01—Abstract
Summary
Summary of the 10-K filed October 7, 2020. Cited figures are marked; the original filing is the authoritative source.
Costco Wholesale Corporation's (COST) 2020 10-K filing reveals a robust financial performance, marked by strong net sales growth of 9% to $163.2 billiona, primarily driven by an 8% increase in comparable sales and contributions from newly opened warehouses.
The company demonstrated resilience despite the challenges posed by the COVID-19 pandemic, which impacted certain ancillary businesses but was offset by strong performance in core merchandise categories like food and sundries, and fresh foods. Key to Costco's sustained success is its membership model, which saw membership fee revenue increase by 6% to $3.5 billionb, supported by high renewal rates of 91% in the U.S. and Canada and 88% worldwide. The company also strategically managed its operating expenses, with SG&A as a percentage of net sales decreasing by 3 basis points, and saw an 18-basis point increase in gross margin percentage.
Despite incremental costs associated with COVID-19, such as increased wages and sanitation, the company reported a 9% increase in net income to $4.0 billionc, translating to diluted earnings per share of $9.02. Significant strategic investments include the acquisitions of Innovel Solutions and a stake in Navitus Health Solutions, bolstering logistics and pharmacy benefit management capabilities.
02—Key points
Key Highlights
- Net sales grew by 9% to $163.2 billion, driven by a comparable sales increase of 8% and new warehouse openings.
- Membership fee revenue increased by 6% to $3.5 billion, reflecting strong member loyalty with worldwide renewal rates at 88%.
- Gross margin percentage improved by 18 basis points, signaling effective cost management and favorable merchandise mix despite COVID-19 impacts.
- Selling, general, and administrative (SG&A) expenses as a percentage of net sales decreased by 3 basis points, demonstrating operational leverage.
- Net income increased by 9% to $4.0 billion, with diluted EPS rising to $9.02.
- The company made strategic acquisitions, including Innovel Solutions (logistics) and a 35% interest in Navitus Health Solutions (pharmacy benefit manager).
- Costco responded to the COVID-19 pandemic by incurring $564 million in incremental wage and sanitation costs, while maintaining operations as an essential business.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Costco Wholesale Corp kept $0.02.
- Revenue$166.76B100.0%
- Cost of revenue−$144.94B86.9%
- Gross profit$21.82B13.1%
- Operating costs−$16.39B9.8%
- Operating income$5.43B3.3%
- Interest, other & tax−$1.43B0.9%
- Net income$4.00B2.4%
Where FY2020 revenue went
$166.76B- Cost of revenue: $144.94B, 87% of revenue
- Net income: $4.00B, 2.4% of revenue
- SG&A: $16.39B, 9.8% of revenue
- Interest, other & tax: $1.43B, 0.9% of revenue
Kept 2.4% as net incomeNet income $4.00B · 2.4%Interest, other & tax $1.43B · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed October 7, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $166.76B$152.70B | +9.2% |
| Cost of Revenue | $144.94B$132.89B | +9.1% |
| Gross Profit | $21.82B$16.46B | +32.5% |
| SG&A Expenses | $16.39B$14.99B | +9.3% |
| Operating Income | $5.43B$4.74B | +14.7% |
| Interest Expense | $160.00M$150.00M | +6.7% |
| Net Income | $4.00B$3.66B | +9.4% |
| EPS (Basic) | $9.05$8.32 | +8.8% |
| EPS (Diluted) | $9.02$8.26 | +9.2% |
| Shares Outstanding (Basic) | 442.30M439.75M | +0.6% |
| Shares Outstanding (Diluted) | 443.90M442.92M | +0.2% |
05—Questions
Frequently Asked Questions
How did Costco perform financially in the fiscal year ending August 30, 2020, particularly in light of the COVID-19 pandemic?
Costco demonstrated strong financial performance, with net sales increasing by 9% to $163.2 billion and net income growing by 9% to $4.0 billion. While the pandemic impacted some ancillary businesses, it led to increased sales in core merchandise categories and e-commerce. The company also incurred incremental costs for employee wages and sanitation measures related to COVID-19.
What is the significance of Costco's membership program to its financial results?
The membership program is a crucial driver of profitability. Membership fee revenue increased by 6% to $3.5 billion, supported by high renewal rates of 91% in the U.S. and Canada and 88% globally. This recurring revenue stream enhances member loyalty and provides a stable income source.
What strategic initiatives or acquisitions did Costco undertake during this fiscal year?
Costco made two significant acquisitions: Innovel Solutions, a logistics company providing final-mile delivery for large items, and a 35% interest in Navitus Health Solutions, a pharmacy benefit manager. These moves indicate a focus on expanding capabilities in e-commerce logistics and healthcare services.
How did Costco manage its operating expenses and profitability in fiscal year 2020?
The company effectively managed its expenses, with SG&A as a percentage of net sales decreasing by 3 basis points due to leveraging increased sales. The gross margin percentage also improved by 18 basis points, driven by efficiencies in core merchandise categories and certain ancillary businesses, despite some headwinds from the pandemic and incremental COVID-related costs.
06—Continue