10-QPeriod: Q3 FY2023

COSTCO WHOLESALE CORP /NEW Quarterly Report for Q3 Ended May 7, 2023

Filed June 1, 2023For Securities:COST

Summary

Costco Wholesale Corporation reported net sales of $52.60 billion for the third quarter of fiscal year 2023, a modest increase of 2% year-over-year. This growth was primarily driven by the addition of 23 new warehouses and a 6% increase in membership fee revenue, reaching $1.04 billion. The company maintained a strong focus on value, with comparable sales showing a slight increase when excluding the effects of currency fluctuations and gasoline prices. While net income saw a slight decrease to $1.30 billion ($2.93 per diluted share) from $1.35 billion ($3.04 per diluted share) in the prior year's quarter, this was influenced by specific charges, including those related to the discontinuation of charter shipping activities. The company also experienced an increase in SG&A expenses as a percentage of net sales, largely due to wage and benefit increases. Despite these pressures, Costco's robust membership model and operational efficiencies continue to support its financial performance, and the company announced a quarterly cash dividend of $1.02 per share.

Financial Highlights

50 data points
Beta

Revenue

$53.65B

12.1% Gross Margin

Net Income

$1.30B

2.4% Net Margin

EPS (Diluted)

$2.93

Total Assets

$66.75B

Cash & Equivalents

$12.49B

Free Cash Flow

$721.00M

Financial Statements
Beta
Revenue$53.65B
Cost of Revenue$47.17B
Gross Profit$6.47B
SG&A Expenses$4.79B
Operating Income$1.68B
Interest Expense$36.00M
Net Income$1.30B
EPS (Basic)$2.94
EPS (Diluted)$2.93
Shares Outstanding (Basic)443.81M
Shares Outstanding (Diluted)444.36M

Key Highlights

  • 1Net sales increased by 2% to $52.60 billion for the third quarter, supported by the opening of 23 new warehouses.
  • 2Membership fee revenue grew by 6% to $1.04 billion, indicating strong member loyalty and retention.
  • 3Diluted earnings per share decreased slightly to $2.93 from $3.04 in the prior year's quarter.
  • 4Gross margin percentage improved by 13 basis points, benefiting from core merchandise categories and the absence of a LIFO charge, partially offset by costs associated with discontinuing charter shipping.
  • 5Selling, General & Administrative (SG&A) expenses as a percentage of net sales increased by 49 basis points, primarily due to higher wages and benefits.
  • 6The company declared a quarterly cash dividend of $1.02 per share.
  • 7Operating cash flow remained strong, providing $7.34 billion for the first 36 weeks of the fiscal year.

Frequently Asked Questions

The primary driver of Costco's net sales growth of 2% to $52.60 billion in the third quarter was the contribution from 23 net new warehouses opened since the end of the prior year's third quarter. Comparable sales also contributed positively, especially when excluding currency fluctuations and gasoline prices.

Net income per diluted share decreased to $2.93 from $3.04. This was influenced by several factors, including a charge primarily related to the discontinuation of charter shipping activities, which impacted gross margin. Additionally, SG&A expenses increased as a percentage of net sales due to higher wages and benefits, and slower sales growth.

Costco is facing increased SG&A expenses, particularly from wage and benefit increases. While these pressures are evident, the company's long-standing business model, emphasizing operational efficiencies, volume purchasing, and a limited selection of goods, aims to mitigate these impacts. The strong membership renewal rates and the ongoing focus on providing value also help to absorb some of these cost pressures. The company is also benefiting from the absence of certain charges that impacted the prior year's quarter.

Costco plans to spend approximately $3.8 billion to $4.2 billion on capital expenditures in fiscal year 2023, primarily for new and remodeled warehouses, with plans to open nine additional warehouses in the remainder of the fiscal year. The company continues to return capital to shareholders through dividends, announcing a quarterly dividend of $1.02 per share, and through its share repurchase program, with $3.79 billion remaining authorization.