What were the primary drivers of Costco's sales growth in Q3 2002?

Sales growth was driven by two main factors: the opening of a net of 29 new warehouses since the prior year's comparable period and a 6% increase in comparable warehouse sales, indicating that existing stores performed well. Price changes did not significantly contribute to the sales increase.

How did membership fees contribute to Costco's revenue, and what is the outlook for member retention?

Membership fees and other revenue increased by 16% in Q3 2002, representing 2.13% of net sales. This growth is attributed to recent membership fee increases, new member sign-ups, and higher Executive Membership penetration. Member renewal rates remain robust at 86%, suggesting strong customer loyalty.

What is Costco's strategy for expansion and how is it being financed?

Costco plans to spend approximately $950 million to $1.05 billion in fiscal 2002 on new warehouses, remodeling, and equipment, with an additional $100 million to $150 million for international expansion. These expenditures will be financed through a combination of operating cash flow, existing cash and investments, and short-term borrowings.

What impact did the Executive Membership program have on gross margins?

While overall gross margin improved to 10.12% of net sales, this improvement was partially offset by the costs associated with the Executive Membership's two-percent reward program. This indicates that while the program is beneficial for attracting and retaining members, it does have a direct cost impact on profitability.

COST 10-Q Quarterly Report Q3 FY2002 — Revenue, Net Income, EPS

Summary

Costco Wholesale Corporation's (COST) Q3 2002 filing indicates robust growth, with net income for the third quarter increasing by 24% to $130.4 million, or $0.28 per diluted share, compared to the prior year. This performance was driven by a 12% rise in net sales to $8.44 billion, fueled by the opening of 29 net new warehouses and a solid 6% increase in comparable warehouse sales. The company also saw a significant 16% increase in membership fees and other revenue, signaling strong member loyalty and effective fee management, with renewal rates holding steady at 86%. Furthermore, gross margin expanded to 10.12% of net sales, up from 9.76% in the prior year, driven by improvements across most categories and ancillary operations, despite the costs associated with the Executive Membership reward program. While selling, general, and administrative expenses as a percentage of sales increased due to new warehouse inefficiencies and higher salary/healthcare costs, the overall financial health appears strong, with substantial operating cash flow and a positive working capital position achieved by the end of the quarter. The company is actively investing in expansion, with significant capital expenditure planned for fiscal 2002.

Key Highlights

1Net income for Q3 2002 surged 24% to $130.4 million, or $0.28 per diluted share.
2Net sales for Q3 2002 grew 12% to $8.44 billion, driven by new warehouse openings and comparable sales growth.
3Comparable warehouse sales increased by a healthy 6% in Q3 2002.
4Membership fees and other revenue rose 16%, with member renewal rates remaining strong at 86%.
5Gross margin improved to 10.12% of net sales in Q3 2002, indicating better merchandise cost management and ancillary operations performance.
6The company is executing an aggressive expansion strategy, with planned capital expenditures of $950 million to $1.05 billion for fiscal 2002.
7Working capital improved significantly, moving from a negative $230,000 in the prior year to a positive $57,000 in Q3 2002.

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 12, 2002

Summary

Key Highlights

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