10-QPeriod: Q2 FY2002

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q2 Ended Feb 17, 2002

Filed March 19, 2002For Securities:COST

Summary

Costco Wholesale Corporation reported solid financial performance for the second quarter and the first half of fiscal year 2002. Net income saw a healthy increase of 9.0% for the quarter and 5.3% for the year-to-date period, driven by a robust 12.8% rise in net sales for the quarter and 11.8% for the first half. This sales growth was primarily fueled by the opening of new warehouses and an increase in comparable warehouse sales, indicating continued successful expansion and customer traffic. The company also experienced significant growth in membership fees, up 19.2% for the quarter and 20.8% year-to-date, reflecting a successful membership fee increase and strong member retention. While gross margin as a percentage of net sales saw a slight dip, it was largely due to the cost of the Executive Membership reward program, which was mostly offset by merchandise gross margin improvements. The company is strategically expanding its operations, with significant capital expenditure planned for new warehouses in the U.S. and Canada, as well as international growth initiatives.

Key Highlights

  • 1Net income increased by 9.0% to $192,556 thousand ($0.41 per diluted share) for the second quarter of fiscal 2002, compared to the prior year.
  • 2Net sales grew by 12.8% to $9,208,413 thousand in the second quarter, driven by new warehouse openings and a 7% increase in comparable warehouse sales.
  • 3Membership fees and other revenue increased by 19.2% in the second quarter, attributed to fee adjustments and new member sign-ups.
  • 4Total assets grew by 7.9% to $10,889,348 thousand as of February 17, 2002, from $10,089,786 thousand at the end of fiscal 2001, primarily due to increases in property and equipment, and inventories.
  • 5The company plans significant capital expenditures for fiscal 2002, aiming to open 35-37 new warehouses in the U.S. and Canada and expand international operations.
  • 6Costco maintains strong member loyalty, with renewal rates remaining consistent at 85%.
  • 7The company's effective income tax rate remained stable at 40% for both periods.

Frequently Asked Questions

Costco's sales growth in the second quarter of fiscal 2002 was primarily driven by a combination of opening new warehouses and an increase in comparable warehouse sales. Net sales increased by 12.8%, supported by 34 net new warehouses opened since the prior year and a 7% rise in sales at warehouses open for at least a year.

Membership fees and other revenue showed a significant increase of 19.2% in the second quarter. This growth was due to an increase in the annual membership fee, new member sign-ups at both new and existing locations, and increased penetration of the Executive Membership program. Member renewal rates remained strong at 85%.

Costco has a robust expansion plan for fiscal year 2002, with an intention to spend approximately $1.0 to $1.15 billion on new warehouses and remodeling in the U.S. and Canada, and $100 to $150 million for international expansion. This includes plans to open 35-37 new warehouse clubs in North America and additional units in the UK and Japan.

Costco has a $500 million commercial paper program supported by a bank credit facility, with $105,000 outstanding as of February 17, 2002. The company also utilizes credit facilities in Canada, Japan, and the UK. While the company was in a negative working capital position, it was primarily driven by operational factors such as increased inventory and deferred membership income, and was managed through operating cash flows and available credit lines.