10-QPeriod: Q1 FY2020

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q1 Ended Nov 24, 2019

Filed December 23, 2019For Securities:COST

Summary

Costco Wholesale Corporation reported solid financial results for the first quarter of fiscal year 2020, ending November 24, 2019. The company demonstrated robust top-line growth with a 6% increase in net sales to $36.2 billion, driven by a 4% rise in comparable sales and contributions from new warehouse openings. Membership fees also saw a healthy 6% increase, contributing $804 million and underscoring the strength of Costco's membership model. Profitability showed a significant improvement, with net income rising 10% to $844 million, translating to diluted earnings per share of $1.90, up from $1.73 in the prior year's quarter. This growth was supported by a 30 basis point increase in gross margin percentage, partly due to improvements in ancillary businesses and a favorable adjustment in the prior year's rewards breakage estimate. While selling, general, and administrative (SG&A) expenses increased as a percentage of sales, the overall performance reflects strong operational execution and continued member loyalty.

Financial Highlights

48 data points
Beta

Revenue

$37.04B

13.0% Gross Margin

Net Income

$844.00M

2.3% Net Margin

EPS (Diluted)

$1.90

Total Assets

$51.43B

Cash & Equivalents

$9.03B

Free Cash Flow

$1.39B

Financial Statements
Beta
Revenue$37.04B
Cost of Revenue$32.23B
Gross Profit$4.81B
SG&A Expenses$3.73B
Operating Income$1.06B
Interest Expense$38.00M
Net Income$844.00M
EPS (Basic)$1.91
EPS (Diluted)$1.90
Shares Outstanding (Basic)441.82M
Shares Outstanding (Diluted)443.68M

Key Highlights

  • 1Net sales increased by 6% to $36.2 billion, driven by comparable sales growth of 4% and contributions from 17 new warehouses.
  • 2Membership fee revenue grew by 6% to $804 million, indicating continued member loyalty and growth.
  • 3Net income increased by 10% to $844 million, resulting in diluted EPS of $1.90, up from $1.73 in the prior year's quarter.
  • 4Gross margin percentage improved by 30 basis points, boosted by ancillary businesses and a prior year adjustment for credit card rewards breakage.
  • 5The company repurchased 100,000 shares of common stock for $30 million during the quarter, with $3.913 billion remaining on its repurchase authorization.
  • 6Costco declared a quarterly cash dividend of $0.65 per share, a slight increase from the previous year's $0.57.
  • 7Operating cash flow remained strong at $2.1 billion, supporting investments and financing activities.

Frequently Asked Questions

Costco's net sales increased by 6% to $36.2 billion. This growth was primarily driven by a 4% increase in comparable sales, reflecting higher shopping frequency and average ticket size, and the addition of 17 new warehouses opened since the prior year's comparable quarter.

Costco's profitability improved significantly, with net income increasing by 10% to $844 million. This resulted in diluted earnings per share of $1.90, an increase from $1.73 in the same quarter last year. This improvement was supported by a higher gross margin percentage and controlled operating expenses.

During the quarter, Costco repurchased approximately 100,000 shares of its common stock for $30 million. The company has a remaining authorization of $3.913 billion for future repurchases. Additionally, Costco declared a quarterly cash dividend of $0.65 per share, which was paid in November 2019.

The adoption of ASC 842 on September 2, 2019, resulted in the recognition of operating lease right-of-use assets and operating lease obligations on the balance sheet. This led to an initial increase in both total assets and total liabilities by $2,632 million. However, the standard did not materially impact the condensed consolidated statements of income and cash flows for the reported period.