Costco 2007 Annual Report Download - page 29

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2007 vs. 2006
Membership fees increased 10.5% to $1.31 billion, or 2.08% of net sales, in fiscal 2007 from
$1.19 billion, or 2.02% of net sales, in fiscal 2006. Excluding the adjustment to deferred membership
fees in the fourth quarter of fiscal 2007 discussed above, adjusted membership fees increased 15.2%
from fiscal 2006. This increase was primarily due to: a five dollar increase in our annual membership
fee for our U.S. and Canada Gold Star (individual), Business and Business Add-on members, which
was effective May 1, 2006 for new members and July 1, 2006 for existing members; increased
penetration of the higher-fee Executive Membership program; and additional membership sign-ups at
the 30 new warehouses opened in fiscal 2007.
2006 vs. 2005
Membership fees increased 10.7% to $1.19 billion, or 2.02% of net sales, in fiscal 2006 from
$1.07 billion, or 2.07% of net sales, in fiscal 2005. This increase was primarily due to increased
penetration of the Executive Membership program and additional membership sign-ups at the 25 new
warehouses opened in fiscal 2006.
Gross Margin
Fiscal 2007 Fiscal 2006 Fiscal 2005
Gross margin ........................ $6,637,899 $6,217,683 $5,532,109
Unusual items ........................ 85,759 — —
Gross margin, as adjusted .............. $6,723,658 $6,217,683 $5,532,109
Gross margin increase ................. 6.8% 12.4% 9.4%
Gross margin increase, as adjusted ...... 8.1% 12.4% 9.4%
Gross margin as a percent of net sales . . . 10.52% 10.55% 10.66%
Adjusted gross margin as a percent of
adjusted net sales .................. 10.58% 10.55% 10.66%
2007 vs. 2006
Gross margin was $6.64 billion in fiscal 2007 or 10.52% of net sales, compared to $6.22 billion or
10.55% of net sales in fiscal 2006. Excluding the unusual items affecting net sales and gross margin in
fiscal 2007, adjusted gross margin as a percentage of adjusted net sales was 10.58%, or an increase
of 3 basis points as compared to fiscal 2006. This increase was primarily due to a 24 basis point
increase in certain merchandise departments, largely food and sundries, as well as smaller increases
in certain warehouse ancillary businesses, costco.com and our international operations, offset by a
decrease in our hardlines and softlines categories of approximately 15 basis points. In addition,
increased penetration of the Executive Membership two-percent reward program and increased
spending by Executive members negatively affected gross margin by six basis points.
In our fourth fiscal quarter, the decrease in our reserve for estimated sales returns resulted in an
improvement of gross margin of approximately 2 basis points. This improvement is primarily a result of
the changes to our consumer electronics returns policy implemented in the spring of 2007.
2006 vs. 2005
Gross margin was $6.22 billion in fiscal 2006 or 10.55% of net sales, compared to $5.53 billion or
10.66% of net sales in fiscal 2005. This eleven basis point decrease reflected increased penetration of
the Executive Membership two-percent reward program and increased spending by executive
members, which decreased gross margin by ten basis points. Additionally, a decrease of four basis
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