10-QPeriod: Q1 FY2019

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q1 Ended Nov 25, 2018

Filed December 20, 2018For Securities:COST

Summary

Costco Wholesale Corporation's (COST) Q1 fiscal year 2019 report for the period ending November 25, 2018, showcases a strong performance with a 10% increase in net sales, reaching $34.3 billion, driven by robust comparable sales growth of 9% and contributions from newly opened warehouses. Net income attributable to Costco saw a significant 20% rise to $767 million, translating to diluted EPS of $1.73, up from $1.45 in the prior year's comparable quarter. This growth was bolstered by a notable 10% increase in membership fees to $758 million, reflecting successful fee adjustments and membership growth. The company's operational efficiency is highlighted by a decrease in Selling, General & Administrative (SG&A) expenses as a percentage of net sales. While the gross margin percentage saw a slight dip of 50 basis points, management attributes this to factors like gasoline price inflation and the adoption of a new revenue recognition standard, with core merchandise categories showing resilience. Costco also continued its capital return strategy, declaring a quarterly dividend of $0.57 per share and actively managing its share repurchase program, demonstrating a commitment to shareholder value.

Financial Highlights

48 data points
Beta

Revenue

$35.07B

10.5% Gross Margin

Net Income

$767.00M

2.2% Net Margin

EPS (Diluted)

$1.73

Total Assets

$43.81B

Cash & Equivalents

$6.78B

Free Cash Flow

$1.45B

Financial Statements
Beta
Revenue$35.07B
Cost of Revenue$30.62B
Gross Profit$3.69B
SG&A Expenses$3.48B
Operating Income$949.00M
Interest Expense$36.00M
Net Income$767.00M
EPS (Basic)$1.75
EPS (Diluted)$1.73
Shares Outstanding (Basic)439.16M
Shares Outstanding (Diluted)442.75M

Key Highlights

  • 1Net sales increased by 10% to $34.3 billion for the 12 weeks ended November 25, 2018, compared to the prior year's period.
  • 2Comparable sales grew by 9%, indicating strong performance from existing stores and e-commerce.
  • 3Membership fee revenue rose by 10% to $758 million, driven by fee increases and member growth.
  • 4Net income attributable to Costco increased by 20% to $767 million, with diluted EPS growing to $1.73 from $1.45.
  • 5Gross margin percentage decreased by 50 basis points to 10.75% due to gasoline price inflation and the adoption of a new revenue recognition standard.
  • 6SG&A expenses as a percentage of net sales decreased by 23 basis points, reflecting improved operating leverage.
  • 7The company declared a quarterly dividend of $0.57 per share, an increase from the previous year's $0.50 per share.

Frequently Asked Questions

The primary driver of Costco's sales growth was a combination of a 9% increase in comparable sales from existing warehouses and e-commerce operations, along with revenue generated from 22 newly opened warehouses since the end of the prior fiscal year's first quarter.

The adoption of the new revenue recognition standard (ASU 2014-09) positively impacted net sales by $340 million and had a favorable effect on SG&A expenses as a percentage of net sales. It also contributed to a decrease in gross margin percentage by approximately 50 basis points, along with other factors like gasoline price inflation.

Costco believes its cash position, operating cash flows, and short-term investments totaling over $7.9 billion are sufficient to meet its liquidity and capital requirements for the foreseeable future. The company also plans to invest approximately $2.8 billion to $3.1 billion in capital expenditures for fiscal 2019, primarily for new warehouse openings.

Costco is involved in several legal proceedings, including class action lawsuits related to wage orders in California, investigations concerning anti-rebate provisions in Canada, and ongoing litigation concerning opioid abuse impacts. Shareholder derivative and class action suits related to internal controls and disclosures have also been filed. The company does not believe that any pending matter, individually or in aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows, though an unfavorable outcome could be material to a single fiscal quarter.