Costco Wholesale Corporation (COST) Bundle
Understanding Costco Wholesale Corporation (COST) Revenue Streams
Understanding Costco Wholesale Corporation's Revenue Streams
Net Sales: In 2024, net sales reached $249,625 million, up from $237,710 million in 2023, marking a 5% year-over-year growth. This follows a 7% increase in 2023 and a 16% increase in 2022.
Revenue Breakdown by Region:
- U.S.: Increased by 4% in 2024 (previously 7% in 2023).
- Canada: Increased by 6% in 2024 (previously 4% in 2023).
- Other International: Increased by 9% in 2024 (consistent with 2023).
Comparable Sales Growth: Comparable sales grew 5% in 2024, compared to 3% in 2023 and 14% in 2022. This growth is attributed to an increase in shopping frequency, despite a slight decrease in average ticket size.
Contribution of Different Business Segments to Overall Revenue
Core Merchandise Categories: Sales increased by $10,639 million, or 6%, in core merchandise categories during 2024.
Warehouse Ancillary and Other Businesses: Revenue from these segments rose by $1,276 million, or 3%, led by pharmacy services, although this was partially offset by a decrease in gasoline sales.
| Segment | 2024 Revenue (in millions) | 2023 Revenue (in millions) | Year-over-Year Growth (%) |
|---|---|---|---|
| Net Sales | $249,625 | $237,710 | 5% |
| Core Merchandise | $10,639 | Not Disclosed | 6% |
| Warehouse Ancillary | $1,276 | Not Disclosed | 3% |
| Membership Fees | $4,828 | $4,580 | 5% |
Significant Changes in Revenue Streams
During 2024, total revenue was impacted by various factors including:
- One less week of sales compared to the previous year, which affected total sales.
- Gasoline price deflation, which negatively impacted net sales by approximately $917 million, or 39 basis points.
- Changes in foreign currency exchange rates, which resulted in a negative impact of approximately $474 million, or 20 basis points.
Membership Fees: Membership fee revenue increased to $4,828 million in 2024, up from $4,580 million in 2023, reflecting a 5% increase. This growth was driven by new member sign-ups and upgrades to Executive membership.
A Deep Dive into Costco Wholesale Corporation (COST) Profitability
A Deep Dive into Costco Wholesale Corporation's Profitability
Gross Profit Margin: In 2024, the gross profit margin was 10.92%, an increase from 10.57% in 2023 and 10.48% in 2022. The gross margin in dollar terms for 2024 was $27,267 million, compared to $25,124 million in 2023 and $23,348 million in 2022.
Operating Profit Margin: The operating profit for 2024 was $4,457 million, reflecting an increase from $4,212 million in 2023. The operating margin was 1.79% in 2024, compared to 1.77% in 2023.
Net Profit Margin: The net profit margin increased to 2.95% in 2024 from 2.64% in 2023. The net income for 2024 was $7,367 million, up from $6,292 million in 2023.
Trends in Profitability Over Time
Over the last three fiscal years, profitability metrics have shown a positive trend:
| Year | Gross Profit Margin | Operating Profit Margin | Net Profit Margin | Net Income ($ million) |
|---|---|---|---|---|
| 2022 | 10.48% | 1.78% | 2.63% | 5,915 |
| 2023 | 10.57% | 1.77% | 2.64% | 6,292 |
| 2024 | 10.92% | 1.79% | 2.95% | 7,367 |
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, Costco's profitability metrics are competitive:
- Gross Margin: Industry average is approximately 10.5%.
- Operating Margin: Industry average is around 3%.
- Net Margin: Industry average is approximately 2.5%.
Analysis of Operational Efficiency
The company has consistently focused on cost management, which is evident in the following:
- SG&A Expenses: For 2024, total SG&A expenses were $22,810 million, representing 9.14% of net sales.
- Interest Expense: Interest expense was $169 million in 2024, slightly up from $160 million in 2023.
- Capital Expenditures: Capital expenditures for 2024 totaled $4,710 million, indicating a strong investment in operational capabilities.
The trend in gross margins indicates a positive shift, with the gross margin percentage increasing 35 basis points in 2024. This improvement is attributed to warehouse ancillary and other businesses, along with the absence of previous charges related to discontinued operations.
Overall, Costco's operational efficiency, reflected in its gross margin trends and cost management strategies, positions it favorably against its peers in the retail sector.
Debt vs. Equity: How Costco Wholesale Corporation (COST) Finances Its Growth
Debt vs. Equity: How Costco Wholesale Corporation Finances Its Growth
The company has a total debt of $5,897 million as of September 1, 2024, which includes $103 million in current liabilities and $5,794 million in long-term debt.
As of September 1, 2024, the debt-to-equity ratio stands at 0.25, indicating a conservative approach to leveraging compared to the retail industry average of approximately 0.75.
In 2024, the company issued $498 million in long-term debt through four Guaranteed Senior Notes with fixed interest rates ranging from 1.400% to 2.120%. The company maintains a strong credit rating of A from Standard & Poor's, reflecting its financial stability and low risk.
To balance its financing, the company utilizes both debt and equity. In 2024, cash dividends declared totaled $8,589 million, demonstrating a commitment to returning value to shareholders while maintaining sufficient cash flow from operations of $11,339 million.
| Debt Type | Amount (in millions) | Interest Rate |
|---|---|---|
| Current Portion of Long-Term Debt | $103 | N/A |
| Long-Term Debt | $5,794 | 1.400% - 2.120% |
| Total Debt | $5,897 | N/A |
The company’s approach to financing demonstrates a strategic balance, with a focus on minimizing debt levels while ensuring adequate resources for growth and shareholder returns. In 2024, net cash used in financing activities was $10,764 million, significantly higher than the $2,614 million recorded in 2023, primarily due to increased dividend payments and debt repayments.
Overall, the company’s financing strategy—characterized by low debt levels, a conservative debt-to-equity ratio, and a robust cash flow—positions it well for sustainable growth and shareholder value enhancement.
Assessing Costco Wholesale Corporation (COST) Liquidity
Assessing Costco Wholesale Corporation's Liquidity
Current and Quick Ratios
The current ratio for Costco Wholesale Corporation as of September 1, 2024, is calculated as follows:
| Current Assets (in millions) | Current Liabilities (in millions) | Current Ratio |
|---|---|---|
| $34,246 | $35,464 | 0.97 |
The quick ratio, which excludes inventories from current assets, is determined as follows:
| Quick Assets (in millions) | Current Liabilities (in millions) | Quick Ratio |
|---|---|---|
| $15,599 | $35,464 | 0.44 |
Analysis of Working Capital Trends
Working capital, calculated as current assets minus current liabilities, stands at:
| Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|
| $34,246 | $35,464 | ($1,218) |
Cash Flow Statements Overview
The cash flow statement details the following cash flows for the fiscal year ending September 1, 2024:
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $11,339 | $11,068 |
| Investing Activities | ($4,409) | ($4,972) |
| Financing Activities | ($10,764) | ($2,614) |
Potential Liquidity Concerns or Strengths
As of September 1, 2024, the company holds cash and cash equivalents of:
| Cash and Cash Equivalents (in millions) | Short-term Investments (in millions) | Total Liquidity (in millions) |
|---|---|---|
| $9,906 | $1,238 | $11,144 |
Unsettled credit and debit card receivables amount to approximately $2,519 million, expected to settle within four days .
Material contractual obligations include:
| Obligation Type | Amount (in millions) |
|---|---|
| Long-term Debt | $5,794 |
| Operating Lease Liabilities | $2,375 |
| Other Long-term Liabilities | $2,576 |
Overall, while the current and quick ratios indicate potential liquidity concerns, the substantial cash reserves and short-term investments mitigate immediate risks .
Is Costco Wholesale Corporation (COST) Overvalued or Undervalued?
Valuation Analysis
To evaluate whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend metrics, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is 51.0 based on the latest earnings per share (EPS) of $16.56 for the fiscal year 2024.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 3.4, calculated using a book value per share of $7.83.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 26.5, considering the enterprise value of approximately $200 billion and EBITDA of $7.53 billion for 2024.
Stock Price Trends
Over the past 12 months, the stock price has seen significant fluctuations. Here are key data points:
| Date | Stock Price | Change (%) |
|---|---|---|
| October 2023 | $850.00 | - |
| January 2024 | $865.00 | +1.18% |
| April 2024 | $880.00 | +1.73% |
| July 2024 | $845.00 | -3.98% |
| September 2024 | $840.00 | -0.59% |
Dividend Yield and Payout Ratios
The current dividend yield is 2.3%, based on an annual dividend of $19.36 per share. The payout ratio stands at 116% of net income, indicating that dividends exceed earnings.
Analyst Consensus
Analyst recommendations for the stock reveal a consensus rating of Hold, with some analysts suggesting a potential for future growth given the company's consistent revenue increase and strong market position. The average target price set by analysts is approximately $860.
Key Risks Facing Costco Wholesale Corporation (COST)
Key Risks Facing Costco Wholesale Corporation
The financial health of the company is influenced by various internal and external risks that can affect operations and profitability. Key risk factors include industry competition, regulatory changes, and market conditions.
Industry Competition
The retail wholesale sector is highly competitive, with numerous players vying for market share. The company faces competition from other warehouse clubs, discount retailers, and e-commerce platforms. In 2024, the company reported net sales of $249,625 million, reflecting a 5% increase from $237,710 million in 2023 . However, competition pressures may affect pricing strategies and profit margins.
Regulatory Changes
Changes in regulations, particularly in labor laws, environmental standards, and trade policies, pose risks to business operations. The effective tax rate for the company in 2024 was 24.4%, a slight decrease from 25.9% in 2023 . Regulatory compliance costs can increase operational expenses and impact profitability.
| Year | Effective Tax Rate | Net Income ($ Million) |
|---|---|---|
| 2022 | 25.9% | 5,915 |
| 2023 | 25.9% | 6,292 |
| 2024 | 24.4% | 7,367 |
Market Conditions
Fluctuating market conditions, including inflationary pressures, can adversely affect the company’s financial performance. During 2024, the average price per gallon of gasoline decreased by 3%, impacting net sales negatively by $917 million . The company’s ability to manage costs effectively during inflationary periods is crucial for maintaining profit margins.
Operational Risks
Operational risks arise from supply chain disruptions, which may affect inventory levels and product availability. The company reported merchandise inventories of $18,647 million in 2024, an increase from $16,651 million in 2023 . Suppliers may face challenges that could limit the company’s ability to procure goods at competitive prices, potentially leading to stockouts and lost sales.
Financial Risks
Financial risks include fluctuations in foreign exchange rates, particularly given that 28% of net sales come from international operations . These fluctuations can adversely affect revenues and profit margins. The company’s international operations generated $4,828 million in membership fees in 2024, representing a 5% increase .
Strategic Risks
Strategic risks include the company’s expansion plans and the execution of new warehouse openings. In 2024, the company opened 30 new warehouses. While expansion can drive sales growth, it also requires significant capital investment and may not yield immediate returns if market conditions are unfavorable.
Mitigation Strategies
The company employs various strategies to mitigate risks, including diversifying its supplier base, enhancing supply chain management, and adjusting pricing strategies to respond to market conditions. The company has committed to capital expenditures of $4,710 million in 2024 , aimed at maintaining operational efficiency and expanding its footprint.
Future Growth Prospects for Costco Wholesale Corporation (COST)
Future Growth Prospects for Costco Wholesale Corporation
Analysis of Key Growth Drivers
The company is focused on several key growth drivers including:
- Product Innovations: Continuous improvement in product offerings, especially in private-label items, is expected to drive sales. The gross margin percentage increased to 10.92% in 2024, up from 10.57% in 2023.
- Market Expansions: The company opened 30 new warehouses in 2024, with plans to open up to 29 additional new warehouses in 2025.
- Acquisitions: While no significant acquisitions have been disclosed for 2024, the company maintains a strategic approach to potential acquisitions that align with its growth strategy.
Future Revenue Growth Projections and Earnings Estimates
For 2025, revenue projections indicate a potential growth of 5% to 7% based on historical trends and expansion plans. Earnings estimates for fiscal 2025 project net income to potentially reach $8 billion, reflecting growth from the $7.367 billion reported in 2024.
Strategic Initiatives and Partnerships
The company has initiated several strategic partnerships aimed at enhancing e-commerce capabilities and improving supply chain efficiencies. The e-commerce sales increased by 16% in 2024, indicating strong growth potential in online retail.
Competitive Advantages
The company benefits from several competitive advantages, including:
- Strong Membership Model: Membership fees increased by 5% to $4.828 billion in 2024.
- High Renewal Rates: Membership renewal rates stood at 92.9% in the U.S. and Canada.
- Economies of Scale: The company's large scale allows for lower costs and better pricing strategies, maintaining a competitive edge in pricing and product variety.
Growth Opportunities Table
| Growth Driver | 2024 Performance | 2025 Projection |
|---|---|---|
| New Warehouse Openings | 30 new locations | Up to 29 new locations planned |
| Net Sales Growth | 5% increase to $249.625 billion | Projected 5-7% growth |
| Membership Fee Revenue | $4.828 billion, up 5% | Estimated increase of $370 million over the next two years |
| E-commerce Growth | 16% increase | Continued expansion anticipated |
These elements collectively highlight the robust growth opportunities available to the company, positioning it favorably for continued success in the retail sector.
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