10-QPeriod: Q3 FY2019

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 12, 2019

Filed June 6, 2019For Securities:COST

Summary

Costco Wholesale Corporation reported solid financial results for the third quarter and the first thirty-six weeks ended May 11, 2019. Net sales saw a healthy increase of 7% in the quarter and 8% year-to-date, driven by comparable sales growth of 6% and 7%, respectively. This growth was supported by new warehouse openings and steady membership fee revenue, which rose 5% and 7%. The company demonstrated strong cost management, with SG&A expenses decreasing as a percentage of net sales. Net income increased by a significant 21% in the third quarter to $906 million, or $2.05 per diluted share, benefiting from a favorable tax rate adjustment. Financially, Costco maintained a robust balance sheet with total assets growing to $43.75 billion. Cash and cash equivalents saw an increase, reflecting strong operating cash flows. The company also continued its commitment to shareholder returns, increasing its quarterly dividend and authorizing a new $4 billion share repurchase program. While the company faces ongoing litigation and potential risks from tariffs, management expressed confidence in its ability to meet liquidity and capital requirements.

Financial Highlights

50 data points
Beta

Revenue

$34.74B

10.7% Gross Margin

Net Income

$906.00M

2.6% Net Margin

EPS (Diluted)

$2.05

Total Assets

$43.75B

Cash & Equivalents

$7.01B

Free Cash Flow

$1.43B

Financial Statements
Beta
Revenue$34.74B
Cost of Revenue$30.23B
Gross Profit$3.73B
SG&A Expenses$3.37B
Operating Income$1.12B
Interest Expense$35.00M
Net Income$906.00M
EPS (Basic)$2.06
EPS (Diluted)$2.05
Shares Outstanding (Basic)439.86M
Shares Outstanding (Diluted)442.64M

Key Highlights

  • 1Net sales increased by 7% to $33.96 billion for the third quarter and 8% to $102.90 billion for the first thirty-six weeks, driven by comparable sales growth of 6% and 7% respectively.
  • 2Membership fee revenue grew by 5% to $776 million in the quarter and 7% to $2.30 billion year-to-date.
  • 3Net income for the third quarter rose 21% to $906 million, or $2.05 per diluted share, compared to $750 million, or $1.70 per diluted share, in the prior year.
  • 4The effective tax rate was favorably impacted by the reduction in the U.S. federal corporate tax rate and a non-recurring tax benefit of $73 million ($0.16 per diluted share) in the third quarter.
  • 5Total assets increased to $43.75 billion as of May 12, 2019, from $40.83 billion as of September 2, 2018.
  • 6The company declared a quarterly cash dividend of $0.65 per share, an increase from $0.57 in the prior year.
  • 7A new share repurchase program of $4.0 billion was authorized on April 26, 2019, expiring in April 2023.

Frequently Asked Questions

Costco reported strong revenue growth. Net sales increased by 7% to $33.96 billion for the third quarter ended May 12, 2019, and by 8% to $102.90 billion for the first thirty-six weeks of fiscal 2019 compared to the prior year periods. This growth was primarily driven by a 6% increase in comparable sales for the quarter and 7% for the year-to-date period, along with sales from new warehouse openings.

On April 26, 2019, Costco's Board of Directors authorized a new share repurchase program valued at $4.0 billion, which is set to expire in April 2023. During the first thirty-six weeks of fiscal 2019, the company repurchased approximately $195 million worth of its common stock.

Costco demonstrated effective cost management. Selling, General, and Administrative (SG&A) expenses as a percentage of net sales decreased by six basis points in the third quarter compared to the prior year. This improvement was partly due to the impact of the new revenue recognition standard, but also reflects ongoing efforts to control operating costs.

Management believes that Costco's cash position, operating cash flows, and access to credit facilities are sufficient to meet its liquidity and capital requirements for the foreseeable future. Cash and cash equivalents plus short-term investments totaled $8.17 billion as of May 12, 2019. The company plans to invest approximately $2.8 billion to $3.1 billion in capital expenditures for fiscal 2019, primarily for new and remodeled warehouses.