10-QPeriod: Q3 FY2013

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 12, 2013

Filed June 11, 2013For Securities:COST

Summary

Costco Wholesale Corporation's (COST) Q3 2013 report for the period ending May 11, 2013, demonstrates robust financial performance with a significant increase in net sales and net income year-over-year. The company reported an 8% increase in net sales, driven by a 5% rise in comparable sales and contributions from new warehouse openings. Membership fees also saw a healthy 12% increase, reflecting successful fee adjustments and strong renewal rates. Financially, Costco strengthened its balance sheet with a substantial increase in cash and cash equivalents and a significant increase in long-term debt, primarily to fund the special cash dividend paid in late 2012 and general corporate purposes. While investing activities show increased capital expenditures for warehouse expansion, the company generated strong operating cash flows, indicating solid operational efficiency. Overall, the report signals a healthy business with continued growth and effective cost management, positioning Costco favorably in the retail landscape.

Financial Highlights

48 data points
Beta

Revenue

$24.08B

12.6% Gross Margin

Net Income

$459.00M

1.9% Net Margin

EPS (Diluted)

$1.04

Total Assets

$30.01B

Cash & Equivalents

$5.45B

Free Cash Flow

$913.00M

Financial Statements
Beta
Revenue$24.08B
Cost of Revenue$21.04B
Gross Profit$3.04B
SG&A Expenses$2.31B
Operating Income$722.00M
Interest Expense$25.00M
Net Income$459.00M
EPS (Basic)$1.05
EPS (Diluted)$1.04
Shares Outstanding (Basic)436.49M
Shares Outstanding (Diluted)440.78M

Key Highlights

  • 1Net sales increased by 8% to $23.55 billion for the third quarter, driven by a 5% increase in comparable sales and 25 new warehouses opened since the prior year.
  • 2Membership fees grew by 12% to $531 million, attributed to prior year fee increases and strong member renewal rates (89.9% in US/Canada, 86.4% worldwide).
  • 3Net income attributable to Costco rose 19% to $459 million, with diluted EPS increasing to $1.04 from $0.88.
  • 4Gross margin as a percentage of net sales improved by 12 basis points due to favorable LIFO adjustments and a non-recurring legal settlement.
  • 5SG&A expenses as a percentage of net sales saw a slight improvement of 3 basis points, indicating effective cost management.
  • 6Cash and cash equivalents significantly increased to $5.45 billion from $3.53 billion, boosting liquidity.
  • 7Long-term debt increased substantially to $4.89 billion from $1.38 billion, largely due to the issuance of Senior Notes to fund a special cash dividend.

Frequently Asked Questions

Sales growth was primarily driven by a 5% increase in comparable warehouse sales and the addition of 25 net new warehouses opened since the end of the third quarter of fiscal 2012. Foreign currency fluctuations and gasoline price deflation had a negative impact on reported net sales.

Membership fee revenue increased by 12% to $531 million in the third quarter. This growth is attributed to prior year membership fee increases, new member sign-ups, and high renewal rates, which stood at approximately 89.9% in the U.S. and Canada and 86.4% worldwide.

Costco significantly increased its long-term debt, notably through a $3.5 billion Senior Notes issuance in December 2012, primarily to fund a special cash dividend and for general corporate purposes. The company plans to spend approximately $2 billion in fiscal 2013 on new and remodeled warehouses, information systems modernization, and other operational needs, funded by operating cash flows and existing cash reserves.

The company is involved in several legal proceedings, including a class action lawsuit alleging gender discrimination in promotions and various class actions related to motor fuel temperature sales practices. While Costco does not believe these will have a material adverse effect, an unfavorable outcome could impact quarterly results. The company is cooperating with environmental and other governmental inquiries.