10-QPeriod: Q3 FY2009

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 10, 2009

Filed June 12, 2009For Securities:COST

Summary

Costco Wholesale Corporation (COST) filed its Form 10-Q for the quarterly period ended May 10, 2009. The filing indicates a decrease in net sales for the quarter, primarily due to a 7% decrease in comparable sales and negative impacts from foreign currency exchange rates and gasoline price deflation. Despite the sales decline, the company saw an increase in gross margin as a percentage of net sales, driven by improvements in core merchandise and ancillary businesses, though this was partially offset by increased selling, general, and administrative (SG&A) expenses as a percentage of net sales. Net income for the quarter fell to $210 million ($0.48 per diluted share) compared to $295 million ($0.67 per diluted share) in the prior year's quarter. This decline was influenced by the lower sales, a $27 million charge related to a membership renewal policy litigation settlement, and foreign currency headwinds. The company also announced a quarterly cash dividend of $0.18 per share, an increase from the previous quarter's $0.16, reflecting continued confidence in its financial position and commitment to shareholder returns.

Financial Highlights

26 data points
Beta

Revenue

$15.81B

12.8% Gross Margin

Net Income

$210.00M

1.3% Net Margin

EPS (Diluted)

$0.48

Cash & Equivalents

$3.08B

Free Cash Flow

$467.00M

Financial Statements
Beta
Revenue$15.81B
Cost of Revenue$13.78B
Gross Profit$2.03B
SG&A Expenses$1.66B
Operating Income$359.00M
Interest Expense$25.00M
Net Income$210.00M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)434.35M
Shares Outstanding (Diluted)440.00M

Key Highlights

  • 1Net sales decreased by 4.8% to $15.5 billion in the third quarter of fiscal 2009 compared to the prior year, primarily driven by a 7% decrease in comparable sales.
  • 2Net income declined by 28.4% to $210 million ($0.48 per diluted share) in the third quarter of fiscal 2009, down from $295 million ($0.67 per diluted share) in the same period last year.
  • 3Gross margin as a percentage of net sales improved by 45 basis points to 10.99% in the third quarter, benefiting from lower gasoline sales penetration and favorable LIFO adjustments.
  • 4Selling, general, and administrative (SG&A) expenses increased as a percentage of net sales by 96 basis points to 10.69%, attributed to higher operating and employee benefit costs.
  • 5Membership fees saw a decrease of 6.4% to $329 million in the quarter, impacted by a $27 million charge for a litigation settlement regarding membership renewal policies.
  • 6The company declared a quarterly cash dividend of $0.18 per share, representing a 12.5% increase on an annualized basis.
  • 7Cash and cash equivalents and short-term investments totaled $3.67 billion at the end of the period, providing a solid liquidity position.

Frequently Asked Questions

The primary driver for the decrease in net sales was a 7% decline in comparable sales, which represent sales in warehouses open for at least one year. This was further impacted by unfavorable foreign currency exchange rates and deflation in gasoline prices.

Profitability decreased, with net income falling by 28.4% to $210 million in the third quarter of fiscal 2009, resulting in diluted earnings per share of $0.48, down from $0.67 in the same period last year. This was largely due to lower net sales and increased SG&A expenses as a percentage of sales.

The $27 million charge relates to a proposed litigation settlement concerning Costco's membership renewal policy. This charge negatively impacted the reported decrease in membership fees for the quarter.

Costco plans to spend approximately $1.2 billion to $1.4 billion during fiscal 2009 for real estate, construction, remodeling, and equipment. The company opened four new warehouses net of one relocation in the third quarter and plans to open six more, including its first in Australia, by year-end.