Costco(COST) - 2025 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended May 11, 2025, including income, balance sheets, equity, and cash flow statements Condensed Consolidated Statements of Income (in millions, except per share data) | | 12 Weeks Ended May 11, 2025 | 12 Weeks Ended May 12, 2024 | 36 Weeks Ended May 11, 2025 | 36 Weeks Ended May 12, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $63,205 | $58,515 | $189,079 | $174,756 | | Operating Income | $2,530 | $2,197 | $7,042 | $6,243 | | Net Income | $1,903 | $1,681 | $5,489 | $5,013 | | Diluted EPS | $4.28 | $3.78 | $12.34 | $11.27 | Condensed Consolidated Balance Sheets (in millions) | | May 11, 2025 | September 1, 2024 | | :--- | :--- | :--- | | Total Current Assets | $38,151 | $34,246 | | Total Assets | $75,482 | $69,831 | | Total Current Liabilities | $37,579 | $35,464 | | Total Liabilities | $48,357 | $46,209 | | Total Equity | $27,125 | $23,622 | Condensed Consolidated Statements of Cash Flows (in millions) | | 36 Weeks Ended May 11, 2025 | 36 Weeks Ended May 12, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,468 | $8,381 | | Net cash used in investing activities | $(3,343) | $(2,706) | | Net cash used in financing activities | $(2,182) | $(8,948) | | Net change in cash and cash equivalents | $3,930 | $(3,296) | - As of May 11, 2025, Costco operated 905 warehouses worldwide, with the majority (624) located in the United States. The company also operates e-commerce sites in eight countries[23] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's analysis highlights strong Q3 FY2025 performance with increased net sales, comparable sales, membership fee revenue, and improved gross margin, supported by robust liquidity - Key drivers of profitability are identified as increasing net sales, particularly comparable sales, which are influenced by shopping frequency and average ticket size. The company's low-price, high-volume model enables it to operate with lower gross margins than typical retailers[66][68] - Highlights for Q3 2025 vs. Q3 2024 include: - Net sales increased 8% to $62.0 billion - Membership fee revenue increased 10% to $1.24 billion - Gross margin percentage increased by 41 basis points - Net income increased to $1.9 billion, or $4.28 per diluted share[77] Results of Operations Q3 2025 saw an 8% rise in net sales, driven by comparable sales growth and new openings, alongside a 10% increase in membership fees and improved gross margin, despite higher SG&A expenses Comparable Sales Growth (Q3 2025 vs Q3 2024) | Region | Reported Comp Sales | Comp Sales (ex-FX & Gas) | | :--- | :--- | :--- | | U.S. | 7% | 8% | | Canada | 3% | 8% | | Other International | 3% | 9% | | Total Company | 6% | 8% | - Membership fee revenue grew 10% in Q3 2025 to $1.24 billion, driven by new member sign-ups and a fee increase effective September 1, 2024. Total paid members reached 79.6 million, with a worldwide renewal rate of 90.2%[84][85] - Q3 gross margin percentage increased by 41 basis points to 11.25%. Excluding the 12 basis point positive impact from gasoline price deflation, the margin increased by 29 basis points, driven by improvements in core merchandise and ancillary businesses, partially offset by a LIFO charge[86][87] - SG&A expenses as a percentage of net sales increased by 20 basis points to 9.16% in Q3. This was primarily due to investments in employee wages and a one-time expense for increased employee vacation[93][94] Liquidity and Capital Resources The company maintains a strong liquidity position, primarily from operating cash flow, funding significant capital expenditures and shareholder returns through dividends and share repurchases - Primary liquidity sources are cash from operations and existing cash balances. At May 11, 2025, cash, cash equivalents, and short-term investments totaled $14.85 billion[100] - The company plans to spend over $5.0 billion on capital expenditures in fiscal 2025. It opened 17 new warehouses in the first 36 weeks and plans 10 more for the remainder of the fiscal year[106] - During the first 36 weeks of fiscal 2025, the company repurchased 658,000 shares for approximately $623 million. The remaining authorization under the share repurchase program was $2.24 billion[109] Market Risk Disclosures The company's market risk exposure, primarily from foreign currency and interest rate fluctuations, remains consistent with prior disclosures, with no material changes reported - There have been no material changes to the company's market risks related to foreign-currency exchange rates and interest rates as disclosed in the most recent Form 10-K[114] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of May 11, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 11, 2025[116] - No material changes to the company's internal control over financial reporting occurred during the third quarter of fiscal 2025[117] PART II: OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including class actions and a government investigation, but management anticipates no material adverse effect on its financial position - The company is defending against several legal actions, including employee class actions, opioid litigation, and privacy-related lawsuits concerning website trackers[51][54][55] - The U.S. Attorney's Office is conducting a False Claims Act investigation related to prescription medications[57] - The company does not believe that any pending litigation, individually or in aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows[60] Risk Factors No material changes have occurred in the company's risk factors since the last Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the last Annual Report on Form 10-K[120] Share Repurchases The company repurchased common stock during Q3 FY2025, with a significant remaining authorization under its share repurchase program Common Stock Repurchase Activity (Q3 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Feb 17 - Mar 16, 2025 | 68,000 | $1,025.03 | $70 | | Mar 17 - Apr 13, 2025 | 76,000 | $922.61 | $70 | | Apr 14 - May 11, 2025 | 71,000 | $988.05 | $70 | | Total Q3 | 215,000 | $976.71 | $210 | - The share repurchase program is conducted under a $4.0 billion authorization approved in January 2023, which expires in January 2027. As of the end of Q3 2025, $2.242 billion remained available[121]