Summary
Costco Wholesale Corporation (COST) reported strong financial performance for the third quarter ended May 7, 2006. The company demonstrated robust top-line growth, with net sales increasing by 10.6% year-over-year, driven by comparable store sales growth of 7% and the addition of 22 new warehouses. Membership fees also saw a healthy increase of 10.6%, reflecting new member acquisition and strong renewal rates. While gross margin experienced a slight decline of 11 basis points due to factors like the executive membership reward program and the lower-margin gasoline business, this was partially offset by improved selling, general, and administrative (SG&A) expenses, which decreased by 12 basis points as a percentage of net sales due to expense leverage and lower workers' compensation costs. Net income grew by a solid 12.3% to $235.6 million, translating to diluted earnings per share of $0.49, up from $0.43 in the prior year quarter. The company also announced an increase in its quarterly cash dividend and continued its commitment to shareholder returns through a significant share repurchase program.
Key Highlights
- 1Net sales grew 10.6% to $12.997 billion for the third quarter, driven by 7% comparable sales growth and new warehouse openings.
- 2Membership fees increased by 10.6%, indicating continued member acquisition and retention.
- 3Net income rose 12.3% to $235.6 million, with diluted EPS growing to $0.49 from $0.43 in the prior year's quarter.
- 4Gross margin as a percentage of net sales slightly declined by 11 basis points, primarily due to the executive membership reward program and gasoline sales.
- 5Selling, general, and administrative (SG&A) expenses improved by 12 basis points as a percentage of net sales.
- 6The company increased its quarterly cash dividend by 13% to $0.13 per share.
- 7Costco repurchased approximately $290 million of its common stock during the third quarter.