10-QPeriod: Q1 FY2008

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q1 Ended Nov 25, 2007

Filed December 21, 2007For Securities:COST

Summary

Costco Wholesale Corporation reported its first quarter results for fiscal year 2008, ending November 25, 2007. The company demonstrated robust top-line growth, with net sales increasing by 11.7% to $15.47 billion, driven by comparable store sales growth of 8% and contributions from 24 new warehouse openings. Membership fees also saw a healthy rise of 12.9% to $338 million, reflecting prior membership fee increases and strong renewal rates. Net income for the quarter grew 10.6% to $262.0 million, translating to a diluted EPS of $0.59, a significant 15.7% increase from the prior year. This EPS growth was partly bolstered by share repurchases. The company also maintained a strong balance sheet with substantial liquidity, although it noted some market uncertainty in its money fund investments. Management expressed confidence in its expansion plans, projecting significant capital expenditures for new warehouses in fiscal 2008.

Key Highlights

  • 1Net sales increased 11.7% to $15.47 billion, with comparable store sales up 8%.
  • 2Membership fees grew 12.9% to $338 million, benefiting from prior fee adjustments and strong renewals.
  • 3Net income rose 10.6% to $262.0 million.
  • 4Diluted Earnings Per Share (EPS) increased by 15.7% to $0.59, aided by share repurchases.
  • 5The company repurchased approximately $271.1 million worth of common stock in the quarter.
  • 6Liquidity remained strong, with $3.21 billion in cash and cash equivalents and short-term investments.
  • 7Capital expenditures for fiscal 2008 are planned between $1.6 billion and $1.8 billion for expansion.

Frequently Asked Questions

Sales growth was primarily driven by an 8% increase in comparable store sales and the opening of 24 new warehouses. Favorable foreign currency exchange rates, particularly in Canada and the UK, also contributed positively to net sales.

Costco's profitability improved, with net income increasing by 10.6% to $262.0 million. Diluted EPS saw a stronger increase of 15.7% to $0.59, partly due to the company's share repurchase program which reduced the number of outstanding shares.

Costco plans to invest between $1.6 billion and $1.8 billion in fiscal year 2008 for real estate, construction, remodeling, and equipment for new and existing warehouses. This includes opening an additional 24 to 26 new warehouses during the remainder of fiscal 2008.

While liquidity remained strong, the company noted some market uncertainty in its money fund investments, with one investment experiencing a slight decline in net asset value. However, management believed there was no material loss exposure or detriment to overall liquidity from this situation.