10-QPeriod: Q2 FY2018

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q2 Ended Feb 18, 2018

Filed March 15, 2018For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported its second-quarter results for fiscal year 2018, ending February 18, 2018. The company demonstrated strong top-line growth, with net sales increasing by 11% to $32.3 billion, driven by an 8% rise in comparable sales. Membership fee revenue also saw a significant boost of 13%, partially attributed to a recent membership fee increase. Despite a slight decrease in gross margin percentage due to gasoline price inflation, the company managed to improve its operating efficiency, with selling, general, and administrative (SG&A) expenses as a percentage of net sales decreasing by 21 basis points. Net income saw a substantial increase of 36% to $701 million, resulting in diluted earnings per share of $1.59. This strong performance was notably aided by a tax benefit of $74 million related to the Tax Cuts and Jobs Act of 2017, which lowered the effective tax rate. The company also continued its shareholder return initiatives, declaring a quarterly cash dividend of $0.50 per share and actively repurchasing its stock. Overall, Costco demonstrated robust operational execution and benefited from favorable tax reforms during the quarter.

Financial Highlights

49 data points
Beta

Revenue

$32.99B

12.9% Gross Margin

Net Income

$701.00M

2.1% Net Margin

EPS (Diluted)

$1.59

Total Assets

$38.70B

Cash & Equivalents

$4.78B

Free Cash Flow

-$399.00M

Financial Statements
Beta
Revenue$32.99B
Cost of Revenue$28.73B
Gross Profit$4.26B
SG&A Expenses$3.23B
Operating Income$1.02B
Interest Expense$37.00M
Net Income$701.00M
EPS (Basic)$1.60
EPS (Diluted)$1.59
Shares Outstanding (Basic)439.02M
Shares Outstanding (Diluted)441.57M

Key Highlights

  • 1Net sales grew 11% to $32.3 billion, driven by an 8% increase in comparable sales.
  • 2Membership fee revenue increased by 13%, benefiting from a recent fee hike and member growth.
  • 3Net income rose 36% to $701 million, with diluted EPS of $1.59.
  • 4The company recognized a $74 million tax benefit from the Tax Cuts and Jobs Act, reducing the effective tax rate.
  • 5SG&A expenses as a percentage of net sales improved by 21 basis points, indicating operational leverage.
  • 6Costco declared a quarterly cash dividend of $0.50 per share, demonstrating a commitment to returning capital to shareholders.
  • 7The company continued its share repurchase program, with $2.57 billion remaining authorized.

Frequently Asked Questions

Costco reported an 11% increase in net sales for the second quarter, reaching $32.3 billion. This growth was primarily driven by an 8% increase in comparable sales across its warehouses and e-commerce platforms. Membership fee revenue also saw a healthy 13% increase.

The Tax Cuts and Jobs Act of 2017 provided a significant boost to Costco's net income. The company recognized a net tax benefit of $74 million in the second quarter of fiscal year 2018 due to the reduction in the U.S. federal corporate income tax rate from 35% to 21%. This positively impacted diluted earnings per share.

Costco demonstrated improved operating efficiency in the second quarter. Selling, general, and administrative (SG&A) expenses as a percentage of net sales decreased by 21 basis points compared to the prior year's quarter. This was achieved through leveraging increased net sales and controlling warehouse operating costs.

Costco plans to open 18 to 20 additional warehouses in the remainder of fiscal year 2018 and anticipates capital expenditures of approximately $2.5 to $2.7 billion for the full year. The company continues to return capital to shareholders through a quarterly cash dividend of $0.50 per share and an ongoing share repurchase program, with $2.57 billion remaining authorization.