10-KPeriod: FY2010

COSTCO WHOLESALE CORP /NEW Annual Report, Year Ended Aug 29, 2010

Filed October 18, 2010For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported strong performance for the fiscal year ended August 29, 2010, with net sales increasing 9.1% to $76.3 billion, 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 billion, 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 billion, 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.

Financial Highlights

49 data points
Beta

Revenue

$77.95B

12.8% Gross Margin

Net Income

$1.30B

1.7% Net Margin

EPS (Diluted)

$2.92

Total Assets

$23.82B

Cash & Equivalents

$3.21B

Free Cash Flow

$1.73B

Financial Statements
Beta
Revenue$77.95B
Cost of Revenue$68.00B
Gross Profit$9.95B
SG&A Expenses$7.85B
Operating Income$2.08B
Interest Expense$111.00M
Net Income$1.30B
EPS (Basic)$2.97
EPS (Diluted)$2.92
Shares Outstanding (Basic)438.61M
Shares Outstanding (Diluted)445.97M

Key Highlights

  • 1Net sales grew 9.1% to $76.3 billion, driven by a 7% increase in comparable store sales.
  • 2Membership fees increased by 10.3% to $1.7 billion, boosted by Executive Membership penetration.
  • 3Net income rose 20% to $1.3 billion, with diluted EPS reaching $2.92.
  • 4The company opened 13 net new warehouses in fiscal year 2010 and plans for approximately 31 new openings in fiscal year 2011.
  • 5Costco repurchased approximately $568 million of its common stock during the fiscal year.
  • 6The quarterly cash dividend was increased by 14% to $0.205 per share.

Frequently Asked Questions

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.

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.

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.

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.