10-QPeriod: Q1 FY2015

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q1 Ended Nov 23, 2014

Filed December 18, 2014For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported strong performance for the twelve weeks ended November 23, 2014. Net sales increased by 7% year-over-year, reaching $26.28 billion, driven by a solid 5% increase in comparable warehouse sales and contributions from newly opened locations. Membership fees also saw a healthy 6% rise, indicating sustained member loyalty and growth, particularly in the Executive Membership program. The company demonstrated effective cost management, with Selling, General & Administrative (SG&A) expenses as a percentage of net sales remaining relatively stable, showing a slight improvement when excluding the impact of gasoline price deflation. Profitability was a key highlight, with net income attributable to Costco growing by 17% to $496 million, translating to a diluted EPS of $1.12, up from $0.96 in the prior year period. This growth was supported by an increase in gross margin as a percentage of net sales, aided by the gasoline business and a non-recurring legal settlement. The company also continued its capital expansion by opening eight new warehouses in the quarter and plans for further growth, funded by strong operating cash flows, which increased by 20% to $1.13 billion.

Financial Highlights

44 data points
Beta

Revenue

$26.87B

13.0% Gross Margin

Net Income

$496.00M

1.8% Net Margin

EPS (Diluted)

$1.12

Total Assets

$34.60B

Cash & Equivalents

$5.97B

Free Cash Flow

$573.00M

Financial Statements
Beta
Revenue$26.87B
Cost of Revenue$23.39B
Gross Profit$3.48B
SG&A Expenses$2.70B
Operating Income$770.00M
Interest Expense$26.00M
Net Income$496.00M
EPS (Basic)$1.13
EPS (Diluted)$1.12
Shares Outstanding (Basic)438.76M
Shares Outstanding (Diluted)442.21M

Key Highlights

  • 1Net sales grew 7% to $26.28 billion for the 12-week period ended November 23, 2014, compared to the prior year.
  • 2Comparable warehouse sales increased by 5%, with a 7% increase excluding the impact of gasoline prices and foreign currency fluctuations.
  • 3Membership fees rose 6% to $582 million, reflecting growth in membership and the Executive Membership program.
  • 4Net income attributable to Costco increased significantly by 17% to $496 million.
  • 5Diluted earnings per share (EPS) improved to $1.12 from $0.96 in the prior year's comparable period.
  • 6Operating cash flow strengthened by 20% to $1.13 billion.
  • 7The company opened eight new warehouses during the quarter and maintained a substantial stock repurchase authorization.

Frequently Asked Questions

The primary drivers of Costco's net sales growth were a 5% increase in comparable warehouse sales and the sales generated from the 25 net new warehouses opened since the end of the prior fiscal year. Factors like increased shopping frequency also contributed positively.

Foreign currency fluctuations had a negative impact on net sales, membership fees, and gross margin, primarily due to the strengthening U.S. dollar against the Canadian dollar. Gasoline price deflation also negatively impacted net sales, but this deflation helped improve the gross margin as a percentage of net sales by reducing the sales penetration of the lower-margin gasoline business.

Costco opened eight new warehouses in the quarter and plans to open up to 25 additional warehouses for the remainder of fiscal 2015. The company anticipates capital expenditures of approximately $2.5 to $2.6 billion for fiscal 2015, to be funded by operating cash flow, existing cash, and short-term investments. They also have a significant stock repurchase authorization remaining.

Costco is involved in several legal proceedings, including a multi-district litigation regarding motor fuel temperature sales practices, a grand jury subpoena related to hazardous merchandise returns, and inquiries regarding unclaimed property and controlled substances. The company does not believe that any pending litigation, individually or in aggregate, will have a material adverse effect on its financial position, although unfavorable outcomes could be material to an individual fiscal quarter.