10-QPeriod: Q3 FY2022

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 8, 2022

Filed June 2, 2022For Securities:COST

Summary

Costco Wholesale Corporation (COST) reported solid financial results for the third quarter and first thirty-six weeks of fiscal year 2022, ending May 8, 2022. The company demonstrated robust net sales growth of 16% year-over-year for both periods, driven by a 15% increase in comparable sales and contributions from new warehouse openings. Membership fee revenue also saw a healthy 9-10% increase, indicating strong member loyalty and growth. Despite top-line growth, the company experienced a decrease in gross margin percentage, primarily due to rising merchandise costs influenced by inflation and a LIFO charge. However, this was partially offset by a significant decrease in selling, general, and administrative (SG&A) expenses as a percentage of net sales, largely due to leveraging increased sales volume. Net income attributable to Costco increased to $1,353 million ($3.04 per diluted share) for the quarter, up from $1,220 million ($2.75 per diluted share) in the prior year. The company also continued its capital allocation strategy through dividend payments and share repurchases.

Financial Highlights

50 data points
Beta

Revenue

$52.60B

11.9% Gross Margin

Net Income

$1.35B

2.6% Net Margin

EPS (Diluted)

$3.04

Total Assets

$63.85B

Cash & Equivalents

$11.19B

Free Cash Flow

$373.00M

Financial Statements
Beta
Revenue$52.60B
Cost of Revenue$46.35B
Gross Profit$6.24B
SG&A Expenses$4.45B
Operating Income$1.79B
Interest Expense$35.00M
Net Income$1.35B
EPS (Basic)$3.05
EPS (Diluted)$3.04
Shares Outstanding (Basic)443.70M
Shares Outstanding (Diluted)444.89M

Key Highlights

  • 1Net sales increased by 16% to $51.6 billion for the third quarter and 16% to $152.0 billion for the first thirty-six weeks, reflecting strong comparable sales growth of 15% and contributions from new warehouses.
  • 2Membership fee revenue grew by 9% to $984 million in the third quarter and 10% to $2.9 billion for the year-to-date period, driven by new member sign-ups and Executive Membership upgrades.
  • 3Gross margin percentage decreased by 99 basis points to 10.19% for the quarter, mainly due to higher merchandise costs (including a LIFO charge) and the impact of gasoline price inflation on net sales, though offset by improved performance in ancillary businesses.
  • 4SG&A expenses as a percentage of net sales improved by 84 basis points to 8.62% for the quarter, demonstrating efficient cost management and leverage from higher sales volumes.
  • 5Net income attributable to Costco increased to $1,353 million ($3.04 per diluted share) for the third quarter, compared to $1,220 million ($2.75 per diluted share) in the prior year.
  • 6The company paid a quarterly cash dividend of $0.90 per share, an increase from the previous year's $0.79 per share, and continued its share repurchase program.
  • 7Inventory levels increased significantly by approximately $3.4 billion year-over-year, indicating a strategic build-up in anticipation of cost increases and to ensure product availability.

Frequently Asked Questions

The primary driver for the decrease in gross margin percentage was an increase in merchandise costs, significantly impacted by inflation. This was further compounded by a LIFO (Last-In, First-Out) charge recognized for these higher costs. The impact of gasoline price inflation on net sales also contributed to the decrease in the gross margin percentage.

Costco effectively managed its operating expenses by decreasing Selling, General, and Administrative (SG&A) expenses as a percentage of net sales by 84 basis points in the third quarter. This was largely due to leveraging increased sales volumes, which allowed the company to absorb fixed costs more efficiently. They also benefited from the cessation of incremental COVID-19 related wages.

For fiscal year 2022, Costco planned to spend approximately $4,000 million on capital expenditures, primarily for new and remodeled warehouses, as well as information systems and facilities. These expenditures are expected to be financed through operating cash flow and existing cash reserves. The company believes its current liquidity position and operating cash flows are sufficient to meet its foreseeable requirements.

Foreign currency exchange rates negatively impacted net sales by approximately $476 million in the third quarter and $379 million for the first thirty-six weeks, primarily due to the performance of its Other International operations. The impact on gross margin was also negative, with approximately $51 million and $43 million decreases for the respective periods.