10-QPeriod: Q3 FY2012

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 6, 2012

Filed June 6, 2012For Securities:COST

Summary

Costco Wholesale Corporation's (COST) Q3 2012 filing for the period ending May 6, 2012, demonstrates continued top-line growth and solid profitability. Net sales increased by 8.2% year-over-year to $21.8 billion, driven by comparable store sales growth of 5% and contributions from new warehouse openings. Membership fees also saw a healthy increase of 8.9%, bolstered by fee adjustments and higher Executive Membership penetration. The company maintained its operational efficiency, with selling, general, and administrative expenses as a percentage of net sales improving slightly, while net income grew by a robust 19% to $386 million, translating to diluted EPS of $0.88. Financially, Costco ended the quarter with a strong liquidity position, including over $5.9 billion in cash and short-term investments. The company made significant progress in debt management, repaying its $900 million 5.3% Senior Notes. Furthermore, Costco continued to return capital to shareholders through share repurchases and a declared quarterly dividend of $0.275 per share. The company reiterated its commitment to expansion, planning approximately $1.4 billion in capital expenditures for fiscal 2012, including the opening of new warehouses.

Financial Highlights

48 data points
Beta

Revenue

$22.32B

12.5% Gross Margin

Net Income

$386.00M

1.7% Net Margin

EPS (Diluted)

$0.88

Total Assets

$27.84B

Cash & Equivalents

$4.79B

Free Cash Flow

$815.00M

Financial Statements
Beta
Revenue$22.32B
Cost of Revenue$19.54B
Gross Profit$2.78B
SG&A Expenses$2.15B
Operating Income$623.00M
Interest Expense$19.00M
Net Income$386.00M
EPS (Basic)$0.89
EPS (Diluted)$0.88
Shares Outstanding (Basic)433.79M
Shares Outstanding (Diluted)439.17M

Key Highlights

  • 1Net sales increased 8.2% to $21.8 billion, driven by a 5% increase in comparable sales and new warehouse openings.
  • 2Membership fees grew 8.9% to $475 million, benefiting from membership fee increases and higher Executive Membership penetration.
  • 3Net income rose 19% to $386 million, with diluted earnings per share reaching $0.88, up from $0.73 in the prior year's quarter.
  • 4Gross margin as a percentage of net sales saw a modest increase of five basis points, aided by a lower LIFO inventory charge compared to the prior year.
  • 5The company repaid $900 million in 5.3% Senior Notes, strengthening its balance sheet.
  • 6Cash and cash equivalents and short-term investments totaled $5.98 billion, indicating strong liquidity.
  • 7Costco repurchased approximately $130 million of its common stock during the quarter and declared a quarterly dividend of $0.275 per share.

Frequently Asked Questions

Costco reported a 5% increase in comparable warehouse sales for the third quarter of fiscal 2012. This growth was driven by increases in both member shopping frequency and the average amount spent per visit.

Costco significantly improved its debt profile by repaying the outstanding $900 million principal balance on its 5.3% Senior Notes in March 2012, using existing liquidity sources. This repayment led to a decrease in interest expense.

The company plans to spend approximately $1.4 billion in fiscal 2012 on capital expenditures, primarily for new and remodeled warehouses. They opened 11 new warehouses in the first thirty-six weeks of fiscal 2012 and planned to open up to 6 more by year-end.

Costco values most of its U.S. merchandise inventories using the Last-In, First-Out (LIFO) method. The company records quarterly adjustments for inflation/deflation and adjusts to actual year-end results. In Q3 2012, a $6 LIFO charge was recorded, compared to a $49 charge in Q3 2011, positively impacting the gross margin comparison.