Summary
Costco Wholesale Corporation's (COST) 10-Q filing for the period ending February 13, 2016, indicates a slight increase in net sales but a decrease in net income compared to the prior year's comparable period. Net sales grew by 3% year-over-year for the quarter, driven by new warehouse openings and a modest 1% increase in comparable warehouse sales. However, net income attributable to Costco declined by 9% to $546 million, or $1.24 per diluted share, impacted by several factors including foreign currency headwinds and a less favorable tax rate compared to the prior year which benefited from discrete tax items. The company continued its expansion efforts, opening 27 net new warehouses, and maintained a strong membership base with high renewal rates.
Financial Highlights
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Financial Statements
Beta
| Revenue | $28.17B |
| Cost of Revenue | $24.47B |
| Gross Profit | $3.70B |
| SG&A Expenses | $2.83B |
| Operating Income | $856.00M |
| Interest Expense | $31.00M |
| Net Income | $546.00M |
| EPS (Basic) | $1.24 |
| EPS (Diluted) | $1.24 |
| Shares Outstanding (Basic) | 439.65M |
| Shares Outstanding (Diluted) | 441.56M |
Key Highlights
- 1Net sales increased by 3% to $27.57 billion for the 12 weeks ended February 14, 2016, compared to $26.87 billion in the prior year period.
- 2Comparable warehouse sales increased by 1% for the quarter, with U.S. comparable sales up 3% while international segments saw declines.
- 3Net income attributable to Costco decreased by 9% to $546 million, or $1.24 per diluted share, from $598 million, or $1.35 per diluted share, in the prior year.
- 4Membership fees increased by 4% to $603 million, reflecting growth in memberships and upgrades to Executive memberships.
- 5Gross margin percentage improved by 17 basis points to 11.24%, driven by lower gasoline prices and contributions from ancillary businesses, partially offset by lower bounty revenue from credit card partnerships.
- 6Selling, general and administrative (SG&A) expenses as a percentage of net sales increased by 34 basis points, primarily due to higher warehouse operating costs and information systems modernization expenses.
- 7The company repurchased approximately $80 million of its common stock during the quarter and has $3.49 billion remaining under its authorized repurchase program.
Frequently Asked Questions
The decrease in net income was primarily due to a combination of factors. Foreign currency exchange rate fluctuations negatively impacted results, particularly from the Canadian dollar. Additionally, the prior year's second quarter benefited from discrete net tax benefits of $43 million ($0.10 per diluted share) related to a special cash dividend paid to 401(k) plan participants, which was not present in the current period. Higher selling, general, and administrative expenses as a percentage of sales also contributed to the decline.
Comparable warehouse sales saw a modest increase of 1% for the quarter. While the U.S. market showed a 3% increase, Canada experienced a 7% decrease and Other International segments saw a 3% decrease, indicating regional variations in sales performance. The company noted that comparable sales were negatively impacted by foreign currency changes and decreases in gasoline prices.
Costco continues its expansion strategy, having opened 12 new warehouses and relocated two in the first half of fiscal 2016. For the remainder of fiscal 2016, the company plans to open up to 18 new warehouses and relocate up to two. Capital expenditures for the first half of fiscal 2016 were $1.339 billion, with a projected total of $2.8 billion to $3.0 billion for the full fiscal year, primarily for new and remodeled warehouses, information systems modernization, and working capital.
The company repaid the outstanding principal balance and interest on its 0.65% Senior Notes totaling approximately $1.2 billion in December 2015. As of February 14, 2016, total assets were $32.39 billion, with cash and cash equivalents of $3.63 billion and short-term investments of $1.22 billion. Management believes its cash position and operating cash flows are sufficient to meet liquidity and capital requirements. The company also has bank credit facilities totaling $441 million in borrowing capacity.