Costco 2012 Annual Report Download - page 4

December 12, 2012
Dear Costco Shareholders,
We are pleased to report that we had a very successful fiscal 2012. Despite an environment of ongoing
economic challenges, and an ever-changing, but always fierce, competitive landscape, our Company
achieved record sales and earnings for the third consecutive year. These accomplishments are the
result of the hard work of the more than 170,000 Costco employees around the world; our agility and
innovation in the marketplace; and an unwavering commitment to provide our members with the best
value for high quality goods and services. While we are not impervious to tough economic conditions,
great companies can grow and increase market share during economic downturns; and we believe
Costco achieved just that in 2012.
Costco’s 2012 operating performance was successful in many areas:
• Net sales for the 53-week fiscal year were up 11
1
⁄ 2 percent, to $97 billion, from the prior
52-week fiscal year sales of $87 billion; and adjusting for the extra week, up 9
1
⁄ 2 percent.
Comparable sales in warehouses open more than one year increased seven percent.
• These sales results were positively impacted by increases in both shopper frequency and the
average amount spent by members on each visit.
• Membership fees increased more than 11%, due to the impact of raising our annual
membership fees in the U.S. and Canada last year; strong member renewal rates; good
sign-ups at new warehouses; increased penetration of the Executive Membership program;
and the extra (53rd) week of operations in 2012. We were particularly pleased that our
membership renewal rates increased to our highest rate ever – nearly 90% in the U.S. and
Canada and over 86% on a worldwide basis.
• Our gross margin (net sales less merchandise costs) as a percent of net sales decreased in
fiscal 2012, largely due to our investment in lowering prices, which is consistent with our goal
of maintaining price and value leadership. This is what we do…each and every day!
• Our selling, general and administrative (SG&A) expenses as a percent of net sales
decreased by 17 basis points (from 9.98% to 9.81%). This is especially gratifying, since
driving down our expense ratios was a key goal for Costco in 2012. This decrease was
largely due to improvement in our warehouse operating costs (particularly payroll) and the
leveraging of operating expenses with strong sales results.
• Overall, our 2012 net income increased 17% to $1.71 billion, or $3.89 per share, compared
to $1.46 billion or $3.30 per share in 2011. These were the best results in Costco’s 29-year
history.
Our cash flow remained strong in 2012, and was highlighted by the following:
• Our world-wide operations generated over $3 billion in operating cash flow;
• Capital expenditures totaled nearly $1.5 billion in 2012, for new warehouses and depots, as
well as for expansion of our ancillary business operations;
• In March, we paid down $900 million of 5.3% senior notes, reducing our interest expense by
approximately $45 million per year;
• In July, we purchased the 50% interest in our 32-warehouse Costco Mexico operation from
our joint-venture partner for $789 million; and
• We returned to shareholders over $1 billion, in the form of dividends ($446 million) and share
buy-backs ($632 million) of over seven million shares in 2012.
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