Costco 2003 Annual Report Download - page 4

Dear Costco Shareholders:
Recently we celebrated our 20th anniversary, having opened our first Costco warehouse in Seattle, Wash-
ington on September 15, 1983. We thank you, our shareholders, for your confidence and trust in our Company.
Over the years your support has been a significant factor in the success of Costco, and we hope you share our
pride in what has been accomplished. We have built a company that excels in the highly competitive field of dis-
count retailing, and that enjoys the reputation of a good corporate citizen that values the interests of all its stake-
holders.
Since that first warehouse in Seattle, we have grown to our current count of 430 Costcos… 418 warehouses
at our August 31st fiscal year-end, plus 12 openings since then… operating in 36 U.S. States and Puerto Rico and
seven countries. Our mission has been to consistently bring quality goods and services to our members at the
lowest possible price in every market where we do business. Our reputation has been firmly established as “the”
single retailer that has established “pricing authority” for everything we sell. This is not just public relations
“babble”; this is how others in the retail industry view us.
As the two founders of the business, we truly believe that our greatest contribution has been assembling a
top notch management team that is not only capable of running a large and challenging business, but is highly
regarded and highly targeted by our industry.
A hallmark of our Costco warehouses has always been the extraordinary sales volume we achieve. Costco’s
average annual sales per warehouse in fiscal 2003 stood at $105 million ($112 million per U.S. building). We had
65 units where sales last year exceeded $150 million, with 11 of those exceeding the $200 million mark. These
figures, which are nearly twice those of our nearest competitor, continue to increase every year; and we believe
they will continue to increase in fiscal 2004. Recently, the American Customer Satisfaction Index* again ranked
Costco as the top specialty retailer in terms of customer satisfaction; and there is good reason for that. We have
always believed the most important thing we can do is to continue to delight our customers; and we are dedicated
to exceeding their expectations in terms of quality, value and service. That commitment is evident in everything
we do, and it enables us to continue to widen the gulf between Costco and our competitors. By faithfully living
our mission statement… to bring the highest quality goods to market at the lowest possible price… we have re-
warded our shareholders time and again over the past 20 years; and we are committed to rewarding you, our
shareholders, for many years to come.
Despite what was a challenging year, both for us and for the economy in general, we are proud to have fin-
ished our 2003 fiscal year with record sales and earnings. We are now the sixth largest retailer in the United
States and the ninth largest in the world. At number 33 in the Fortune 500, Costco’s fiscal 2003 net sales were
$41.7 billion, representing an increase of 10% over last year’s $38.0 billion and a 5% comparable warehouse
sales increase. Since the beginning of fiscal year 2004, sales have remained strong, with the first three months of
September, October and November enjoying a 14% overall increase in sales and an 11% comparable sales in-
crease. In terms of earnings in fiscal year 2003, net income increased to a record $721 million, or $1.53 per share,
from $700 million, or $1.48 per share, the prior year.
Our expansion continued in fiscal 2003, as 24 new warehouses were opened and six others were relocated.
Of the 24 new locations, nine were opened in new markets and 15 in existing markets. This represents a change
in “mix” for us, with 63% of these new openings going into what were already strong markets for Costco. By
comparison, 28% (17 of 61) of the locations opened during fiscal years 2001 and 2002 represented openings in
strong existing markets. Even with other successful units nearby, we have found that many of the markets where
we operate are far from being saturated. In fact, both existing and new buildings have ultimately seen increased
* The American Customer Satisfaction Index is produced through a partnership of the University of Michigan
Business School, The American Society for Quality and CFI Group.
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