10-QPeriod: Q2 FY2013

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q2 Ended Feb 17, 2013

Filed March 20, 2013For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported its second quarter and year-to-date results for the period ending February 17, 2013. The company demonstrated robust sales growth, with net sales increasing by 8% in the quarter and 9% year-to-date, driven by a 5% comparable sales increase. Membership fees saw a significant rise of 15%, attributed to price increases and strong renewal rates. Net income showed substantial growth, up 39% to $547 million ($1.24 per diluted share) in the quarter, aided by a favorable tax benefit related to a special dividend distribution. The company also announced a special cash dividend of $7.00 per share paid in December 2012 and declared a regular quarterly dividend of $0.275 per share. Financially, Costco maintained a strong liquidity position with $5.65 billion in cash, cash equivalents, and short-term investments. Operating cash flow increased by $281 million year-over-year. The company also strategically managed its debt, issuing $3.5 billion in Senior Notes, primarily to fund the special dividend. Capital expenditures for the fiscal year are planned at approximately $2 billion, supporting new warehouse openings and system modernization. Despite ongoing legal proceedings, the company believes they will not materially impact its financial position.

Financial Highlights

47 data points
Beta

Revenue

$24.87B

12.5% Gross Margin

Net Income

$547.00M

2.2% Net Margin

EPS (Diluted)

$1.24

Total Assets

$29.09B

Cash & Equivalents

$4.41B

Free Cash Flow

-$32.00M

Financial Statements
Beta
Revenue$24.87B
Cost of Revenue$21.77B
Gross Profit$3.10B
SG&A Expenses$2.36B
Operating Income$738.00M
Interest Expense$25.00M
Net Income$547.00M
EPS (Basic)$1.26
EPS (Diluted)$1.24
Shares Outstanding (Basic)435.98M
Shares Outstanding (Diluted)439.81M

Key Highlights

  • 1Net sales increased by 8% to $24.3 billion in Q2 2013, with comparable sales up 5%.
  • 2Membership fee revenue grew by 15% to $528 million, reflecting price adjustments and improved renewal rates.
  • 3Net income rose significantly by 39% to $547 million ($1.24 per diluted share) in Q2 2013, boosted by a $62 million tax benefit.
  • 4The company paid a special cash dividend of $7.00 per share in December 2012, totaling approximately $3.05 billion.
  • 5Costco issued $3.5 billion in Senior Notes, with proceeds used mainly for the special dividend.
  • 6Total liquidity (cash, cash equivalents, and short-term investments) stood at $5.65 billion as of February 17, 2013.
  • 7Capital expenditures for fiscal 2013 are projected at $2 billion, supporting expansion and IT modernization.

Frequently Asked Questions

The primary drivers of Costco's net sales growth were an increase in comparable warehouse sales (up 5%) and the addition of 24 net new warehouses opened since the prior year. Favorable foreign currency exchange rates also positively impacted net sales.

Costco managed its capital structure by issuing $3.5 billion in Senior Notes, primarily to fund a significant special cash dividend of $7.00 per share paid to shareholders. The company also maintained a strong operating cash flow to support its capital expenditure plans.

Costco is involved in several legal proceedings, including a class-action lawsuit alleging gender discrimination in promotions and litigation related to motor fuel temperature sales practices. While the company has established accruals for probable and estimable losses where appropriate, it states that it does not believe any pending matter, individually or in aggregate, will have a material adverse effect on its financial position, although an unfavorable outcome could be material to a single fiscal quarter.

Costco plans to spend approximately $2 billion in fiscal year 2013 on real estate, construction, remodeling, equipment for warehouses, and information systems modernization. This includes opening up to 14 additional new warehouses in the remainder of fiscal 2013.