01—Abstract
Summary
Summary of the 10-K filed October 18, 2010. Cited figures are marked; the original filing is the authoritative source.
Costco Wholesale Corporation (COST) reported strong performance for the fiscal year ended August 29, 2010, with net sales increasing 9.1% to $76.3 billiona, driven by a 7% rise in comparable store sales and the opening of new warehouses.
The company highlighted a 10.3% increase in membership fees to $1.7 billionb, benefiting from higher penetration of its Executive Membership program and a solid renewal rate of 88%. Net income saw a significant 20% jump to $1.3 billion, translating to diluted earnings per share of $2.92, up from $2.47 in the prior year. Costco's business model, characterized by low gross margins, high sales volume, and efficient operations, proved resilient amidst economic challenges.
The company continued its expansion, planning for approximately 31 new warehouses in fiscal year 2011. Capital expenditures are expected to be around $1.6 billionc, funded primarily through operating cash flows and existing cash reserves. The company also continued its share repurchase program, demonstrating a commitment to returning value to shareholders.
02—Key points
Key Highlights
- Net sales grew 9.1% to $76.3 billion, driven by a 7% increase in comparable store sales.
- Membership fees increased by 10.3% to $1.7 billion, boosted by Executive Membership penetration.
- Net income rose 20% to $1.3 billion, with diluted EPS reaching $2.92.
- The company opened 13 net new warehouses in fiscal year 2010 and plans for approximately 31 new openings in fiscal year 2011.
- Costco repurchased approximately $568 million of its common stock during the fiscal year.
- The quarterly cash dividend was increased by 14% to $0.205 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Costco Wholesale Corp kept $0.02.
- Revenue$77.95B100.0%
- Cost of revenue−$68.00B87.2%
- Gross profit$9.95B12.8%
- Operating costs−$7.87B10.1%
- Operating income$2.08B2.7%
- Interest, other & tax−$774.0M1.0%
- Net income$1.30B1.7%
Where FY2010 revenue went
$77.95B- Cost of revenue: $68.00B, 87% of revenue
- Net income: $1.30B, 1.7% of revenue
- SG&A: $7.85B, 10% of revenue
- Interest, other & tax: $774.0M, 1.0% of revenue
Kept 1.7% as net incomeNet income $1.30B · 1.7%Interest, other & tax $774.0M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed October 18, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $77.95B$71.42B | +9.1% |
| Cost of Revenue | $68.00B$62.34B | +9.1% |
| Gross Profit | $9.95B$9.09B | +9.5% |
| SG&A Expenses | $7.85B$7.25B | +8.2% |
| Operating Income | $2.08B$1.78B | +16.9% |
| Interest Expense | $111.00M$108.00M | +2.8% |
| Net Income | $1.30B$1.09B | +20.0% |
| EPS (Basic) | $2.97$2.50 | +18.8% |
| EPS (Diluted) | $2.92$2.47 | +18.2% |
| Shares Outstanding (Basic) | 438.61M433.99M | +1.1% |
| Shares Outstanding (Diluted) | 445.97M440.45M | +1.3% |
05—Questions
Frequently Asked Questions
What is Costco's primary business strategy?
Costco's strategy is to offer members low prices on a limited selection of high-quality, nationally branded, and private-label products. This is achieved through high sales volumes, rapid inventory turnover, efficient distribution, and no-frills warehouse operations, allowing for lower gross margins than traditional retailers.
How has the economic environment affected Costco's performance?
While general economic conditions negatively impacted customer spending in 2009 and 2010, Costco believes its business model is well-positioned to compete. The company has adapted by adjusting pricing and merchandise mix and maintaining its 'pricing authority' perception among members.
What is Costco's approach to international expansion?
Costco operates warehouses internationally and plans to continue expanding in foreign markets. The company notes that its rate of square footage growth is higher in foreign markets due to their smaller base and expects this trend to continue. International operations are subject to various country-specific risks but contribute to overall growth.
How does Costco manage its inventory and vendor relationships?
Costco buys the majority of its merchandise directly from manufacturers and uses depots for efficient consolidation and distribution. This high turnover means inventory is often sold before payment is due to vendors. The company has direct buying relationships with many suppliers and does not rely heavily on any single supplier, mitigating supply chain risks.
06—Continue