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December 18, 2014
Dear Costco Shareholders,
Fiscal 2014 was a great year for Costco! For the fifth consecutive year, sales and profits
increased to record levels. Sales exceeded $110 billion, and net income totaled $2.06
billion, or $4.65 per share. Our cash flow was strong; and over $900 million was
returned to shareholders in the form of dividends ($584 million) and share repurchases
($334 million). Significantly, these results were achieved in an increasingly competitive
retail environment. We remain optimistic about Costco’s future and continue to invest
heavily in growing our businesses in the U.S. and around the world.
We believe the disciplined execution of our unique business model – continually
providing goods and services at the lowest prices – drove the Company’s strong
financial and operating performance, and created additional opportunities for profitable
future growth. Our members’ loyalty – as measured by renewal rates and shopping
frequency – continues to reach record levels. Our U.S. and Canadian members
renewed at a 91% rate; and worldwide our renewal rates topped 87%. Members
shopped our warehouses an average of four percent more often than last year, driving a
comparable sales increase of six percent, when excluding the negative impacts of
gasoline price deflation and weaker foreign exchange rates.
The average annualized sales of the thirty new warehouses opened during the year was
our highest ever – coming in at $108 million per location. Average annual sales of all
(663) warehouses also reached an all-time high – at $164 million per warehouse; and
165 locations generated annual sales greater than $200 million. Of these, 60
warehouses exceeded $250 million in annual sales – including two with sales in excess
of $400 million!
Great merchandise at exceptional prices is what our members around the world expect
to find at Costco. To that end, we continue to expand our selection of brand-name
merchandise offerings, as well as additional private label Kirkland Signature™ items.
Our suppliers are our partners in business, and we continually seek to add new brands
to our ranks. This year we added products from Cole Haan Outerwear, Rachel Zoe,
expanded our offerings of organic products, keeping pace with the movement toward
healthier lifestyles, which generated sales of nearly $3 billion. Natural and gluten-free
foods are also selectively being added to our merchandise mix.
The success of our private label Kirkland Signature™ products continues in both our
domestic and international markets, and now approximates 25% of our global sales.
Some key Kirkland Signature™ introductions this year were in our apparel department –
men’s khaki and five-pocket pants, and a ladies soft shell top. Several new food items
were also introduced, including microwave popcorn, chunk light tuna, organic
lemonade, organic honey, organic strawberries, and lactose-free milk.
2
Nespresso, Ike Behar, All-Clad Cookware, Shiseido, and a range of Apple products. We