10-QPeriod: Q3 FY2002

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

Filed June 14, 2002For Securities:COST

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.

Frequently Asked Questions

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.

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.

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.

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.