Costco 2006 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2006 Costco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 76

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Our fiscal year ends on the Sunday closest to the end of August. Fiscal year 2006, ended
September 3, 2006, included 53 weeks, with the 53rd week falling in the fiscal fourth quarter. The fiscal
years ended August 28, 2005 and August 29, 2004, each included 52 weeks.
Key items for fiscal year 2006 included:
• Net sales in fiscal 2006 (53 weeks) increased 13.7% over fiscal 2005 (52 weeks), driven by
an increase in comparable sales (sales in warehouses open for at least one year) of 8% and
the opening of 25 (net of relocations) new warehouses;
• Membership fees for fiscal 2006 increased 10.7% to $1.2 billion, representing new member
sign-ups at new warehouses opened during the fiscal year, increased penetration of the
Executive Membership program, and continued strong member renewal rates;
• We increased annual membership fees by $5 for our U.S. and Canada Gold Star (individual),
Business, and Business Add-on Members, effective May 1, 2006, for new members and
July 1, 2006, for existing members;
• Gross margin (net sales less merchandise costs) as a percentage of net sales declined
eleven basis points over the prior year, primarily due to increased penetration of the
Executive Membership two-percent reward program;
• Selling, general and administrative expenses as a percentage of net sales improved four
basis points over the prior year, largely due to increased expense leverage of warehouse
payroll and a lower rate of increase in workers’ compensation costs, somewhat offset by
higher stock-based compensation expense;
• Net income for fiscal 2006 was $1.1 billion, or $2.30 per diluted share, compared to $1.06
billion, or $2.18 per diluted share, in fiscal 2005. The fiscal 2005 results included several
non-recurring items that in the aggregate positively impacted that years reported earnings by
approximately $0.14 per diluted share;
• The Board of Directors approved an increase in the quarterly cash dividend from $0.115 to
$0.13 per share in April 2006; and
• We repurchased 28.4 million shares of our common stock, expending approximately $1.5
billion at an average cost of $51.44 per share.
Results of Operations (dollars in thousands, except per share data)
Net Sales
Fiscal 2006 Fiscal 2005 Fiscal 2004
Net sales ............................ $58,963,180 $51,879,070 $47,148,627
Net sales increase .................... 13.7% 10.0% 13.1%
Increase in comparable warehouse sales . . 8% 7% 10%
Warehouse openings (net of relocations) . . . 25 16 20
2006 vs. 2005
Net sales increased 13.7% to $58.96 billion in fiscal 2006, from $51.88 billion in fiscal 2005. The increase
was due to comparable warehouse sales growth of 8%, the opening of 25 new warehouses (28 opened,
3 closed due to relocations) during fiscal 2006 and one additional week of sales in fiscal 2006.
21