Costco Wholesale Corporation — FY2023 Form 10-K
Reporting period: 53 weeks ended September 3, 2023; comparisons are generally with the 52 weeks ended August 28, 2022. The additional week contributed to sales and membership-fee growth, so reported year-over-year comparisons are not fully like-for-like. Costco operated 861 warehouses at year-end, up from 838.
Business context and operating performance
Costco operates membership warehouses and e-commerce businesses, relying on high sales volumes, rapid inventory turnover, and low merchandise margins. The U.S. and Canada generated 87% of net sales and 84% of operating income in 2023. Paid members totaled 71.0 million; renewal rates were 92.7% in the U.S. and Canada and 90.4% worldwide. Executive members represented 45.4% of paid members and about 72.8% of net sales.
Financial results
| Metric ($ millions, except per-share data and percentages) | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $237,710 | $222,730 | +7% |
| Membership fees | $4,580 | $4,224 | +8% |
| Total revenue | $242,290 | $226,954 | +7% |
| Operating income | $8,114 | $7,793 | +4% |
| Net income attributable to Costco | $6,292 | $5,844 | +8% |
| Diluted EPS | $14.16 | $13.14 | +8% |
| Gross margin percentage | 10.57% | 10.48% | +9 bps |
| SG&A as % of net sales | 9.08% | 8.88% | +20 bps |
| Operating cash flow | $11,068 | $7,392 | +$3,676 |
| Capital expenditures | $4,323 | $3,891 | +$432 |
Net sales growth reflected 3% comparable-sales growth, new warehouses, and the extra week. Comparable sales excluding currency and gasoline-price effects rose 5%; e-commerce comparable sales declined 5% on that basis. Shopping frequency increased, while average ticket declined. The 6% reduction in average gasoline price lowered reported sales, partly offset by a 7% increase in gallons sold.
Gross margin improved modestly, helped by a smaller LIFO charge and core merchandise categories, but was pressured by $391 million of charges, predominantly associated with discontinuing charter shipping, higher Executive-member rewards, and other business mix. The reported margin also reflects gasoline sales mix. SG&A rose faster than sales, mainly due to wage increases and lower sales growth. Interest income increased to $470 million from $61 million as rates and average cash and investment balances rose; the effective tax rate increased to 25.9% from 24.6%.
Liquidity, debt, and capital allocation
Cash and cash equivalents were $13.7 billion and short-term investments were $1.5 billion at year-end, totaling $15.2 billion, versus $11.0 billion a year earlier. Current assets were $35.9 billion and current liabilities $33.6 billion. Long-term debt, including the current portion, had a carrying value of $6.5 billion; the $1.1 billion current portion largely reflects 2024 maturities. Total lease liabilities were approximately $4.1 billion. Management said available cash, operating cash flows, and credit capacity should meet foreseeable liquidity and capital needs.
Operating cash flow increased substantially year over year. Changes in inventory and accounts payable affect this measure; inventory declined during the year, supporting cash generation. The company spent $4.3 billion on capital expenditures. It declared dividends of $3.84 per share, increased the quarterly rate 13% to $1.02, and repurchased $677 million of stock. The $4.0 billion repurchase authorization had $3.563 billion remaining at year-end.
Outlook, risks, and notable items
- Plans, not earnings guidance: Costco intended to spend approximately $4.4–$4.6 billion on FY2024 capital expenditures and planned up to 28 additional warehouse openings, including one relocation. These plans may change; the filing provides no specific revenue or EPS guidance.
- Key operating sensitivities: Costco highlights comparable sales, membership growth and renewals, merchandise costs, labor and healthcare expenses, gasoline and commodity prices, foreign exchange, and competition. Inflation persisted in merchandise costs in 2023, though at a lower rate than in 2022. Management may absorb supplier cost increases or hold prices steady, potentially affecting margins.
- Business and external risks: The company identifies reliance on U.S. and Canadian operations—particularly California—alongside supply-chain disruption, technology and cybersecurity incidents, changing consumer preferences, tariffs, foreign-currency movements, extreme weather, climate-related regulation, and international expansion risks.
- Legal and regulatory matters: Costco reported numerous employment, opioid-related, and other proceedings. It disclosed an arbitration demand alleging damages exceeding $70 million, which the company disputes, and a U.S. Attorney’s Office Civil Investigative Demand concerning prescription-medication claims. Management stated it did not believe pending matters would materially affect the company overall, but noted an unfavorable outcome could materially affect an individual quarter or year.
- Other unusual disclosure: A business membership in Mexico associated with the Iranian Embassy generated approximately $1,276 of gross revenue and an estimated $100 of profit in 2023; Costco canceled the membership in the second quarter and said it did not intend to continue the activity.
- Audit and controls: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Workers’ compensation self-insurance estimates were identified as a critical audit matter; aggregate self-insurance liabilities were $1.513 billion.
Most important facts for investors to verify
- How the extra fiscal week affected reported sales, fees, and earnings growth versus underlying trends.
- Whether comparable-sales momentum, average ticket, and e-commerce performance improve or weaken.
- Whether gross-margin recovery can continue while wages, rewards, charter-shipping costs, and pricing investments affect profitability.
- Whether the FY2024 capital-spending and warehouse-opening plans are executed as intended, and how they affect cash generation.
- Debt maturities, lease commitments, self-insurance estimates, and developments in the disclosed legal and government investigations.