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certain warehouses originally scheduled for the first quarter is expected to cause second quarter preopening expense to rise. Overall, we believe that Costco will report both an operating and a pretax profit in the period ended February 23, 1986 significantly above that of the first quarter of fiscal 1986. For the full year of fiscal 1986, Costco plans to open 11-to-14 warehouses. We believe that the company's net sales of warehouses will amount to $775-to-$850 million, while membership fees will approximate $13-to-$15 million. Therefore, total revenue is expected to range from $788-to-$865 million, up 112.5%-to-132.7% from fiscal 1985. Given the factors impacting the gross margin (as discussed above), we estimate that the gross margin for the full year of fiscal 1986 will decline slightly rjr at best remain flat with the 11.21% gross margin reported in fiscal 1985. We believe that this is in line with plan. It is important to note that under these projections, gross profit should increase at a rate roughly equivalent to that of total revenues. Favorably, the rising volume from maturing warehouses is expected to cause both S,G&A expense and preopening expense to decrease as a percentage of sales. Thus, we believe that Costco will report an operating profit of $7.25-to-$10.55 million in fiscal 1986, compared to ar, operating loss of $3.263 million in fiscal 1985. Deferred compensation will drop substantially this year, to $50,000 from last year's $1.292 million. Furthermore, interest expense is expected to decline from fiscal 1985's $2.058 million to about $900,000, largely due to the conversion of the 11.5% convertible subordinated note held by Carrefour S.A. into common stock. Reflecting the higher cash balance as a result of the initial public offering, interest income is projected to amount to $1.2-to-$1.4 million, up from $885,000. Therefore, pretax income should swing from a $3.263 million deficit in fiscal 1985 to a $7.5-to-$11.0 million profit in fiscal 1986. Tax loss carryforwards and investment tax credits are expected to offset virtually all of fiscal 1986's tax liability, so that net income is projected to also equal $7.5-to-$11.0 million. Based on 24.63 million shares outstanding, earnings for fiscal 1986 are estimated at $0.30-to-S0.45 per share. PRELIMINARY EARNINGS PROJECTION FOR 1987 AND BEYOND In fiscal 1987, Costco's management plans to again open about 11-to-14 warehouses. With the addition of these units and the increasing volume projected from existing units, net sales of warehouses are expected to increase to approximately $1.3-to-$1.5 billion, representing a year -over -year gain of 67.7%-to-76.5%. Since the group fee program will have been inaugurated in all but the recently opened warehouses by the end of fiscal 1986, membership fees are estimated to rise at a lower rate to $19.0-to-$21.0 million. It should be noted that this estimate is conservative, due to the potential revenue from the new Gold Card group membership program. Gold Card members pay a higher annual fee but not the 5% surcharge incurred by regular group members. However, given its recent introduction, it will be several quarters before this program's impact can be more accurately assessed. Total revenues for fiscal 1987 should thus approximate $1.319-to-$1.521 billion. The gross margin is projected to decline further, to 10.8%-to-11.0%. However, we believe that gross profit will again increase at a rate about in line with the sales gain. As in fiscal 1986, the percentages to total revenues of S,G&A expense and preopening expense are expected to decrease during fiscal 1987. In our estimation, Costco will report operating profit in the $23.0-to-$31.8 million range in the year ending August 31, 1987, up over. 200% from our estimated figure for this year. With deferred compensation remaining at $50,000 and interest expense projected to approximately equal interest income, pretax income in fiscal 1987 should also rise about 200% to $23.0-to-$31.8 million. Assuming a 46% tax rate, net income is estimated at $12.40-to-$17.15