10-QPeriod: Q3 FY2017

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 7, 2017

Filed June 1, 2017For Securities:COST

Summary

Costco Wholesale Corporation's (COST) Q3 2017 filing for the period ending May 6, 2017, demonstrates robust financial performance with notable increases in net sales and net income. Total revenue grew to $28.86 billion for the quarter, an 8% increase year-over-year, driven by a 5% rise in comparable sales and contributions from new warehouse openings. Net income saw a significant jump of 28% to $700 million, or $1.59 per diluted share, up from $545 million, or $1.24 per diluted share in the prior year's quarter. This strong profitability was partly aided by a $82 million tax benefit related to a special dividend distribution to employee 401(k) plan participants. The company also highlighted strategic financial maneuvers, including the payoff of $1.1 billion in 5.5% Senior Notes in March 2017 and a significant $3.8 billion issuance of Senior Notes in May 2017, which was used to fund a substantial special cash dividend of $7.00 per share, alongside the regular quarterly dividend of $0.50 per share. These actions reflect a dynamic approach to capital management while maintaining strong operational performance.

Financial Highlights

49 data points
Beta

Revenue

$28.86B

13.5% Gross Margin

Net Income

$700.00M

2.4% Net Margin

EPS (Diluted)

$1.59

Total Assets

$35.63B

Cash & Equivalents

$4.54B

Free Cash Flow

$1.07B

Financial Statements
Beta
Revenue$28.86B
Cost of Revenue$24.97B
Gross Profit$3.89B
SG&A Expenses$2.91B
Operating Income$968.00M
Interest Expense$21.00M
Net Income$700.00M
EPS (Basic)$1.59
EPS (Diluted)$1.59
Shares Outstanding (Basic)438.82M
Shares Outstanding (Diluted)441.06M

Key Highlights

  • 1Net sales for the third quarter of fiscal 2017 increased by 8% to $28.2 billion, driven by a 5% comparable sales increase and new warehouse openings.
  • 2Net income surged by 28% to $700 million ($1.59 per diluted share) from $545 million ($1.24 per diluted share) in the same quarter last year, boosted by a tax benefit.
  • 3Membership fee revenue grew by 4% to $644 million, reflecting membership growth and increased Executive Membership penetration.
  • 4Gross margin percentage improved by 8 basis points year-over-year, with core merchandise categories showing a 12 basis point increase.
  • 5Selling, General, and Administrative (SG&A) expenses as a percentage of net sales decreased by 14 basis points, partly due to higher gasoline prices.
  • 6The company paid off $1.1 billion in 5.5% Senior Notes and subsequently issued $3.8 billion in new Senior Notes.
  • 7A significant special cash dividend of $7.00 per share was declared and paid, alongside a regular quarterly dividend of $0.50 per share.

Frequently Asked Questions

Sales growth was primarily driven by a 5% increase in comparable sales, alongside contributions from newly opened warehouses. Higher gasoline prices also positively impacted reported net sales.

Costco declared and paid a substantial special cash dividend of $7.00 per share. This was financed, in part, by the proceeds from a $3.8 billion issuance of Senior Notes. The company's liquidity from operations and existing cash reserves are considered sufficient to meet ongoing obligations.

Membership fees increased by 4% in the quarter, supported by new member sign-ups and a higher penetration of the Executive Membership program. The company announced membership fee increases in the U.S. and Canada effective June 1, 2017, which are expected to benefit future revenue, though they did not impact the reported quarter's revenue.

Costco proactively managed its debt by paying off $1.1 billion in 5.5% Senior Notes in March 2017. Subsequently, it issued $3.8 billion in new Senior Notes. The company maintains sufficient liquidity from operations and existing cash to meet its foreseeable financial requirements.