10-QPeriod: Q3 FY2016

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 8, 2016

Filed June 1, 2016For Securities:COST

Summary

Costco Wholesale Corporation's (COST) 10-Q filing for the period ending May 8, 2016, reveals a company demonstrating steady, albeit modest, top-line growth, primarily driven by new warehouse openings rather than comparable store sales. While net sales saw a 2% increase, comparable sales remained flat, impacted by deflationary gasoline prices and foreign currency fluctuations. Despite these headwinds, membership fee revenue showed a healthy 6% increase, underscoring the strength and loyalty of Costco's membership base, with renewal rates remaining robust. The company continued to invest in expansion, opening seven net new warehouses in the quarter and projecting further capital expenditures for the fiscal year. Profitability saw a slight improvement, with net income rising 5% year-over-year to $545 million, translating to a diluted EPS of $1.24. The company's financial position remains solid, with substantial cash and cash equivalents and a commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

49 data points
Beta

Revenue

$26.77B

13.5% Gross Margin

Net Income

$545.00M

2.0% Net Margin

EPS (Diluted)

$1.24

Total Assets

$33.87B

Cash & Equivalents

$4.88B

Free Cash Flow

$1.40B

Financial Statements
Beta
Revenue$26.77B
Cost of Revenue$23.16B
Gross Profit$3.61B
SG&A Expenses$2.73B
Operating Income$858.00M
Interest Expense$30.00M
Net Income$545.00M
EPS (Basic)$1.24
EPS (Diluted)$1.24
Shares Outstanding (Basic)438.81M
Shares Outstanding (Diluted)441.07M

Key Highlights

  • 1Net sales increased by 2% to $26.15 billion for the third quarter of fiscal year 2016, driven by new warehouse openings.
  • 2Comparable sales remained flat for the quarter, impacted by lower gasoline prices and foreign currency fluctuations.
  • 3Membership fee revenue increased by 6% to $618 million, indicating strong member loyalty and growth, with renewal rates at 90% in the U.S. and Canada.
  • 4Net income grew by 5% to $545 million, with diluted earnings per share (EPS) of $1.24.
  • 5The company opened seven net new warehouses in the quarter, continuing its expansion strategy.
  • 6Total capital expenditures for the first 36 weeks of fiscal 2016 were $1.8 billion, with plans to spend $2.5 to $2.7 billion for the full fiscal year.
  • 7The quarterly dividend was increased to $0.45 per share, reflecting confidence in continued profitability and cash flow.

Frequently Asked Questions

Net sales growth of 2% was primarily driven by the contribution of new warehouses opened since the end of the prior fiscal year. Comparable sales, which exclude new openings, were flat for the quarter.

Both foreign currency fluctuations and a decrease in gasoline prices negatively impacted net sales and comparable sales. In the third quarter, gasoline price deflation reduced net sales by approximately $483 million and foreign currency changes reduced net sales by $372 million.

Costco opened seven net new warehouses in the third quarter and plans to open up to 10 more by year-end. The company projects capital expenditures of $2.5 billion to $2.7 billion for the full fiscal year 2016, primarily for new and remodeled warehouses.

Costco declared a quarterly cash dividend of $0.45 per share, an increase from the previous quarter. The company also continued its share repurchase program, buying back approximately 899,000 shares during the third quarter for $136 million, with $3.35 billion remaining under its authorization.