularly on the fresh side.
Okay, great. Thank you so much.
Your next question comes from the line of Kelly Bania from BMO Capital Markets, your line is
open. Hi, Richard. Thanks for taking our questions. First, just wanted to ask about executive membership, the penetration, I guess, up over 800,000 this quarter. Is this Hi.
As I can see it in our model here, just was curious if that's still happening in a meaningful way in the U. S. Or if there's any other countries and just any color you can provide on that point?
I think the one factor that was a little bit of anomaly is we just in the last year, We expanded executive membership to Japan where we have 29 locations, 28 locations. 29 locations. 29 locations. And including 2 new Japan locations this quarter. And as a company, I think overall, we continue to get better at signing people up as executive members, are telling them what the virtue of it is and doing a better job of having a higher percentage of every 100 new members that sign up as well as converting.
I think within that $817,000 something just under $200,000 was Japan. So even taking that out, I think it was 180 something 1,000. So even taking that out, the 630 or 40 plus is it was still a very strong number for the quarter outside of that.
Okay. That's helpful. And then, just any update on the pickup test that's happening?
It's still a test. We're still just doing it in New Mexico and in three locations. And Yes. The utilization of it, when we first did it, we marketed it a little bit. The utilization has not set the world on in terms of where it's trending.
Okay. Thank you.
Your next question comes from the line of Laura Champine from Loop Capital. Your line is open.
Thanks for that. So Richard, you mentioned the negative impact on renewals from the Chinese store are lapping. Are they renewing at about the same pace that you would normally expect 1st year renewals relative to prior Store openings in new geographies.
Well, one of the unique things if I go back over the last 15 years when we've opened in new countries, You have outsized new sign ups and frankly probably some that are just looking loose and so you have a lower than average renewal rate to start with. When I look back at the 7 or 8 countries outside of the U. S. And Canada, I mean, there's 10 or so. But what we've seen is that instead of in the U.
S. Or Canada, we might add anywhere from 5000 to 20000 members in the 1st year, recognizing in some of these are existing markets, so you've got people shopping more often because they're close to the new opening. We've enjoyed in Korea, Taiwan, Japan and even more so in China, 50,000 to 100,000 new members sign ups when we open up. And then a year later, a year and a half later, when they're renewing when that first batch is renewing for the first time, to get to that 88 plus worldwide renewal rate and the 90.1% in the U. S.
And Canada. It starts off, it could be anywhere from the are high 50s to the mid 60s in that 1st year. And I don't have in front of me what China is, But China is also outsized in that regard. I think we have close to 400,000 members in that one location. Remind you, it's a very large city and Costco entered is a well known entity, notwithstanding the fact that it was our first one.
So for all those reasons, it alone affected that worldwide renewal rate. We're not surprised. And by the way, even whatever renewals, non renewals we've that have been incurred, We've gotten more than that in terms of new sign ups. I think at the end of about 3 months after we opened in China, which was August of 2019, We had around 300,000 members and I think now we have about 400,000. So even if we've lost a bunch, we've gained a bunch plus some more.
Understood. And then secondly, on the roughly 30 basis points decline in core margins on an ex gas basis, You mentioned that that is related in part to the sales shift back to lower margin ancillary business. Was this the quarter where you're lapping the most stream move away from ancillary or is it are we likely to see a similar impact as we move through the year?
I think Q3 was probably the most. It will still be impactful in Q4, probably not as much.
Got it. Thank you.
Your next question comes from the line of Greg Malek from Evercore ISI. Your line is open.
Hi, thanks. I have two questions. First on e commerce and multi channel. Do you have an update on the penetration now for e commerce? Is it to 10% or close?
And what are you seeing in terms of the Percentage of members that use multi channel and what their renewal rates look like if they're any different.
First of all, in terms I think it's about 7.5 or 8 And part of that is the huge strength in gas.
Got it.
And what was the other part of the question, Greg?
The part of that was just for people that like what percentage of members actually use multi channel offering, like used either 2 Day or Instacart, is it majority that have used it? And then what do their renewals look like once they've used you in multiple channels.
Okay. Somewhere around 45% of our members have used e commerce And the renewal rate is slightly better. I'm not talking about new members that signed up that have just used e commerce. I'm talking about just How many existing members have used e commerce?
Got it. No, that's great. Thanks. And then the second question was on gasoline. I just want to make sure I got this right.
Do you have a number for what the gallonage growth was? And if penny profit was up or down? I think I know it hurts the mix, but just where we are on that cycle right now with gas inflation?
Yes. Dollar profits were down because we had a it was interesting. Now we're saying the fact that If you think back again in the Q3 last year, it was mid February effectively to mid May. The first 3 to 4 weeks of that, there was a frenzy. It was either pre COVID or the frenzy of people hoarding and everything.
So gas was pretty strong in those 1st few weeks. Then it plummeted. And but not withstanding the fact that it plummeted, pricing was less competitive. So we had a very strong P and L as I think I'm sure I mentioned last year in the quarter, it was particularly strong. We had a fine Gas profit this quarter, but last year was fine with a capital F.
And so the pressure on any penny profit that you can get when gallons are recovering, I mean, gallons are recovering now? Are we at that stage?
Yes, very much so.
Okay. And what's do you have a number that you can give us in the quarter?
I have one I cannot give you. No, I can't. Gas has been for those of you who've known us for many years, gas used to be a business that on a given day or week on a fully allocated P and L could actually lose a little or all the way to make a lot and it would be very volatile. In a matter of a week or 2, it could switch from the top to the bottom there. The normal over the last few years has been it is a profitable business and there's still some outlying are big profitable days and a lot more days that are just regularly profitable.
But the fact that it's coming up and the fact that it is are probably overall a little less competitive out there, but that's not just in the last few weeks, that's been over the last year.
Last few years.
Okay, great. Thanks and good luck.
Your next question comes from the line of Robert Musko from Credit Suisse. Your line is open.
Hi. Thanks for the question. I wanted to know, do you have any data you can share about the demographics or income levels of the new members that you've picked up in the past year? Is it trending any differently than your typical new member growth? Is it younger?
I think Tracy kind of asked this question already, but I wonder if you had any specifics. And then lastly, I wanted to know, do you think you got any benefit this quarter from consumers having just more money in their pocket from stimulus payments or is that not really characteristic of your membership?
I don't have any economic average income demographics in front of me. I know when we look at new member sign ups currently versus a year ago versus 2 3 years ago, we still are getting our share of younger people, maybe a little younger than that right now simply because of e comm and what have you has helped a little bit on that area, but nothing disturbingly different. As it relates to were helped when we looked at things in the past as it relates to some unusual stimulus, our view is, is we haven't seen are as big a benefit as some of the other discounters or general merchandise discounters have seen, but it can't hurt. So my guess is it certainly has probably helped us some, but not as much as others.
It probably helped a little, not a lot. Okay. Yes. Thanks a lot. Bye.
Your next question comes from the line have Peter Benedict from Baird. Your line is open.
Hey, Richard. First question, The sourcing challenges around the pandemic, I'm just curious any updated thoughts you have on your vertical sourcing initiatives, anything being sped up or slowed down, just what's your latest update on that?
Yes. Well, look, I mean, in a big way, I think the fact that we've got 2 meat plants and a chicken plant and a bakery commissary and a couple of Optical Grinding Labs, if anything, those things have helped us a little bit. They're at full production in a big way. When feed costs go up, in the chicken plant, for example, we go out somewhat with feed costs, but I'm sure we don't hedge ourselves are completely in either directions, but we've done a pretty good job of managing those costs. And Okay.
Yes, go ahead. But nothing major there. And then what was the other question?
No, yes, I was just wondering if you've accelerated any initiatives that you maybe had in the pipeline given what you've seen in COVID or if there's been any maybe new areas of the business that you maybe weren't considering vertical before, but maybe now you are.
Yes. I think the big one that has again That has surprised us in the sense that we think there's lots of opportunity there is the whole Costco logistics side. From a variety of reasons, not only handling it ourselves and controlling the destiny of delivery times, but actually Yes, there's a number of items that we historically have drop shipped, if you will. The supplier carries the inventory, the supplier sends it. Needless to say, there's a cost associated with that.
As we get bigger and higher volume and do some of those things direct, we're able to basically improve the delivery time and lower the price and we've seen that. And then we're getting better at installation. That's something that we will continue to improve on as well. So I think that's probably the one area. I don't There's nothing currently planned in terms of the next big chicken plant, if you will.
There is There's going to still be significant money spent on fulfillment and distribution and logistics, as I just mentioned earlier about our CapEx. Beyond that, there was one other thing I was going to mention, which I can't remember now. Why don't we take 2 more questions?
No worries. Richard, just one follow-up on self checkout. That effort you have, how penetrated is that across the chain right now? And What's been the member feedback? Are you guys pleased with the service you're giving there?
Obviously, volumes are really high for the club. So just curious on that. Thank you.
So, Shack out works. It's in 90 plus percent of our warehouses. I've seen locations where we started with 6 2 stacks of 3 and now we're at 9 and 12 in a couple of locations. So it's working. Certainly, the customer likes it And it improves the frontline and service.
So and it's cost efficient.
Okay, great. Thanks so much.
Your next question comes from the line of Scot Ciccarelli from RBC Capital Markets. Your line is open.
Hi. This is Jake Chinitz On for Scott. Thanks for fitting us in. I know you've done a couple of things to stay more in touch with members, especially on the e commerce side, for example, building a database of updated member emails. So can you just give us an update where that may be from a progression standpoint and any results you've seen from that?
Well, I think we're improving and a lot of the improvement we're doing in terms of a better mobile site and better service to our members and ability to communicate to our members. Hold on one second here. In the last quarter I'm sorry, in the last year, we've gone We think the number of emailable addresses by 24%. And we're seeing higher conversion rates, as I mentioned already. And we're doing more things in the warehouse with to drive traffic online as well.
So I think all those things are working And we'll continue to improve our mobile. I'll make a point on the next earnings call to talk about. I mentioned on Q2 earnings call, There were kind of like 3 phases of upgrades to our mobile site starting in September and then over the next 6 or so months after that, I'll make a point of pointing some of those things out, recognizing some of those things others have been doing and we're just getting around
to do. Why
don't we take one more question and that'll be it. Your
last question, sir, comes from the line of Edward Kelly from Wells Fargo. Your line is open. Excuse me, Mr. Edward Kelly, your line is open. You may ask your question.
Hey, guys. Sorry, I was on mute. So thanks for squeezing me in here. Just first one for you, Richard, on timing of next openings in China. Any more detail on when that next door is going to open?
And then you talked about good news coming on pace of maybe opening beyond that. Thoughts on the potential to accelerate there now that you've had that first door open for a while?
Well, yes. I mean, our view originally was we'd open 1 and even before that opening, We don't by where would it be $0.05 maybe we'd have $0.03 And my guess is today, we'll shoot for a number a little bigger That maybe 4 or 5. But there's a lot of there's a few irons in the fire over there, but those are the 2 that are signed, sealed and under construction.
And the next opening, when is that scheduled for?
I believe the fall hold on a second.
Yes. Where?
Late next summer? Late next
summer. Calendar 2020. Calendar 2020. Calendar 2020. Calendar 2020.
Great. Calendar 2022, which would be Q1 of
Got you. Okay. And then just one for you on your business customer. Just remind us of your Business customer mix. And then, what are you seeing in that customer as things start to recover?
Do you think there's any permanent damage to that business at all? Or do you expect it to just sort of come back with reopen?
Look, there's fewer businesses. I mean, yes, I think one of the things that recognized has changed over our 30 are 7 years or so in business. If you go back in the 1st few years, it was probably 70fivetwenty 5 or 80twenty business to consumer. And consumers were buying a lot of institutional business items. Today, arguably, while we're still a wholesaler and certainly business members are important to us, It's probably 75%, 25% the other way, 75% consumer.
And recognize one of the reasons we've done our business centers to focus more on that as well. In fact, I think all three openings in Canada this coming quarter or this past quarter are business centers. And our deliveries are starting to come back. Look, at the end of the day, I don't have the statistics in front of me, but if there were for every 100 small restaurants, be it a food truck or takeout or ethnic. I don't know how many of them closed, probably not a lot, but it was a 10 or 20, I don't know.
And the others are coming back. So There's probably a little bit of detriment there. And as I mentioned earlier though, our view is that we think some of business not just in the food area will be sticky to us as well.
Great. Thank you.
There are no questions at this time, sir. You may continue.
I would like to just say one last thing. At the end of the call, before opening it for Q and A, I mentioned that our May sales release for the 4 weeks ending May 30 would be on Thursday, June 4th. It's actually Thursday, June 3rd. So thanks for that correction. Thank you, everyone, and have a good day.