Costco 2005 Annual Report Download - page 6

bulk, and gourmet food items including live lobsters, prime steaks, caviar and champagne. Another way we
are linking our brick and mortar buildings with our web business is through costco.com special-order kiosks,
which we are installing in many of our warehouses this fall. We are seeing increasing sales of non-warehouse
items via the kiosks, such as Xbox presales, special-order tires and Dell computers. We also opened an
E-commerce site in Canada in February 2005, costco.ca, which is generating a lot of enthusiasm in this very
important Costco market.
All of Costco’s ancillary businesses continue to draw members into our warehouses for more frequent
shops, generating increasing revenue for the company. Our warehouse ancillary sales increased by more than
20% in fiscal 2005 to more than $6.5 billion. Because of our excellent service, pricing and safety standards, we
receive a lot of positive media response. Our pharmacies have been featured in primetime news programs in
nearly every major U.S. market where we operate, showcasing that our prices on prescription drugs, particularly
generic drugs, are always the best in the market place, often by as much as 80% to 90% less than at other stores.
With 331 pharmacy locations, we filled over 21 million prescriptions in fiscal 2005 and our sales rose nearly
12%. Our signature fresh foods departments are favorites in all the locations around the world where we do busi-
ness, because we offer the highest quality and greatest value on our total product selection, presented in an envi-
ronment where we demand high standards of food safety. We sold almost twenty-five million rotisserie chickens
in the U.S. alone this past fiscal year—that’s nearly 500,000 chickens a week! Our whole pizza sales were up
13%, and our Caesar salad sales were up 28%. And, of course, our $1.50 hot dog/soda pop combo is legendary;
we sold over one million of these each week in fiscal 2005.
Costco Home, the Company’s free-standing, high-end furniture warehouse business, opened its second fa-
cility this year in Tempe, Arizona. Opening day sales were the eighth largest first-day sales results in Costco his-
tory. Sales from the two buildings represent a 132% increase over 2004 sales, and profits are up significantly,
showing a strong growth potential for this venture. The Company plans to open a third Costco Home unit in late
2006.
At the end of fiscal 2005, we had 225 gas stations pumping out the lowest-priced gasoline in virtually every
market where we operate. Members are willing to wait in line to get gas, knowing that Costco will give them the
best value in town. We had gasoline sales of more than $3 billion in fiscal 2005, an increase of 32% over fiscal
2004, and we made a profit despite the turbulent market.
The Company’s private label Kirkland Signature products have earned brand name status around the world
and provide unparalleled value to our members, where we strive to provide a minimum of 20% savings compared
to Costco’s price on the leading national brand. We currently have nearly 400 Kirkland Signature items and be-
lieve we can add several hundred more in the next five years. New and upcoming items include Kirkland Sig-
nature cosmetics, co-branded with the upscale Borghese brand, as well as diapers, beauty bars, organic peanut
butter, and numerous other items.
As founders of this Company, our greatest sense of satisfaction and pride is with the management team we
have assembled that is completely capable of operating our business. Costco is led by one of the most stable and
skilled management teams in the retail industry. Many of our executives have been with us for twenty or more
years (our senior officers, thirty-four in number, average nearly twenty years with Costco; and our 460 ware-
house managers average fifteen and one-half years). They are well compensated and highly sought after, and they
stay with our Company. In fact, employee loyalty is strong at all levels of our company, and the turnover rate of
our 115,000 employees is the lowest in big retail. We are constantly recognized for having a highly motivated
and skilled workforce that exceeds our members expectations. We are thankful for and proud of them all.
This year we spent considerable time and effort evaluating and upgrading our internal controls to be in com-
pliance with regulations such as Sarbanes-Oxley 404 Internal Controls. We are pleased with our performance and
were able to enhance and streamline many of our policies and procedures as we met the extensive requirements
of these regulations.
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