01—Abstract
Summary
Summary of the 10-K filed October 11, 2019. Cited figures are marked; the original filing is the authoritative source.
Costco Wholesale Corporation's 2019 10-K filing reveals a company demonstrating steady growth and operational efficiency.
The company reported an 8% increase in net sales, reaching $149.35 billiona, driven by a 6% rise in comparable sales and contributions from new warehouse openings. Membership fee revenue also saw a healthy 7% increase, underscoring the loyalty and value proposition offered to its member base, with global renewal rates remaining robust at 88%. The company continues to execute its growth strategy by opening new warehouses, including its first in China, and investing in its e-commerce capabilities.
Financially, Costco maintained strong operational control, with selling, general, and administrative expenses as a percentage of net sales showing only a marginal increase. The effective tax rate significantly decreased due to the Tax Cuts and Jobs Act, contributing to a 17% increase in net income, which reached $3.66 billionb, or $8.26 per diluted share.
The company also returned capital to shareholders through increased dividends and initiated a new $4 billionc share repurchase program, signaling confidence in its financial health and future prospects. The company also successfully remediated a previously identified material weakness in internal IT controls.
02—Key points
Key Highlights
- Net sales grew 8% to $149.35 billion in fiscal year 2019, driven by a 6% increase in comparable sales and new warehouse openings.
- Membership fee revenue increased by 7% to $3.35 billion, demonstrating strong member retention with a worldwide renewal rate of 88%.
- Costco opened 25 new warehouses, expanding its global footprint, including its first location in China.
- Net income increased by 17% to $3.66 billion, and diluted earnings per share rose to $8.26.
- The effective tax rate decreased to 22.3% in 2019 compared to 28.4% in 2018, largely due to the Tax Cuts and Jobs Act.
- The company declared a 17% increase in its quarterly cash dividend to $0.65 per share and authorized a new $4 billion share repurchase program.
- Internal control over financial reporting was deemed effective as of September 1, 2019, with a previously identified material weakness related to IT general controls successfully remediated.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Costco Wholesale Corp kept $0.02.
- Revenue$152.70B100.0%
- Cost of revenue−$136.24B89.2%
- Gross profit$16.46B10.8%
- Operating costs−$11.73B7.7%
- Operating income$4.74B3.1%
- Interest, other & tax−$1.08B0.7%
- Net income$3.66B2.4%
Where FY2019 revenue went
$152.70B- Cost of revenue: $132.89B, 87% of revenue
- Net income: $3.66B, 2.4% of revenue
- SG&A: $14.99B, 9.8% of revenue
- Interest, other & tax: $1.08B, 0.7% of revenue
Kept 2.4% as net incomeNet income $3.66B · 2.4%Interest, other & tax $1.08B · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed October 11, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $152.70B$141.58B | +7.9% |
| Cost of Revenue | $132.89B$123.15B | +7.9% |
| Gross Profit | $16.46B$18.42B | −10.6% |
| SG&A Expenses | $14.99B$13.88B | +8.1% |
| Operating Income | $4.74B$4.48B | +5.7% |
| Interest Expense | $150.00M$159.00M | −5.7% |
| Net Income | $3.66B$3.13B | +16.8% |
| EPS (Basic) | $8.32$7.15 | +16.4% |
| EPS (Diluted) | $8.26$7.09 | +16.5% |
| Shares Outstanding (Basic) | 439.75M438.51M | +0.3% |
| Shares Outstanding (Diluted) | 442.92M441.83M | +0.2% |
05—Questions
Frequently Asked Questions
What is Costco's core business strategy and how is it reflected in this filing?
Costco's core strategy is to offer members low prices on a limited selection of high-quality, nationally branded, and private-label products, driving high sales volume and rapid inventory turnover. This is evident in the company's low gross margins (around 11%), efficient operations, and a focus on membership loyalty, as highlighted by strong renewal rates and consistent membership fee revenue growth.
What were the key drivers of Costco's sales growth in fiscal year 2019?
Sales growth was primarily driven by a 6% increase in comparable sales, indicating strong performance from existing warehouses and websites. Additionally, the opening of 25 new warehouses, including the first in China, and continued growth in e-commerce operations contributed to the overall 8% increase in net sales.
How did the company manage its expenses, and what was the impact on profitability?
Costco demonstrated effective cost management. While Selling, General, and Administrative (SG&A) expenses as a percentage of net sales saw a slight increase (2 basis points), this was largely due to a $123 million product tax assessment charge. Excluding this, SG&A as a percentage of adjusted net sales increased by 11 basis points. The effective tax rate reduction significantly boosted net income by 17% to $3.66 billion.
What are the main risks highlighted by Costco in this filing?
Key risks include significant dependence on U.S. and Canadian operations, potential challenges in executing growth strategies (e.g., new market expansion like China), maintaining membership growth and loyalty, disruptions in the supply chain, failure to adapt to consumer trends, IT system failures, data security breaches, and general economic downturns. Competition from other retailers and warehouse clubs is also a persistent risk.
06—Continue