10-QPeriod: Q3 FY2008

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 11, 2008

Filed June 13, 2008For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported strong financial results for the quarter ended May 11, 2008, demonstrating robust sales growth and improved profitability. Net sales increased by 13.4% year-over-year, driven by a solid 8% increase in comparable store sales and contributions from new warehouse openings. Membership fees also saw a healthy 10.4% increase, indicating sustained member loyalty and program engagement, with a strong renewal rate of 87%. The company effectively managed its operating expenses, with SG&A as a percentage of net sales decreasing by 26 basis points, contributing to a significant 31.7% rise in net income to $295.1 million. From an operational perspective, Costco continued its expansion, opening 25 net new warehouses during the period. The company also demonstrated a commitment to shareholder returns through a 10.3% increase in its quarterly dividend and continued share repurchases, totaling $240.9 million in the quarter. Despite some challenges in the investment portfolio, specifically with certain enhanced money market funds, the company's core business operations remained strong, providing a solid foundation for future growth. Investors can take comfort in the company's ability to grow sales, control costs, and return capital to shareholders.

Key Highlights

  • 1Net sales increased by 13.4% to $16.26 billion, with comparable warehouse sales up 8%.
  • 2Membership fees grew by 10.4% to $350.9 million, driven by new sign-ups and Executive Membership growth.
  • 3Net income rose significantly by 31.7% to $295.1 million, or $0.67 per diluted share.
  • 4Gross margin as a percentage of net sales improved by 33 basis points to 10.54%.
  • 5SG&A expenses as a percentage of net sales decreased by 26 basis points to 9.73%, reflecting improved operational efficiency.
  • 6The company opened 25 net new warehouses, continuing its strategic expansion.
  • 7Quarterly cash dividend increased by 10.3% to $0.16 per share, and the company repurchased $240.9 million of its stock.

Frequently Asked Questions

Costco reported a strong 13.4% increase in net sales for the quarter ended May 11, 2008, reaching $16.26 billion. This growth was fueled by an 8% rise in comparable warehouse sales and the addition of new store locations.

Profitability improved significantly, with net income increasing by 31.7% to $295.1 million. Diluted earnings per share rose to $0.67 from $0.49 in the prior year's comparable quarter, indicating strong operational performance and effective cost management.

Costco demonstrated effective expense management, with Selling, General, and Administrative (SG&A) expenses decreasing as a percentage of net sales by 26 basis points to 9.73%. This improvement contributed to the overall increase in net income.

Costco continues to pursue growth through physical expansion, having opened 25 net new warehouses during the reported period. The company also focuses on increasing membership penetration, particularly with its higher-fee Executive Membership program, and maintaining strong comparable store sales growth.

Costco is committed to returning capital to shareholders through both dividends and share repurchases. The company increased its quarterly cash dividend by 10.3% to $0.16 per share and repurchased $240.9 million of its common stock during the quarter.