What is the primary reason for the decrease in net income despite sales growth?

The decrease in net income was primarily driven by increased selling, general, and administrative (SG&A) expenses. This included higher wages for hourly employees, increased costs associated with opening new warehouses (which have higher expense ratios), expansion of the co-branded credit card program, and higher utility costs. Additionally, the Executive Membership two percent reward program and lower year-over-year gasoline gross margins also put pressure on profitability.

How has the company's membership fee revenue changed?

Membership fees and other revenue increased significantly by 23% in the third quarter of fiscal 2001. This growth is attributed to an average $5 increase in annual membership fees beginning October 1, 2000, new membership sign-ups at both new and existing locations, increased penetration of the Executive Membership program, and high overall member renewal rates, which stood at 86%.

What are Costco's plans for expansion and how are they being financed?

Costco is pursuing aggressive expansion, with plans to spend approximately $1.00 to $1.10 billion in fiscal 2001 on real estate, construction, and equipment for new warehouses and operations in the United States and Canada. An additional $150 to $200 million is earmarked for international expansion. These expenditures are expected to be financed through a combination of cash from operations, existing cash and short-term investments, and short-term borrowings under revolving credit facilities.

How has the company's liquidity position changed?

The company experienced a decrease in working capital, resulting in a deficit of $194.4 million as of May 13, 2001, compared to a positive working capital of $65.8 million at the end of fiscal year 2000. This change was largely due to a reduction in net inventory levels (inventories less accounts payable) and an increase in short-term borrowings, partially offset by increases in receivables and deferred membership income.

COST 10-Q Quarterly Report Q3 FY2001 — Revenue, Net Income, EPS

Summary

Costco Wholesale Corporation reported its third-quarter results for fiscal year 2001, ending May 13, 2001. While net sales showed a healthy 12% increase year-over-year to $7.56 billion, driven by new warehouse openings and a 5% increase in comparable warehouse sales, net income saw a 13% decline to $105.3 million ($0.23 per diluted share). This decrease in profitability was primarily attributed to increased selling, general, and administrative (SG&A) expenses, including higher wages, new warehouse opening costs, and increased utility expenses. The company also highlighted a 23% rise in membership fees, bolstered by a modest fee increase and strong renewal rates, which partially offset margin pressures from the Executive Membership reward program and lower gasoline margins.

Key Highlights

1Net sales increased by 12% to $7.56 billion in Q3 FY2001, driven by 35 net new warehouses and 5% comparable warehouse sales growth.
2Net income decreased by 13% to $105.3 million ($0.23 per diluted share) in Q3 FY2001, compared to $120.3 million ($0.26 per diluted share) in the prior year's quarter.
3Membership fees and other revenue grew by 23% to $155.4 million, reflecting a membership fee increase and high renewal rates (86%).
4Gross margin as a percentage of net sales declined to 9.76% from 10.11% due to the cost of the Executive Membership reward program and lower gasoline margins, though partially offset by reduced merchandise costs.
5Selling, general, and administrative (SG&A) expenses as a percentage of net sales increased to 9.33% from 8.94%, driven by wage increases, new warehouse openings, credit card program expansion, and higher utility costs.
6The company plans significant capital expenditures of $1.00-1.10 billion for US and Canada expansion and $150-200 million for international growth in fiscal year 2001.
7Cash flow from operations increased by 29.6% to $753.6 million for the first 36 weeks of fiscal 2001, supporting the aggressive expansion plans.

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 13, 2001

Summary

Key Highlights

Frequently Asked Questions