10-QPeriod: Q3 FY2018

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 13, 2018

Filed June 7, 2018For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported solid financial results for the third quarter and the first 36 weeks of fiscal year 2018, demonstrating continued growth and operational efficiency. Net sales saw a significant increase of 12% year-over-year for both periods, driven by strong comparable sales growth of 10% and contributions from new warehouse openings. Membership fee revenue also grew robustly by 14% in the quarter, supported by fee increases and member sign-ups. Despite a decrease in gross margin percentage, primarily due to the impact of gasoline price inflation and a shift towards lower-margin ancillary businesses, the company effectively managed operating expenses. Selling, general, and administrative (SG&A) expenses as a percentage of net sales decreased, showcasing efficient cost control. Net income attributable to Costco increased by 7% for the quarter, reflecting these positive operational trends. The company also continues to invest in growth, with significant capital expenditures for new warehouses, and maintains a strong liquidity position with substantial cash and cash equivalents.

Financial Highlights

49 data points
Beta

Revenue

$32.36B

13.1% Gross Margin

Net Income

$750.00M

2.3% Net Margin

EPS (Diluted)

$1.70

Total Assets

$39.60B

Cash & Equivalents

$5.88B

Free Cash Flow

$1.52B

Financial Statements
Beta
Revenue$32.36B
Cost of Revenue$28.13B
Gross Profit$4.23B
SG&A Expenses$3.15B
Operating Income$1.07B
Interest Expense$37.00M
Net Income$750.00M
EPS (Basic)$1.71
EPS (Diluted)$1.70
Shares Outstanding (Basic)438.74M
Shares Outstanding (Diluted)441.71M

Key Highlights

  • 1Net sales increased by 12% to $31.624 billion for the 12 weeks ended May 13, 2018, and by 12% to $95.020 billion for the 36 weeks ended May 13, 2018, driven by comparable sales growth and new warehouse openings.
  • 2Comparable sales grew by 10% for both the 12-week and 36-week periods, indicating strong performance in existing warehouses.
  • 3Membership fee revenue increased by 14% for the 12 weeks ended May 13, 2018, to $737 million, benefiting from a recent fee increase and membership growth.
  • 4Net income attributable to Costco rose by 7% to $750 million for the 12 weeks ended May 13, 2018, translating to diluted EPS of $1.70.
  • 5Gross margin percentage decreased by 46 basis points in the quarter, largely attributed to the impact of gasoline price inflation and a shift in sales mix towards lower-margin ancillary businesses.
  • 6Selling, General & Administrative (SG&A) expenses as a percentage of net sales decreased by 32 basis points in the quarter, demonstrating effective cost management.
  • 7The company declared a quarterly cash dividend of $0.57 per share, an increase from $0.50 per share in the prior year's quarter.

Frequently Asked Questions

Net sales increased by 12% year-over-year for both the third quarter and the first 36 weeks of fiscal 2018. This growth was primarily driven by a robust comparable sales increase of 10% and the contribution of sales from 20 net new warehouses opened since the end of the third quarter of fiscal 2017.

The gross margin percentage saw a decrease of 46 basis points in the third quarter compared to the prior year. This was mainly due to the impact of gasoline price inflation on net sales, a shift in sales mix towards lower-margin ancillary businesses (like pharmacy and gasoline), and slightly lower gross margins in core merchandise categories.

Costco demonstrated strong cost management, with Selling, General, and Administrative (SG&A) expenses as a percentage of net sales decreasing by 32 basis points in the third quarter. This improvement was due to leveraging increased net sales and the impact of gasoline price inflation, as well as efficiencies in warehouse operations.

Costco opened 10 new warehouses in the first 36 weeks of fiscal 2018 and plans to open an additional 15 warehouses, including two relocations, for the remainder of fiscal 2018. The company also plans capital expenditures between $2.5 billion and $2.7 billion for fiscal 2018, primarily for acquiring land, buildings, and equipment for new and remodeled warehouses.