10-QPeriod: Q2 FY2015

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q2 Ended Feb 15, 2015

Filed March 11, 2015For Securities:COST

Summary

Costco Wholesale Corporation's (COST) 10-Q filing for the period ending February 15, 2015, reveals a solid performance characterized by revenue growth and increased net income, driven by comparable sales and membership fee increases. While facing headwinds from gasoline price deflation and unfavorable foreign currency movements, the company demonstrated resilience through improved gross margins, particularly from its ancillary businesses like gasoline, and effective management of selling, general, and administrative (SG&A) expenses. The company's strong operational execution is evident in its net cash provided by operating activities, which saw a significant increase. Investments in new warehouses continue, with plans for further expansion, signaling confidence in future growth. Furthermore, Costco's commitment to shareholder returns is highlighted by a substantial special cash dividend declared and paid during the period, alongside ongoing stock repurchase programs.

Financial Highlights

47 data points
Beta

Revenue

$27.45B

13.0% Gross Margin

Net Income

$598.00M

2.2% Net Margin

EPS (Diluted)

$1.35

Total Assets

$33.22B

Cash & Equivalents

$5.87B

Free Cash Flow

$288.00M

Financial Statements
Beta
Revenue$27.45B
Cost of Revenue$23.90B
Gross Profit$3.56B
SG&A Expenses$2.67B
Operating Income$877.00M
Interest Expense$27.00M
Net Income$598.00M
EPS (Basic)$1.36
EPS (Diluted)$1.35
Shares Outstanding (Basic)440.38M
Shares Outstanding (Diluted)442.90M

Key Highlights

  • 1Net sales increased by 4% to $26,872 million for the second quarter ended February 15, 2015, compared to the prior year quarter, driven by comparable warehouse sales growth and new warehouse openings.
  • 2Membership fees saw a 6% increase to $582 million, attributed to new memberships and higher penetration of the Executive Membership program.
  • 3Gross margin percentage improved by 54 basis points to 11.07%, largely due to the gasoline business, despite a decrease in gasoline prices.
  • 4Net income attributable to Costco increased significantly by 29% to $598 million, or $1.35 per diluted share, compared to $463 million, or $1.05 per diluted share, in the prior year period.
  • 5The company generated strong operating cash flow, with net cash provided by operating activities at $2,028 million for the first half of the fiscal year, an increase from $1,652 million in the prior year.
  • 6Costco declared and paid a substantial special cash dividend of $5.00 per share in addition to its regular quarterly dividend, demonstrating a commitment to returning capital to shareholders.
  • 7The company plans to open approximately 22 additional warehouses for the remainder of fiscal 2015, indicating continued investment in growth.

Frequently Asked Questions

Revenue growth was primarily driven by a 2% increase in comparable warehouse sales and sales from 22 net new warehouses opened since the end of the prior fiscal year's second quarter. Membership fees also contributed significantly with a 6% increase, due to new sign-ups and greater adoption of the Executive Membership program.

Despite facing headwinds from gasoline price deflation and foreign currency fluctuations, Costco improved its gross margin percentage by 54 basis points, largely due to its gasoline business. Selling, general and administrative (SG&A) expenses as a percentage of net sales saw a modest increase of 11 basis points, but when adjusted for gasoline price deflation, SG&A as a percentage of net sales improved by 19 basis points due to lower warehouse operating costs.

Costco remains committed to expansion, planning to open approximately 22 additional warehouses for the remainder of fiscal 2015, including two relocations. The company anticipates capital expenditures of approximately $2,500 to $2,700 million for fiscal 2015, to be financed through operating cash flows and existing cash reserves.

In addition to its regular quarterly dividend, Costco declared and paid a significant special cash dividend of $5.00 per share. The company also continues to repurchase its common stock, with $2,611 million remaining authorized under its repurchase program at the end of the quarter.