10-QPeriod: Q3 FY2011

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 8, 2011

Filed June 9, 2011For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported its third-quarter results for the period ending May 8, 2011. The company demonstrated strong top-line growth, with net sales increasing by 16.1% year-over-year, driven by a healthy 12% increase in comparable sales and the addition of new warehouse locations. Membership fees also saw a significant rise of 10.4%, indicating continued member engagement and growth, particularly in the Executive Membership program. While revenue growth was robust, gross margin as a percentage of net sales saw a slight decrease of 38 basis points, impacted by a LIFO inventory charge and the increased penetration of lower-margin gasoline sales. However, selling, general, and administrative expenses as a percentage of net sales improved, leading to a 6.1% increase in net income attributable to Costco. The company also announced a 17.1% increase in its quarterly cash dividend and authorized a substantial new $4 billion share repurchase program, signaling confidence in its financial position and commitment to shareholder returns.

Financial Highlights

48 data points
Beta

Revenue

$20.62B

12.4% Gross Margin

Net Income

$324.00M

1.6% Net Margin

EPS (Diluted)

$0.73

Total Assets

$26.97B

Cash & Equivalents

$4.08B

Free Cash Flow

$533.00M

Financial Statements
Beta
Revenue$20.62B
Cost of Revenue$18.07B
Gross Profit$2.56B
SG&A Expenses$1.99B
Operating Income$556.00M
Interest Expense$27.00M
Net Income$324.00M
EPS (Basic)$0.74
EPS (Diluted)$0.73
Shares Outstanding (Basic)436.98M
Shares Outstanding (Diluted)443.57M

Key Highlights

  • 1Net sales increased by 16.1% to $20.19 billion, with comparable sales up 12%.
  • 2Membership fees grew by 10.4% to $435 million, driven by Executive Membership penetration.
  • 3Gross margin decreased by 38 basis points to 10.50% of net sales, impacted by LIFO inventory charges and gasoline sales.
  • 4Selling, general, and administrative (SG&A) expenses as a percentage of net sales decreased by 43 basis points.
  • 5Net income attributable to Costco increased by 6.1% to $324 million, or $0.73 per diluted share.
  • 6The quarterly cash dividend was increased by 17.1% to $0.24 per share.
  • 7A new $4 billion share repurchase program was authorized, with $792 million from a previous program being revoked and replaced.

Frequently Asked Questions

The primary driver of Costco's sales growth was a 12% increase in comparable warehouse sales. Additionally, sales from 13 net new warehouses opened since the end of the third quarter of fiscal 2010 contributed to the overall increase.

The gross margin as a percentage of net sales decreased by 38 basis points due to a $49 LIFO inventory charge, which was not present in the prior year's comparable quarter, and the increased sales penetration of the lower-margin gasoline business. The 2% Executive Member reward program also had a slight negative impact.

Costco demonstrated its commitment to shareholder returns by increasing its quarterly cash dividend by 17.1% to $0.24 per share and authorizing a significant new $4 billion share repurchase program. This signals management's confidence in the company's financial health and future cash flow generation.

The consolidation of Costco Mexico, effective at the beginning of fiscal 2011, increased total assets, liabilities, and revenue by approximately 3%. Importantly, it had no impact on net income attributable to Costco, as the prior year's results were accounted for under the equity method and the noncontrolling interests are now presented separately.