Costco 2007 Annual Report Download - page 4

December 14, 2007
Dear Costco Shareholders,
As we begin our 25th year of operations, we look back at fiscal 2007 as another banner year for our
Company, proving once again that our unique approach to merchandising and efficient operations
continue to drive successful results. We finished the fiscal year with record sales and earnings per
share. Sales for the 52 weeks were $63.1 billion, a 7% increase over the 53-week 2006 fiscal year; and
comparable sales in warehouses open a year or more were up 6%. Net income again exceeded
$1 billion, and earnings per share increased 3%, reaching a record $2.37, despite non-recurring
charges that negatively impacted EPS by $.26.
Our expansion efforts continued in fiscal 2007, as we opened 31 new warehouses (25 in the U.S. and
six internationally) compared with 25 new locations in 2006; and we ended the fiscal year with 518
warehouses in 39 U.S. states and eight countries. Our average sales per warehouse increased to
$130 million, nearly two-to-three times that of our competition. More than 45 of our warehouses
generated sales exceeding $200 million, with several others not far behind. Two warehouses had sales
of more than $300 million, and we expect that figure to continue to grow in the upcoming years.
Costco’s sales levels are the result, we believe, of well-executed merchandising, a focus on low-cost
operations, and fiercely loyal membership and employee bases. People love to shop at Costco, where
they know they can get unparalleled quality and value. Our members enjoy the treasure hunt
atmosphere, with its enticing mix of practical items and indulgences; and they like to shop often to
ensure they don’t miss out on exciting products like fine crystal, famous name-brand handbags, the
latest in consumer electronics, and fine wines that are often sold out in a matter of days. This past year
we also enjoyed the highest membership renewal rate in our history at 87%, attesting, we believe, to
the high level of satisfaction our members have in our products and services.
Financially, Costco has a healthy balance sheet and strong cash flow. In fiscal 2007, we continued
many of the initiatives begun in fiscal 2005. Since June 2005, we have repurchased nearly 15% of the
outstanding shares of Costco common stock, enhancing our earnings per share performance along the
way. The Company spent almost $1.9 billion between June 2005 and the end of fiscal 2006 to
purchase 37.6 million shares; and an additional $2 billion was expended in fiscal 2007 to purchase
36.4 million shares. Costco also paid shareholders nearly $250 million in dividends in fiscal 2007,
increasing its quarterly dividend by 12% – from $.13 per share to $.145 per share. In FY 2007, capital
expenditures totaled $1.4 billion – for new warehouses, remodels and expanding our “cross-dock”
depot facilities. To assist in the funding of these activities into fiscal 2008 and beyond, we also
successfully completed a $2 billion debt offering this past February, at favorable interest rates.
Many of the new U.S. warehouses the Company opened in fiscal 2007, and in fiscal 2008 to-date,
were infill buildings, designed to increase our market share in a number of existing markets, including:
Seattle, Washington; Minneapolis, Minnesota; Nashville, Tennessee; Atlanta, Georgia; greater Los
Angeles, Palm Springs and San Jose, California; Chicago, Illinois; Denver, Colorado; Pittsburgh,
Pennsylvania; Palm Beach, Florida; Raleigh/Durham, North Carolina; Washington D.C./Virginia; and
Salt Lake City, Utah. We also entered nine new U.S. markets during fiscal 2007: in Kauai, Hawaii;
Gypsum (near Vail), Colorado; Toledo and Columbus, Ohio; Louisville, Kentucky; Helena, Montana;
Spartanburg and Greenville, South Carolina; and Grafton (Milwaukee), Wisconsin.
Expansion plans for all of fiscal 2008 include the opening of more than 35 new warehouses. Fifteen of
those, including four relocations, were operating in time for the important 2007 holiday season.
Relocated to larger buildings at better locations were Chico, Victorville and Visalia, California and
Union Gap, Washington. We also entered two new U.S. markets in the fall of 2007 – Montgomery,
Alabama, and Omaha, Nebraska. In addition, four new U.S. infill buildings were opened: in San
Antonio, Texas; Gig Harbor, Washington; Columbia, Maryland; and Albuquerque, New Mexico.
2