Costco Companies, Inc. Releases Fourth Quarter and Fiscal Year 1998
Results of Operations and September Sales Results
Business Wire - October 08, 1998 05:15
ISSAQUAH, Wash.--(BUSINESS WIRE)--Oct. 8, 1998--Costco Companies,
Inc. ("Costco" or the "Company") (Nasdaq:COST) announced today its
results of operations for the 16 weeks (fourth quarter) and the 52
weeks (fiscal year) ended August 30, 1998.
Net sales for fiscal 1998, the 52 weeks ended August 30, 1998, were
$23.83 billion, an increase of 11% from $21.48 billion during the
prior 52-week fiscal year ended August 31, 1997. Comparable warehouse
sales increased 8% over the comparable 52-week period of fiscal 1997.
Net sales for the 16-week fourth quarter ended August 30, 1998
increased 11% to $7.57 billion from $6.80 billion during the 16-week
fourth quarter ended August 31, 1997. Comparable warehouse sales
during the 16-week fourth quarter of fiscal 1998 increased 7% over
the comparable 16-week period in the prior fiscal year.
Net income for fiscal 1998 increased 47% to $459.8 million or $2.03
per share, from $312.2 million or $1.47 per share in fiscal 1997. Net
income for fiscal 1997 had been impacted by a non-cash, pre-tax
charge of $65 million ($38.7 million or $.17 per share, after-tax)
reflecting a provision for the impairment of long-lived assets as
required by the Company's adoption of Financial Accounting Standard
No. 121. Additionally, net income for fiscal 1997 was impacted in the
second and fourth quarters by one-time, pre-tax charges of $3.5
million and $9.5 million respectively, related to the call and
majority redemption of $764 million of convertible subordinated
debentures. Before the impact of these charges, fiscal 1997 net
earnings were $358.7 million or $1.67 per diluted share, and the year-
over-year earnings increase in fiscal 1998 would be 28%.
Net income in the 16-week fourth quarter of fiscal 1998 increased 29%
to $150.7 million, or $.66 per share, compared to $116.7 million or
$.54 per share in the fourth quarter of fiscal 1997. Excluding the
fourth quarter $9.5 million pre-tax charge ($5.7 million after-tax,
or $.02 per diluted share) net earnings in the fourth quarter of
fiscal 1997 were $122.4 million, or $.56 per share, and the year-over-
year increase in the fourth quarter fiscal 1998 net earnings would be 23%.
In addition to reporting fourth quarter and fiscal year 1998
operating results, the Company today reported net sales of $2.33
billion for the five weeks ended October 4, 1998, an increase of 12%
from $2.08 billion in the same five-week period of the prior fiscal
year. On a comparable warehouse basis, that is warehouses open at
least a year, sales increased 9 percent.
Consistent with its historical application of generally accepted
accounting principles and in accordance with industry practice, the
Company, since its inception in 1976, has recognized annual
membership fees as income when received...that is, on a "cash basis"
rather than a "deferred basis". The reported financial results
reflect such recognition. Recently, the Company has become aware that
other membership-type businesses have received inquiries from the
staff of the Securities and Exchange Commission ("SEC") concerning
membership revenue recognition policies, which are similar to those
of the Company. While the Company has not been contacted by the SEC,
the Company intends to contact the SEC staff in the near future to
determine whether any change would be appropriate and, if
appropriate, the timing of any such change. It is important to note
that a change to the "deferred basis" method of accounting for
membership fees would not have a material effect on the Company's
financial condition, cash flows or ongoing operating results. If the
Company were to adopt such an accounting change in the future, either
voluntarily or because of a change in generally accepted accounting
principles, it would record a one-time, non-cash charge at the time
of adoption, and on an on-going basis, the effect on the Company's
reported earnings would be immaterial. For the recently completed
fiscal year, under the "deferred method" of revenue recognition for
membership fees, reported earnings would have been lower by
approximately three percent, while the Company's cash flows would not
have been affected at all. A one-time, non-cash, cumulative effect to
convert to such a method would be approximately $118 million on an
after-tax basis as of the beginning of the new fiscal year.
The Company currently has 280 warehouses in operation: 213 in the
United States (including recent openings in Torrance, California and
Christiana, Delaware), 56 in Canada, seven in the United Kingdom,
three in Korea, and one warehouse in Taiwan. An additional six to
seven warehouse openings (including two relocations) are planned for
the U.S. and Canada in the Fall, prior to the Christmas holiday
season. The Company also operates 14 warehouses in Mexico with a
joint venture partner, and plans to open two additional warehouses in
Mexico prior to the Christmas holiday season.
COSTCO COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
16 Weeks Ended 52 Weeks Ended
August 30, August 31, August 30, August 31,
1998 1997 1998 1997
(unaudited) (unaudited)
REVENUE
Net sales $ 7,570,100 $ 6,798,612 $23,830,380 $21,484,118
Membership fees
and other 136,922 117,262 439,497 390,286
-----------------------------------------------------
Total revenue 7,707,022 6,915,874 24,269,877 21,874,404
OPERATING EXPENSES
Merchandise costs 6,785,648 6,103,751 21,379,691 19,314,485
Selling, general
& administrative 653,470 587,639 2,069,900 1,876,759
Preopening
expenses 6,712 8,706 27,010 27,448
Provision for
impaired assets
and warehouse
closing costs 2,500 1,500 6,000 75,000
-----------------------------------------------------
Operating income 258,692 214,278 787,276 580,712
OTHER INCOME (EXPENSE)
Interest expense (15,170) (25,443) (47,535) (76,281)
Interest income
and other 7,637 4,725 26,662 15,898
INCOME BEFORE PROVISION
FOR INCOME TAXES 251,159 193,560 766,403 520,329
Provision for
income taxes 100,463 76,887 306,561 208,132
-----------------------------------------------------
NET INCOME $ 150,696 $ 116,673 $ 459,842 $ 312,197
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE:
Diluted $ 0.66 $ 0.54 $ 2.03 $ 1.47
Shares used in the calculation (000s)
Diluted 233,501 225,579 231,685 224,668
CONTACT: Costco Companies, Inc.
Richard Galanti, 425/313-8203
Bob Nelson, 425/313-8255
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