Costco Wholesale Corporation — Q3 FY2023 Form 10-Q
Reporting period: 12 weeks ended May 7, 2023; year-to-date figures cover 36 weeks. Amounts are in millions of dollars, except per-share data and where noted. Costco operated 852 warehouses worldwide.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | 36 weeks FY2023 | 36 weeks FY2022 |
|---|---|---|---|---|
| Net sales | $52,604 | $51,612 | $160,280 | $151,966 |
| Membership fees | $1,044 | $984 | $3,071 | $2,897 |
| Total revenue | $53,648 | $52,596 | $163,351 | $154,863 |
| Operating income | $1,679 | $1,791 | $5,333 | $5,296 |
| Net income attributable to Costco | $1,302 | $1,353 | $4,132 | $3,976 |
| Diluted EPS | $2.93 | $3.04 | $9.30 | $8.94 |
| Gross margin percentage | 10.32% | 10.19% | 10.55% | 10.62% |
| SG&A as % of net sales | 9.11% | 8.62% | 9.14% | 9.04% |
- Quarterly net sales rose 2%, while comparable sales were flat overall (up 3% excluding currency and gasoline-price changes). E-commerce comparable sales fell 9% excluding those effects.
- Membership fee revenue increased 6%; paid members totaled 69.1 million and cardholders 124.7 million. Renewal rates were 92.6% in the U.S. and Canada and 90.5% worldwide.
- Quarterly net income declined about 4% and diluted EPS fell to $2.93. Sales growth was led by new warehouses and core categories, particularly foods and sundries and fresh foods. Lower gasoline prices and weaker foreign currencies weighed on reported sales.
- Gross margin percentage rose 13 basis points year over year, including a benefit from no repeat of the prior-year LIFO charge. Excluding gasoline-price deflation, it declined 3 basis points. SG&A increased faster than sales, reflecting higher wages and benefits and slower sales growth.
Cash flow, balance sheet and capital allocation
- For the first 36 weeks, operating cash flow was $7,343, versus $4,886 a year earlier; investing cash outflow was $3,147 and financing cash outflow was $1,950. Operating cash flow benefited from a $1,596 inventory cash source, compared with a $3,633 use in the prior-year period.
- Cash and cash equivalents were $12,493 and short-term investments were $1,215 at May 7, 2023, totaling $13,708. Total current assets were $34,289 and current liabilities $31,708.
- Long-term debt, including current portion, was $6,497; the balance sheet showed no current portion at May 7. Short-term borrowings outstanding were $54. The company reported $1,312 of borrowing capacity under bank credit facilities, subject to outstanding letters of credit.
- Capital expenditures were $2,767 year to date. Management intended to spend approximately $3,800–$4,200 in FY2023, funded from cash and operating resources. Costco opened 17 warehouses, including three relocations, during the first 36 weeks and planned nine additional openings for the remainder of the fiscal year.
- Costco declared a quarterly dividend of $1.02 per share, paid May 19, 2023. It repurchased 908,000 shares for approximately $447 year to date; $3,793 remained under its $4,000 authorization.
Material changes, outlook and risks
- A $298 charge, or approximately $0.50 per diluted share, was recorded in Q3, predominantly for discontinuing charter shipping activities; related charter-shipping charges totaled $391 for the first 36 weeks. The charge was included in merchandise costs.
- Q3 sales were affected by a 12% decline in average gasoline price, reducing sales by approximately $862, and unfavorable currency movements of approximately $782. Management cited inflation, competition and cost pressures, including employee wages and benefits, as factors affecting sales and margins.
- Management said cash, investments, operating cash flows and available credit capacity should meet liquidity and capital requirements for the foreseeable future. The filing provides no specific earnings or sales forecast; warehouse-opening and capital-spending plans are subject to change.
- Key stated risks include economic and consumer-spending conditions, inflation, currency movements, competition, security and privacy breaches, real estate and capital-spending conditions, vendor actions, labor and commodity costs, tariffs, geopolitical events, and regulatory matters. Costco reported no material change in previously disclosed risk factors.
- Costco said pending litigation was not expected to have a material adverse effect on its financial position, results or cash flows, while noting an unfavorable outcome could materially affect an individual quarter or year. The Canela seating case was resolved by final judgment in Costco’s favor; opioid-related litigation and other employment matters remained among disclosed proceedings.
Important facts for investors to verify
- Whether comparable-sales trends and e-commerce performance improve, particularly as gasoline-price and currency effects change.
- Whether wage, benefit and other operating-cost increases continue to pressure SG&A and profitability.
- Progress and execution against the $3,800–$4,200 FY2023 capital-spending plan and nine planned additional warehouse openings.
- Updates on charter-shipping discontinuation costs, litigation contingencies, and liquidity or borrowing capacity.