10-KPeriod: FY2012

COSTCO WHOLESALE CORP /NEW Annual Report, Year Ended Sep 2, 2012

Filed October 19, 2012For Securities:COST

Summary

Costco Wholesale Corporation's 2012 Form 10-K details a financially robust year characterized by strong sales growth, driven by a 7% increase in comparable store sales and the successful integration of its Mexico operations. The company demonstrated effective cost management, with selling, general, and administrative expenses improving as a percentage of net sales. Membership fees saw a healthy increase, reflecting growth in member base and a recent price adjustment. Profitability improved, with net income rising by 16.9% and a corresponding increase in diluted earnings per share. Costco also continued its commitment to shareholder returns through dividends and share repurchases, while strategically investing in its global warehouse network. Key operational highlights include the full consolidation of Costco Mexico following the acquisition of the remaining 50% interest, which is expected to contribute to future growth. The company's membership model remains a cornerstone of its business, with high renewal rates indicating strong member loyalty. Strategic investments in technology and operational efficiencies are evident, positioning Costco for continued success in a competitive retail landscape. The report also addresses various risk factors, including competition, economic volatility, and operational challenges, underscoring the company's proactive approach to risk management.

Financial Highlights

49 data points
Beta

Revenue

$99.14B

12.4% Gross Margin

Net Income

$1.71B

1.7% Net Margin

EPS (Diluted)

$3.89

Total Assets

$27.14B

Cash & Equivalents

$3.53B

Free Cash Flow

$1.58B

Financial Statements
Beta
Revenue$99.14B
Cost of Revenue$86.82B
Gross Profit$12.31B
SG&A Expenses$9.52B
Operating Income$2.76B
Interest Expense$95.00M
Net Income$1.71B
EPS (Basic)$3.94
EPS (Diluted)$3.89
Shares Outstanding (Basic)433.62M
Shares Outstanding (Diluted)439.37M

Key Highlights

  • 1Net sales increased by 11.5% to $97.1 billion, driven by a 7% rise in comparable warehouse sales.
  • 2Membership fees grew by 11.1% to $2.1 billion, supported by member growth and recent fee increases.
  • 3Net income attributable to Costco increased by 16.9% to $1.71 billion, resulting in diluted EPS of $3.89.
  • 4Costco fully consolidated its Mexico operations after acquiring the remaining 50% joint venture interest for $789 million.
  • 5Selling, general, and administrative expenses improved by 17 basis points as a percentage of net sales.
  • 6The company repurchased approximately $617 million of its common stock during the fiscal year.
  • 7Capital expenditures of $1.48 billion were made, primarily for new and remodeled warehouses, indicating continued investment in growth.

Frequently Asked Questions

Costco reported a 7% increase in comparable warehouse sales for the fiscal year ended September 2, 2012. This was broken down into a 7% increase in the U.S. and a 6% increase internationally. Excluding the impact of gasoline price inflation and foreign currencies, comparable sales increased by 6% overall.

In July 2012, Costco acquired the remaining 50% interest in Costco Mexico for $789 million. As a result, Mexico's operations are fully consolidated in the financial statements for fiscal years 2011 and 2012. Prior to fiscal 2011, Mexico's results were accounted for under the equity method. The consolidation increased total assets, liabilities, and revenue, and the non-controlling interest's share of Mexico's net income is reported separately.

Costco's strategy focuses on high sales volume and rapid inventory turnover to maintain low prices. They achieve operating efficiencies through volume purchasing and reduced handling in no-frills warehouses. While they aim to absorb some merchandise cost increases to maintain perceived 'pricing authority', they also manage selling, general, and administrative (SG&A) expenses closely, which improved as a percentage of net sales in fiscal 2012. Investments in private label brands like Kirkland Signature are also key to differentiating and managing margins.

Costco accounts for membership fee revenue on a deferred basis, recognizing it ratably over the one-year membership period. In late 2011 and early 2012, annual membership fees were increased by $5 for most members (to $55) and for Executive Members (to $110). These increases had a positive impact of approximately $37 million on membership fee revenue in fiscal 2012 and are expected to contribute approximately $121 million in fiscal 2013. Membership renewal rates remained strong at approximately 89.7% in the U.S. and Canada and 86.4% worldwide.