10-QPeriod: Q2 FY2012

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q2 Ended Feb 12, 2012

Filed March 15, 2012For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported its financial results for the fiscal second quarter and first half ended February 12, 2012. The company demonstrated solid top-line growth, with net sales increasing by 10.1% for the quarter and 11.2% for the first half, driven by comparable warehouse sales growth of 8% and 9% respectively, alongside contributions from new warehouse openings. Membership fees also saw a healthy increase of 7.8% for the quarter, boosted by new member sign-ups and the higher-fee Executive Membership program. While gross margin as a percentage of net sales saw a slight decrease of 30 basis points for the quarter, this was largely offset by an improvement in selling, general, and administrative (SG&A) expenses as a percentage of net sales, leading to a 13.3% increase in net income for the quarter to $394 million, or $0.90 per diluted share. The company continues its expansion strategy, with plans to open additional warehouses in fiscal 2012, supported by a strong liquidity position. Costco also returned capital to shareholders through dividends and share repurchases, highlighting its commitment to shareholder value. The company's operational efficiency, ability to drive comparable sales, and prudent expense management are key strengths evident in these results.

Financial Highlights

47 data points
Beta

Revenue

$22.97B

12.3% Gross Margin

Net Income

$394.00M

1.7% Net Margin

EPS (Diluted)

$0.90

Total Assets

$27.51B

Cash & Equivalents

$4.39B

Free Cash Flow

$291.00M

Financial Statements
Beta
Revenue$22.97B
Cost of Revenue$20.14B
Gross Profit$2.83B
SG&A Expenses$2.18B
Operating Income$644.00M
Interest Expense$27.00M
Net Income$394.00M
EPS (Basic)$0.91
EPS (Diluted)$0.90
Shares Outstanding (Basic)434.54M
Shares Outstanding (Diluted)439.47M

Key Highlights

  • 1Net sales increased by 10.1% to $22,508 million for the second quarter and 11.2% to $43,689 million for the first half, reflecting strong demand.
  • 2Comparable warehouse sales grew by 8% for the second quarter and 9% for the first half, indicating sustained customer traffic and spending.
  • 3Membership fees increased by 7.8% in the quarter, driven by new member acquisition and increased penetration of the Executive Membership program.
  • 4Net income grew by 13.3% to $394 million in the second quarter, with diluted earnings per share rising to $0.90 from $0.79 in the prior year.
  • 5Selling, General & Administrative (SG&A) expenses as a percentage of net sales improved by 29 basis points in the quarter, demonstrating effective cost management.
  • 6The company repurchased $145 million of common stock in the second quarter and maintained a strong liquidity position with $5,785 million in cash and short-term investments.
  • 7Costco declared a quarterly cash dividend of $0.24 per share, reflecting its commitment to returning capital to shareholders.

Frequently Asked Questions

The primary driver of Costco's revenue growth was an increase in comparable warehouse sales, which grew by 8% in the second quarter and 9% in the first half. Sales from new warehouse openings also contributed significantly to the overall revenue increase.

Costco demonstrated effective expense management. Selling, General, and Administrative (SG&A) expenses as a percentage of net sales improved by 29 basis points in the second quarter, indicating that the company leveraged its sales growth to gain operating leverage. While gross margin as a percentage of net sales decreased slightly, the improvement in SG&A helped drive net income growth.

Costco continues to invest in its growth through opening new warehouses, with plans for additional openings in fiscal 2012. Concurrently, the company is returning capital to shareholders through regular cash dividends and active share repurchase programs. The strong liquidity position provides flexibility for both strategic investments and shareholder returns.

The company is involved in various legal proceedings, including a class-action lawsuit alleging gender discrimination in promotions, and multiple cases concerning motor fuel temperature sales practices. Additionally, there are ongoing matters related to hazardous merchandise returns and environmental regulations. While Costco does not believe any pending matter will have a material adverse effect, it acknowledges the possibility of unfavorable outcomes that could impact quarterly results.