Costco 2008 Annual Report Download - page 4

December 12, 2008
Dear Costco Shareholders,
It has been twenty-five years since we opened our first warehouse near downtown Seattle, Washington
in the Fall of 1983. In that first year of operations, $7.5 million of start-up capital was raised, with an
additional $16.9 million raised after the opening of our first three warehouses (Seattle, Portland and
Spokane); our original eleven-member management team was assembled; and seven warehouse
locations were opened – four in Washington and one each in Oregon, Utah and Florida. We ended that
first fiscal year with $101 million in sales; a $3.3 million “start-up” loss; 244,000 Costco members; and
just over 1,000 employees. Six of the original eleven-person management team and more than four
hundred of the original 1,000+ employees are still at Costco today!
Much has been accomplished in Costco’s first twenty-five years; and despite a weakening U.S. and
global economy, we completed fiscal 2008 on August 31st with record sales of $71 billion, a 13% increase
over fiscal 2007. Comparable sales in warehouses open for more than one year grew 8% in fiscal 2008;
and were 5% higher even after excluding the significant inflation in our gasoline sales results. Net income
again exceeded $1 billion, and earnings per share increased nearly 22%. Today, Costco is the fifth
largest retailer in the United States, the eighth largest retailer in the world, and the twenty-ninth largest
company in the Fortune 500. We have come a long way in twenty-five years, and we believe we can
continue to prosper in the future, with many opportunities for improving and growing our business.
Costco is more than the world’s dominant warehouse club operator. We are the recognized pricing
authority in every country where we do business, lauded for the high quality of our goods and services
and the high caliber of our employees. The most recent American Customer Satisfaction Index again
placed us at the top of the list of retailers for the fifth consecutive year, and Fortune Magazine named
Costco the fourteenth most admired company in the U.S. this year. In terms of corporate philanthropy,
we are actively contributing to every community in which we operate – whether it be reading programs
in neighborhood schools; scholarship programs allowing disadvantaged students to attend college; or
contributing and raising money for children’s hospitals across the geography of our operations. In just
the past ten years, Costco has contributed more than $140 million to many worthy causes.
We place a high value on environmental stewardship and protecting our resources. Our labor practices
are routinely held up as a model for other companies, and our employee wage and benefit packages
lead the retail industry. Just recently, a long-time Costco employee said, “it’s nice to work for a
company that is not only successful and growing… but is also liked and trusted by both its employees
and its customers”. This trust – this positive feeling towards Costco – is what each and every one of
our more than 142,000 employees worldwide tries to achieve every day of the year. It is why we are
excited, not only about our recent results, but also about our long-term future prospects!
Our business model is dedicated to driving sales. We pursue this goal from every perspective and
consider it a key focus for every Costco employee. In fiscal 2008, our average sales per warehouse
were $137 million, nearly twice that of our nearest competitor. We had two warehouses with sales
exceeding $300 million; an additional eleven were approaching $300 million; and 52 of our warehouses
had sales in excess of $200 million – a 24% increase from the prior year in $200+ million warehouses!
We are extremely proud of the quality and value of our warehouse ancillary businesses – pharmacies,
food courts, optical and hearing aid centers, 1-hour photo and gas stations. These are “signature”
departments that have been major contributors to Costco’s success for many years: generating good
levels of profits, driving incremental sales and encouraging more frequent visits by our members. These
businesses increased their sales by almost 30% in fiscal 2008, to nearly $11.6 billion, up from $9.0 billion
in 2007. Leading these numbers were increasing gasoline sales. The tumultuous gasoline market
impacts every segment of the world economy and has presented many operating challenges; yet through
it all, Costco was able to sell more than two billion gallons of gasoline in 2008 and do so profitably.
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