Costco 2005 Annual Report Download - page 4

December 14, 2005
Dear Costco Shareholders,
Costco has now completed 22 years in business, and we are proud to have achieved several milestones dur-
ing this past fiscal year. Our sales exceeded $50 billion ($51.9 billion in fiscal 2005), and our net profit topped
the $1 billion mark ($1.063 billion), both historical records for our Company. Our comparable sales, sales for
units opened for more than twelve months, were a healthy 7% for the fiscal year, and in the first three months of
fiscal 2006 (September, October and November) our comparable sales continued at a strong pace of 9%. We are
proud of the fact that in the 267 months we have been in business, Costco has never reported a negative “comp
sales” figure.
One of the drivers for our success continues to be our outstanding sales volumes per warehouse, which lead
the industry at nearly double those of our nearest club competitor. Our average sales for fiscal 2005 were $120
million per building ($124 million at U.S. locations only); and we had twenty-five warehouses with sales exceed-
ing $200 million, with one topping $300 million! There are many additional Costco warehouses nearing these
figures, and we expect to see these numbers rise again next year.
Our gross margin remained strong in fiscal 2005 despite our on-going goal of bringing quality goods to
market at the lowest possible prices. Control over our inventory is paramount to our success: exciting, high-
quality merchandise, high inventory turns and low inventory shrinkage. Our shrink numbers, we believe, are not
only the lowest in our industry, but they were the lowest in Costco history, well below .20% for fiscal 2005. In
addition, our continued emphasis on cost controls and expense reduction enabled us to reduce our selling, general
and administrative (SG&A) expenses as a percent of sales for the second year in a row—from 9.75% to 9.73%.
We remain committed to expansion, both domestically and abroad, and our success can be measured. Last
year we were the fifth largest retailer in the United States and the eleventh largest in the world. This year we are
the fourth largest retailer in the U.S. and the ninth largest worldwide; and we are at number 29 in the Fortune
500. Costco completed fiscal 2005 with 460 warehouses operating in 37 U.S. states, Puerto Rico and seven addi-
tional countries, including 27 units in Mexico, where we operate with a joint venture partner. We opened 24
buildings in fiscal 2005: fourteen were in the U.S., four in Canada, one each in the United Kingdom, Taiwan and
Japan, and three in Mexico. Five were relocations, where we replaced an older building with a new, larger unit to
better serve our members and increase sales. This gave us a net increase of nineteen new warehouses worldwide
in fiscal 2005.
We have had a lot of success in increasing market share in existing communities where we operate. Our
membership penetration is as high as two-thirds of the households in some key Costco markets; and we are con-
vinced there is still a lot of room for increased membership growth and sales penetration. We currently have 45.3
million loyal members, with an industry-leading 86% renewal rate. Our Executive Membership category con-
tinues to expand and currently has 4.2 million members.
We continue to add buildings in our successful markets, and without exception we find that our new loca-
tions help us grow our business and add significantly to our sales in the local area. When we open a warehouse
closer to where people live and work, they shop more frequently; and we anticipate continued strong growth in
“infill” markets in the years to come.
In the United States this past fiscal year, we opened infill buildings in Cypress, California; Mount Prospect,
Illinois; Eden Prairie, Minnesota; Mount Laurel, New Jersey; Alpharetta, Georgia; Green Oak Township, Michi-
gan; Woodinville, Washington; and a Costco Home in Tempe, Arizona. New U.S. market openings in 2005 were
West Des Moines, Iowa; and Grand Rapids East and Wyoming, Michigan. We relocated older buildings to new,
larger warehouses in Chula Vista and Fremont, California; but the relocation most dear to our hearts was the new
Seattle #01 Costco which we opened in March, replacing our very first Costco unit, originally opened in Sep-
tember 1983, near downtown Seattle.
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