Gary Millerchip
Executive Vice President and Chief Financial Officer at Costco Wholesale
Thanks, Ron. In today's press release, we reported operating results for the first quarter of fiscal 2025, the 12 weeks ended November 24. We have once again published a slide deck on our investor site under Events and Presentations, with supplemental information to support today's press release. You might find it helpful to have this presentation in front of you as I walk through our results.
Net income for the first quarter came in at $1.798 billion or $4.04 per diluted share, up from $1.589 billion or $3.58 per diluted share in the first quarter last year. This year's results included a tax benefit of $100 million or $0.22 per diluted share, related to stock-based compensation. And last year's results included a tax benefit of $44 million or $0.10 per diluted share also related to stock-based compensation. Excluding these discrete tax items, net income and earnings per diluted share grew 9.9% and 9.8% respectively.
Net sales for the first quarter was $60.99 billion, an increase of 7.5% from $56.72 billion in the first quarter last year. US comparable sales were up 5.2% or 7.2% excluding gas deflation. Canada comp sales were up 5.8% or 6.7% adjusted for gas deflation and FX. And other international comp sales were up 4.7% or 7.1% adjusted. This all led to total company comp sales of 5.2% or 7.1% adjusted for gas deflation and FX. Finally, e-commerce comp sales were up 13% or 13.2% adjusted for FX.
In terms of Q1 comp sales metrics, foreign currencies relative to the US dollar negatively impacted sales by approximately 0.3%, while gas price deflation negatively impacted sales by approximately 1.6%. Traffic or shopping frequency increased 5.1% worldwide and 4.9% in the US. Our average transaction or ticket was up 0.1% worldwide and 0.3% in the US. This includes the headwinds from gas deflation and FX. Adjusted for those items, ticket would have been up 2% worldwide and up 2.3% in the US.
Moving down the income statement to membership fee income. We reported membership fee income of $1.166 billion, an increase of $84 million or 7.8% year-over-year. Membership fee income growth was also 7.8% excluding FX. Remember that the recent membership fee increase doesn't have much impact yet due to the effects of deferred accounting and represented less than 1% of the fee growth in the quarter.
In terms of renewal rates, at Q1 end, our US and Canada renewal rate was 92.8%, down 0.1% from Q4 end. The worldwide rate came in at 90.4%, also down 0.1%, primarily due to the US and Canada. As we mentioned on the last quarterly earnings call, our renewal rates are seeing some impact from higher growth in digital sign ups, which renew at a slightly lower rate than our base as a whole. Underlying renewal rates and membership growth remain strong, but this mix shift is likely to have a continued effect on our published renewal rate for the remainder of 2025. We ended Q1 with 77.4 million paid household members, up 7.6% versus last year and 138.8 million card holders, up 7.2% year-over-year. At Q1 end, we had 36.4 million paid executive memberships, up 9.2% versus last year and executive members now represent 46.8% of paid members and 73.1% of worldwide sales.
Turning to gross margin, our reported rate in the first quarter was higher year-over-year by 24 basis points, coming in at 11.28% compared to 11.04% last year and up 7 basis points excluding gas deflation. Core margin was higher by 31 basis points and higher by 17 basis points without gas deflation. This was driven by mix and our credit card co-brand program.
In terms of core margins on their own sales, our core-on-core margins were higher by 3 basis points. Ancillary and other businesses gross margin was lower by 12 basis points and lower by 16 basis points ex-gas deflation. This decrease year-over-year was largely due to gas, partially offset by e-commerce. 2% reward was lower or better by 5 basis points or 6 basis points without gas deflation. And LIFO was flat for the quarter. We had a $19 million LIFO credit in Q1 this year compared to a $15 million credit in Q1 last year.
Moving on to SG&A, our reported SG&A rate in the first quarter was higher year-over-year by 14 basis points, coming in at 9.59% compared to last year's 9.45%. SG&A was flat adjusted for gas deflation. The operations component of SG&A was higher or worse by 15 basis points and higher 4 basis points excluding gas deflation. Higher employee wages that went into effect in July drove the headwind for the quarter, partially offset by sales leverage and productivity gains. As always, investing in our employees remains a key part of our strategy, and we will continue to focus on driving top-line sales and improving productivity to mitigate the incremental costs. Central was higher or worse by 5 basis points and 3 basis points without gas deflation. Stock compensation was lower or better by 2 basis points and 3 basis points without gas deflation and preopening costs were lower or better by 4 basis points both with and without gas deflation.
Below the operating income line, interest expense was $37 million versus $38 million last year and interest income was $96 million versus $154 million last year. As mentioned in our Q4 earnings, interest income faced headwinds in the quarter due to lower cash balances subsequent to our special dividend in January 2024 and lower interest rates. This will continue to negatively impact year-over-year compare in Q2. FX and other was $51 million gain in Q1 this year versus a $6 million gain last year. This gain offset much of the headwind we saw in interest income in the quarter and was primarily due to FX.
In terms of income taxes, our tax rate in Q1 was 22% compared to 24.5% in Q1 last year. As mentioned earlier, this year's rate benefited from a $100 million discrete item related to our annual RSU vesting. Adjusted for this benefit, the tax rate for the quarter would have been 26.5%.
Turning now to some key items of note for the quarter. Ron talked earlier about our continued momentum with new warehouse openings and capital expenditure in Q1 was approximately $1.26 billion. We estimate capex for the full-year will be approximately $5 billion.
Taking a deeper look into core merchandising sales, Fresh led the way in Q1 with comparable sales up high-single-digits. Meat was up double-digits and demonstrated strength across the department. We have members who are continuing to purchase high-ticket premium cut selections and others who are gravitating more towards lower cost per pound options. As always, our focus remains on delivering exceptional quality and value across every item we sell in fresh.
Our non-foods category was also up high-single-digits despite some impact from the calendar shift. As our buyers continue to bring in new and exciting items at great values. Golden jewelry, gift cards, home furnishings, sporting goods, health and beauty aids, luggage, kiosk and hardware were all-up double-digits. This quarter, we were able to add several new high-quality brands across a broad range of categories, including Peloton, Wrangler, Springfree Trampolines and Ruggable.
Food and sundries had mid-single-digit comps with our cooler and frozen food departments leading the way. We continue to see strong momentum with new and exciting international food items such as Synear pork soup dumplings, Sona Masoori rice and Hot Pot beef sliced chuck rolls. Kirkland Signature continues to grow at a faster pace than our business as a whole. Our goal is always to be the first to lower prices where we see the opportunities to do so. And just a few examples this quarter include Kirkland Signature organic peanut butter reduced from $11.49 to $9.99, Kirkland Signature Chicken stock from $9.99 to $8.99 and Kirkland Signature Sauvignon Blanc from $7.49 to $6.99.
Our merchants are also driving innovation with Kirkland's Signature. Most notably this quarter, we introduced new Kirkland Signature Oxi Powder and Kirkland Signature food storage bags, both offering significant value for the national brand alternatives.
Within ancillary businesses, pharmacy had the strongest sales growth. Our focus continues to be on keeping prescription and OTC prices low, while also leveraging technology to make it easier for our members to use our pharmacy. Recent examples include the introduction of new prescription inventory management software to better stay-in stock and enabling delivery of prescriptions via Instacart.
Our food court and optical departments also performed well in the quarter. Gas sales were negative low-double-digits due to the average price per gallon being down low-double-digits.
Costco travel is another way we deliver unique membership value and these services continue to resonate well with our members. We offer a wide range of vacation packages, car rentals, cruises, hotels, flights and other travel-related services. And in addition to highly attractive rates, many of our offerings include a Costco shop card as extra value for booking with Costco. A couple of fun facts about our travel business. Last year, we sold enough rental cars to fill every US Costco parking spot 8.5 times. We also offer great value to members on cruises and our largest cruise booking last year was a 150 day around the world cruise, starting from Fort Lauderdale and making stops in places like the Galapagos and Easter Island. The total price was $293,000 for two in the owner's suite cabin and added values on the booking included a shipboard credit of $13,000 and the Costco shop card worth $25,000. Members who use Costco travel spend approximately twice as much as members that do not use these services.
Inflation was once again essentially flat in the quarter across all core merchandise. Food and sundries and fresh foods were slightly inflationary and this was offset by deflation in non-foods. In the supply chain, while egg supplies have been negatively impacted by avian influenza and the recent East Coast port strikes led to a spike in paper and water product demand, overall product supply has generally been good. The predictability of on-time shipping delivery remains below pre-COVID levels and items are generally spending more time on the water. Our merchants have adapted well to this change and we are in a great position with inventory for the holidays. As we head into Q2, we continue to monitor for potential port strikes in India, the East Coast and Canada, and our merchants are adapting plans as necessary to ensure we remain in stock for our members.
Turning to digital and e-commerce, we continue to make progress with our technology roadmap and enhancements made to the member experience like the ability to check warehouse inventory via the Costco app are resonating well. Our US app was downloaded 2.9 million times in the quarter, bringing total downloads to approximately $42 million. E-commerce traffic, conversion rates and average order value were all-up year-over-year, helping to drive another strong quarter of comparable sales growth. While strength in volume was a meaningful tailwind to e-commerce sales, hardware, sporting goods, gift cards and home furnishings all grew double-digits year-over-year.
As Ron mentioned earlier, Costco Logistics also had another great quarter driving growth in big and bulky items. And Costco Next, our curated marketplace achieved record sales over the Thanksgiving, Black Friday and Cyber Monday sales period.
In closing, let me provide a brief update on retail media. To use a baseball analogy, we are very much in the early innings with retail media, but we continue to believe this represents a significant growth opportunity in the future. This quarter, we completed our first targeted media campaign through third-party media channels with one of our largest CPG partners. The campaign achieved two to three times the return on ad spend typically expected, highlighting the value we can create for our members and suppliers. Our retail media team is now working with over 25 suppliers who are eager to participate in our next wave of off-site campaigns.
And finally, in terms of upcoming releases, we will announce our December sales results for the five weeks ending Sunday, January 5, on Wednesday, January 8, after market close.
That concludes our prepared remarks and we'll now open the line-up for questions.
