10-KPeriod: FY2023

COSTCO WHOLESALE CORP /NEW Annual Report, Year Ended Sep 3, 2023

Filed October 11, 2023For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported strong performance in its 10-K filing for the fiscal year ending September 3, 2023. The company demonstrated robust revenue growth, driven by both new warehouse openings and an increase in comparable sales. Membership fee revenue also saw a significant rise, indicating sustained member loyalty and a growing member base, particularly with the strong penetration of its Executive membership tier. The company effectively managed gross margins despite inflationary pressures, aided by a smaller LIFO charge and performance in core merchandise categories. While selling, general, and administrative expenses as a percentage of net sales increased due to wage growth and lower sales growth in certain areas, overall profitability remained strong with a notable increase in net income. Costco also continued its capital allocation strategy through share repurchases and a dividend increase. The company's expansive global footprint, with a growing number of warehouses and continued international expansion, positions it for ongoing growth. Management expresses confidence in the company's liquidity and ability to meet its capital requirements.

Financial Highlights

52 data points
Beta

Revenue

$242.29B

12.3% Gross Margin

Net Income

$6.29B

2.6% Net Margin

EPS (Diluted)

$14.16

Total Assets

$68.99B

Cash & Equivalents

$13.70B

Free Cash Flow

$6.75B

Financial Statements
Beta
Revenue$242.29B
Cost of Revenue$212.59B
Gross Profit$29.70B
SG&A Expenses$21.59B
Operating Income$8.11B
Interest Expense$160.00M
Net Income$6.29B
EPS (Basic)$14.18
EPS (Diluted)$14.16
Shares Outstanding (Basic)443.85M
Shares Outstanding (Diluted)444.45M

Key Highlights

  • 1Net sales increased by 7% to $237,710 million, driven by a 3% increase in comparable sales and the benefit of an additional week in the fiscal year.
  • 2Membership fee revenue grew by 8% to $4,580 million, reflecting strong member retention and Executive membership growth.
  • 3Gross margin percentage improved by nine basis points to 10.57%, primarily due to a smaller LIFO charge and core merchandise performance, despite some offsetting charges related to discontinued charter shipping activities.
  • 4Net income increased by 8% to $6,292 million ($14.16 per diluted share), showcasing improved profitability.
  • 5The company opened 26 new warehouses, continuing its expansion strategy, with plans to open up to 28 more in fiscal 2024.
  • 6Costco repurchased approximately $677 million of its common stock in 2023 and approved a 13% increase in its quarterly cash dividend.
  • 7The company maintained high member renewal rates, with 92.7% in the U.S. and Canada and 90.4% worldwide.

Frequently Asked Questions

Costco operates membership warehouses and e-commerce sites based on offering members low prices on a limited selection of high-quality, nationally-branded and private-label products. This strategy generates high sales volumes and rapid inventory turnover, which, combined with operating efficiencies, allows them to maintain lower gross margins than most retailers while remaining profitable. The membership model is also a significant contributor to profitability through recurring fee revenue.

Costco experienced continued inflation in merchandise costs but at a lower rate than in fiscal 2022. The company employed strategies such as working with suppliers to share cost increases, purchasing in greater volumes earlier in the year, and selectively passing costs on to members. They also made investments in merchandise pricing to drive sales, which sometimes meant absorbing cost increases to maintain their perceived 'pricing authority,' impacting gross margin percentage. SG&A expenses increased as a percentage of net sales primarily due to wage increases and lower sales growth in certain areas.

Executive memberships require an additional annual fee and offer a 2% reward on qualified purchases (up to $1,000 annually), along with access to additional savings and benefits. In fiscal year 2023, Executive members represented 45.4% of paid members and their purchases accounted for approximately 72.8% of worldwide net sales, highlighting their significant contribution to both revenue and overall sales volume.

Key risks include dependence on U.S. and Canadian operations (especially California), challenges in implementing growth strategies (new market entry, acquisitions), maintaining membership growth and loyalty, disruptions in distribution, failure to adapt to consumer trends, IT system reliability, cybersecurity threats, payment-related risks, product liability, competition, general economic factors (inflation, interest rates, foreign exchange), supplier reliability, and natural disasters or pandemics. Legal and regulatory changes also pose risks.