Costco 2011 Annual Report Download - page 4

December 13, 2011
Dear Costco Shareholders,
2011 has been an interesting year, providing many economic challenges on a worldwide basis.
Nonetheless, Costco’s results were solid and once again, we believe, demonstrated our company’s
strength and resilience. We are pleased to report our fiscal 2011 results and discuss our outlook for
2012 and the future. The Company recorded back-to-back years of record sales and earnings during
the past two fiscal years, despite continuing weak and often turbulent economic conditions in the U.S.
and other parts of the world. The durability of our unique business model – to continually provide our
members with quality goods and services at the lowest possible prices – remains very compelling.
We are proud of the financial performance Costco delivered in fiscal 2011. Net sales increased by over
14 percent to $87 billion, and comparable sales in warehouses open more than a year were up 10
percent. Our sales and earnings in 2011 benefited from inflation in gasoline prices and stronger foreign
exchange rates (particularly in our Canadian and Asian markets). Net income was up 12 percent to
nearly $1.5 billion, and earnings per share rose 13 percent to $3.30. Costco generated over $1.9 billion
in free cash flow in 2011; and returned over a billion dollars to shareholders in the form of dividends
($389 million) and share repurchases ($624 million).
Our strong sales increases also provided leverage in reducing our selling, general and administrative
(SG&A) expenses to 9.5% of sales – a three-year low. This is perhaps the most satisfying statistic from
the past year’s performance, because we recognize how imperative low operating expenses are to the
success of our business. We will continue to emphasize cost controls and expense reduction in 2012.
In fiscal 2011, our members shopped our warehouses an average of four percent more often and spent
about five percent more per visit than they did in 2010, resulting in our strong comparable sales results.
We remain the third largest retailer in the United States, and this year moved from the eighth to the
seventh largest retailer in the world. Our sales per square foot is almost double that of our nearest
competitor, and our same-store sales for 2011 again topped our competition. This is reflected in our
growing number of warehouses with sales of more than $200 million a year, which went from 56
locations in fiscal 2010 to 93 in fiscal 2011. For the first time, four of our locations had more than $300
million in annual sales, including one which had more than $400 million in sales. This rate of top line
revenue per building stands out in the retail industry and results from our ongoing focus on value - that
winning combination of quality and price on every item we sell that, we believe, sets Costco apart from
many of its competitors.
This kind of success does not happen by accident. We believe that great companies can not only
survive, but actually thrive and increase market share during times of economic downturn; and the past
two years have provided an excellent opportunity for us to prove this. It is only through the
concentrated efforts and the constant focus on our mission and core values by all of our dedicated
employees that Costco is able to succeed year after year. We constantly seek to surprise and delight
our members, while deftly balancing the mix of our limited number of SKUs based on the needs and
wants of our expanding member base. We concentrate on efficiency at every level of our operations,
working to keep our overhead low while still offering our employees the best wage and benefit package
in the industry. And we never lose sight of our reason for existence – serving our members well and
rewarding our shareholders.....not just for today, but for the long term.
Our 64 million loyal cardholders play a big part in our success, and keeping them satisfied with every
shopping experience is our ongoing goal. Our Company is made up of talented and passionate
merchants who seek out new and exciting merchandise from suppliers around the world, and
experienced operators who enjoy creating great theater and being “show-time ready” in our
warehouses every day. The result: our members love to walk our aisles and see what is new and
exciting. This year our member renewal rate was 89 percent in the U.S. and Canada (85% worldwide),
and our total membership dollars amounted to $1.9 billion in cash fees. This includes our Executive
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