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Costco Wholesale Corporation Reports Fourth Quarter and Fiscal Year 2018 Operating Results

ISSAQUAH, Wash., Oct. 04, 2018 (GLOBE NEWSWIRE) -- Costco Wholesale Corporation (“Costco” or the “Company”) (Nasdaq: COST) today announced its operating results for the 16-week fourth quarter and the 52-week fiscal year ended September 2, 2018.

Net sales for the 16-week fourth quarter were $43.4 billion, an increase of 5.0 percent from $41.4 billion in the 17-week fourth quarter last year. Net sales for the 52-week fiscal year were $138.4 billion, an increase of 9.7 percent from $126.2 billion in the 53-week fiscal year of 2017.

Comparable sales for the 16-week fourth quarter, and the 52-week fiscal year were as follows:

           
      16 Weeks   52 Weeks
           
  U.S.   10.8%   9.4%
  Canada   5.7%   8.9%
  Other International   6.7%   10.8%
           
  Total Company   9.5%   9.5%
           
  E-commerce   26.2%   32.2%
           

Comparable sales for these periods excluding the impacts from changes in gasoline prices and foreign exchange were as follows:

           
      16 Weeks   52 Weeks
           
  U.S.   7.8%   7.4%
  Canada   4.6%   4.1%
  Other International   6.9%   7.1%
           
  Total Company   7.2%   6.8%
           
  E-commerce   26.3%   31.3%
           

Net income for the 16-week fourth quarter was $1,043 million, or $2.36 per diluted share, compared to $919 million, or $2.08 per diluted share, in the 17-week fourth quarter last year.

Net income for the 52-week fiscal year was $3.13 billion, or $7.09 per diluted share, compared to $2.68 billion, or $6.08 per diluted share, in the 53-week prior year. Net income this year was positively impacted by a $41 million ($0.09 per diluted share) tax benefit in the first quarter, related to a change in accounting rules for stock-based compensation. Last year’s net income was positively impacted by an $82 million ($0.19 per diluted share) tax benefit in connection with the third-quarter special cash dividend and other net benefits of approximately $51 million ($0.07 per diluted share after tax) for nonrecurring legal and other matters.

While the Company is still completing its assessment of the effectiveness of its internal control over financial reporting as of September 2, 2018, in its upcoming fiscal 2018 Annual Report on Form 10-K, it expects to report a material weakness in internal control. The weakness relates to general information technology controls in the areas of user access and program change-management over certain information technology systems that support the Company’s financial reporting processes. The access issues relate to the extent of privileges afforded users authorized to access company systems. As of the date of this release, there have been no misstatements identified in the financial statements as a result of these deficiencies, and the Company expects to timely file its Form 10-K.

Remediation efforts have begun; the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company expects that the remediation of this material weakness will be completed prior to the end of fiscal year 2019.

Costco ended its 2018 fiscal year with 762 warehouses in operation, including 527 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, one in France and one in Iceland. Costco also operates e-commerce web sites in the U.S., Canada, the United Kingdom, Mexico, Korea and Taiwan.

A conference call to discuss these fiscal 2018 fourth quarter and year-end operating results is scheduled for 2:00 p.m. (PT) today, October 4, 2018, and is available via a webcast on www.costco.com (click on Investor Relations and “Play Webcast”).

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the Company expects or anticipates may occur in the future. In some cases forward-looking statements can be identified because they contain words such as “anticipate,”  “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “likely,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, the effects of competition and regulation, uncertainties in the financial markets, consumer and small business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health care costs), energy and certain commodities, geopolitical conditions (including tariffs), the ability to remediate material weaknesses in internal control, and other risks identified from time to time in the Company’s public statements and reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update these statements, except as required by law.

CONTACTS:
Costco Wholesale Corporation

Richard Galanti, 425/313-8203
Bob Nelson, 425/313-8255
David Sherwood, 425/313-8239

COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 (amounts in millions, except per value and share data)
(unaudited)

               
  16 Weeks Ended   17 Weeks Ended   52 Weeks Ended   53 Weeks Ended
  September 2,
2018
  September 3,
2017
  September 2,
2018
  September 3,
2017
REVENUE              
Net sales $ 43,414     $ 41,357     $ 138,434     $ 126,172  
Membership fees 997     943     3,142     2,853  
Total revenue 44,411     42,300     141,576     129,025  
OPERATING EXPENSES              
Merchandise costs 38,671     36,697     123,152     111,882  
Selling, general and administrative 4,263     4,123     13,876     12,950  
Preopening expenses 31     30     68     82  
Operating income 1,446     1,450     4,480     4,111  
OTHER INCOME (EXPENSE)              
Interest expense (48 )   (53 )   (159 )   (134 )
Interest income and other, net 51     22     121     62  
INCOME BEFORE INCOME TAXES 1,449     1,419     4,442     4,039  
Provision for income taxes 396     487     1,263     1,325  
Net income including noncontrolling interests 1,053     932     3,179     2,714  
Net income attributable to noncontrolling interests (10 )   (13 )   (45 )   (35 )
NET INCOME ATTRIBUTABLE TO COSTCO $ 1,043     $ 919     $ 3,134     $ 2,679  
               
NET INCOME PER COMMON SHARE
  ATTRIBUTABLE TO COSTCO:
             
Basic $ 2.38     $ 2.10     $ 7.15     $ 6.11  
Diluted $ 2.36     $ 2.08     $ 7.09     $ 6.08  
               
Shares used in calculation (000’s):              
Basic 438,379     437,987     438,515     438,437  
Diluted 442,427     441,036     441,834     440,937  
               
               
CASH DIVIDENDS DECLARED PER COMMON
  SHARE
$ 0.57     $ 0.50     $ 2.14     $ 8.90  
                               


COSTCO WHOLESALE CORPORATION

CONSOLIDATED BALANCE SHEETS
 (amounts in millions, except par value and share data)
(unaudited)

     Subject to Reclassification

           
      September 2,
2018
  September 3,
2017
ASSETS      
CURRENT ASSETS      
Cash and cash equivalents $ 6,055     $ 4,546  
Short-term investments 1,204     1,233  
Receivables, net 1,669     1,432  
Merchandise inventories 11,040     9,834  
Other current assets 321     272  
Total current assets 20,289     17,317  
PROPERTY AND EQUIPMENT      
Land 6,193     5,690  
Buildings and improvements 16,107     15,127  
Equipment and fixtures 7,274     6,681  
Construction in progress 1,140     843  
  30,714     28,341  
Less accumulated depreciation and amortization (11,033 )   (10,180 )
Net property and equipment 19,681     18,161  
OTHER ASSETS 860     869  
TOTAL ASSETS $ 40,830     $ 36,347  
LIABILITIES AND EQUITY      
CURRENT LIABILITIES      
Accounts payable $ 11,237     $ 9,608  
Accrued salaries and benefits 2,994     2,703  
Accrued member rewards 1,057     961  
Deferred membership fees 1,624     1,498  
Other current liabilities 3,014     2,725  
Total current liabilities 19,926     17,495  
LONG-TERM DEBT, excluding current portion 6,487     6,573  
OTHER LIABILITIES 1,314     1,200  
Total liabilities 27,727     25,268  
COMMITMENTS AND CONTINGENCIES      
EQUITY      
Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares
    issued and outstanding
     
Common stock $0.01 par value; 900,000,000 shares authorized;
    438,189,000 and 437,204,000 shares issued and outstanding
4     4  
Additional paid-in capital 6,107     5,800  
Accumulated other comprehensive loss (1,199 )   (1,014 )
Retained earnings 7,887     5,988  
Total Costco stockholders’ equity 12,799     10,778  
Noncontrolling interests 304     301  
Total equity 13,103     11,079  
TOTAL LIABILITIES AND EQUITY $ 40,830     $ 36,347  
               

Costco Wholesale Corporation