Costco 2004 Annual Report Download - page 14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 state-
ments that address activities, events, conditions or developments that the Company expects or anticipates may
occur in the future. 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 ef-
fects of competition and regulation, consumer and small business spending patterns and debt levels, conditions
affecting the acquisition, development, ownership or use of real estate, actions of vendors, rising costs associated
with employees (including health care and workers’ compensation costs), geopolitical conditions and other risks
identified from time to time in the Company’s public statements and reports filed with the Securities and Ex-
change Commission.
Executive Overview and Selected Consolidated Statements of Income Data
(dollars in thousands, except earnings per share)
Overview
Costco operates membership warehouses based on the concept that offering members very low prices on a
limited selection of nationally branded and selected private label products in a wide range of merchandise
categories will produce high sales volumes and rapid inventory turnover. This rapid inventory turnover, when
combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced han-
dling of merchandise in no-frills, self-service warehouse facilities, enables Costco to operate profitably at sig-
nificantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.
Key items for fiscal year 2004 included:
• Net sales increased 13.1% over the prior year, driven by an increase in comparable sales of 10% and the
opening of 20 new warehouses;
• Membership fees for fiscal 2004 increased 12.7% to $961,280 representing new member sign ups at
new warehouses opened during the fiscal year, increasing penetration of the Company’s Executive
Membership program, and continued strong member renewal rates;
• Gross margin (net sales less merchandise costs) improved three basis points as a percent of net sales
over the prior year, resulting in part from a fourteen basis point improvement in margin in merchandise
and ancillary departments;
• Selling, general and administrative expenses as a percentage of net sales improved eight basis points
over the prior year, largely due to higher sales, changes to our health care plans and a flattening of the
rising trend in our workers’ compensation costs;
• Net income for fiscal 2004 increased 22.4% to $882,393, or $1.85 per diluted share; and
• For the first time, the Board of Directors declared a quarterly cash dividend, and the Company issued
quarterly dividends in the third and fourth quarters of $0.10 per share.
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