Costco Wholesale Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended August 28, 2022 (52 weeks). Although the request references 2022 Q4, this filing reports annual results, not standalone fourth-quarter results. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Costco operates membership warehouses and e-commerce sites, emphasizing high sales volume, rapid inventory turnover, and low prices. It operated 838 warehouses at year-end, up from 815, and had 65.8 million paid members. U.S. and Canadian operations generated 87% of net sales. Membership renewal was 93% in the U.S. and Canada and 90% worldwide.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $222,730 | $192,052 | +16% |
| Membership fee revenue | $4,224 | $3,877 | +9% |
| Total revenue | $226,954 | $195,929 | +16% |
| Gross margin | $23,348 | $21,368 | +9% |
| Gross margin percentage | 10.48% | 11.13% | Down 65 bps |
| SG&A | $19,779 | $18,537 | +7% |
| SG&A as percentage of net sales | 8.88% | 9.65% | Down 77 bps |
| Operating income | $7,793 | $6,708 | +16% |
| Net income attributable to Costco | $5,844 | $5,007 | +17% |
| Diluted earnings per share | $13.14 | $11.27 | +17% |
| Net cash from operating activities | $7,392 | $8,958 | Down $1,566 |
| Capital expenditures | $3,891 | $3,588 | +$303 |
Comparable sales increased 14% (11% excluding foreign-exchange and gasoline-price effects). Higher gasoline prices added approximately $9,230 to sales, while gasoline volume growth added approximately $3,847; foreign-currency movements reduced sales by approximately $1,762.
Gross-margin pressure reflected lower margins in core merchandise, including fresh foods and foods and sundries, and a $438 LIFO charge associated with inflation. Excluding gasoline-price inflation’s effect on sales, gross margin percentage was 10.94%, down 19 basis points. Higher sales helped lower SG&A as a percentage of sales, despite wage and benefit increases.
Liquidity and debt: Year-end cash and cash equivalents were $10,203 and short-term investments were $846, totaling $11,049, versus $12,175 a year earlier. Current assets were $32,696 and current liabilities $31,998. Long-term debt carrying value was $6,590, including the current portion; short-term borrowings were $88. Lease liabilities totaled $4,349. Management said cash, investments, operating cash flow, and available credit were sufficient for foreseeable requirements.
Material changes and notable items
- Net sales rose 16%, driven by 14% comparable-sales growth, new warehouses, inflation, and higher gasoline sales.
- Operating cash flow fell from $8,958 to $7,392; inventory increased by $4,003, a significant use of operating cash.
- Costco opened 26 warehouses, including three relocations. It acquired the former joint-venture partner’s remaining Taiwan interest for $842 and paid a $208 dividend to that partner.
- A one-time pretax charge of $77 was recorded, primarily for an additional paid day off granted to employees.
- The 2022 effective tax rate was 24.6%, versus 24.0%; management cited $130 of net discrete tax benefits in 2022.
- FY2021 dividends included a special $10-per-share dividend. FY2022 declared dividends were $3.38 per share; the quarterly rate was raised from $0.79 to $0.90.
Outlook, risks, and contingencies
Costco gave no specific earnings or sales guidance in the supplied filing text. Management intended to spend approximately $3,800–$4,000 on capital expenditures in FY2023 and planned up to 29 additional warehouse openings, including four relocations; plans remain subject to change.
Management said COVID-related supply and logistics constraints continued to affect some categories and could persist. It also highlighted elevated inflation, labor and benefit costs, volatile gasoline and other commodity prices, foreign-exchange exposure, intense competition, supply availability, and dependence on U.S. and Canadian performance. Other disclosed risks include cybersecurity and IT transformation, privacy, climate-related regulation and events, and execution of international expansion.
Legal proceedings include employment-related claims, opioid litigation, and a shareholder derivative action concerning chicken welfare. Costco reported immaterial accruals for certain matters and said it did not believe pending matters would have a material adverse effect overall, while noting an unfavorable outcome could materially affect an individual quarter or year. The auditor gave an unqualified opinion on the financial statements and internal controls; workers’ compensation self-insurance estimates were identified as a critical audit matter.
Most important facts for investors to verify
- Whether comparable-sales momentum and membership renewal rates remain resilient as inflation and gasoline-price effects change.
- Whether merchandise-margin pressure, including LIFO and cost inflation, eases or continues to offset sales growth.
- Whether inventory investment and other working-capital changes continue to constrain operating cash flow.
- Progress against FY2023 capital-spending and warehouse-opening plans, and the returns on those investments.
- Developments in significant litigation, self-insurance estimates, supply constraints, labor costs, and cybersecurity/IT initiatives.