Performance Analysis of Costco Wholesale Corporation
FIN 534: Financial Management
June 11, 2012
Costco Wholesale Corporation
Higher interest rates, levels of unemployment, consumer debt levels, and unsettled financial markets are general economic factors that can adversely affect the company’s financial performance. These key elements play an important role in how a company chooses to move forward operationally and financially. Therefore, it’s imperative that we as investors understand a company’s business strategy as well as have a general knowledge of issues which may impact their decisions. Prior to investing, we should review a company’s operations, stock price, and their ratios to decide if a firm a financially stable to meet their obligations. Company Overview
Costco Wholesale Corporation and its subsidiaries (Costco) began operations on September 15, 1983 in Seattle, Washington. James Sinegal and Jeffery Brotman founded it. In October 1993, Costco merged with The Price Company, which established the membership warehouse model, to form Price/Costco, Inc. In January1997, the company changed its name to Costco Wholesale and all Price Club locations were rebranded as Costco Companies, Inc. August 30, 1999, the company was reincorporated and its name was changed to Costco Wholesale Corporation.
To date, the company has grown to become the largest warehouse club retailer and the second largest general retailer in the United States. The company currently operates 602 warehouses, which include 435 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea, and 3 in Australia (Costco Wholesale Corporation). Additionally, a division of the company, Costco Wholesale Industries, operates manufacturing businesses such as special food packaging, optical laboratories, meat processing, and jewelry distribution (Costco Wholesale Corporation).
The Costco Wholesale Corporation warehouses offer low prices on a variety of nationally branded and select private-label products in a range of merchandise categories. They are known for carrying top quality national and regional brands. Their prices are consistently below traditional whole or retail outlets. It presents one of the largest and most exclusive product category selections to be found in a single store (Costco Wholesale Corporation). Their business segments are 1) Sundries which makes up 23% of their Net Sales. Sundries revenues includes sales of candy, snack food, tobacco, alcoholic and non-alcoholic beverages. 2) Food which is 21% of Net Sales. This segment is responsible for the sale of dry and institutionally packaged foods such as rice and oatmeal. 3) Hardlines which is 19% of Net Sales. The hardlines include sells of major appliances, electronics, health beauty aid, hardware, furniture, and office supplies. 4) Ancillary and Other makes up 15% of the company’s Net Sales. This segment includes the company’s gas stations, pharmacy, food court, optical, and one hour photo. 5) Fresh Food makes is the last business segment which makes up about 12% of the company’s Net Sales. This segment reflects the sale of meat, bakery good, deli and produce (Wikinvest). Economic Impact
The company’s strategy to sell products at heavily discounted prices has helped it to sustain growth amongst stressed economic conditions, as customers continue look to Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is well positioned in the warehouse club industry. The company focuses on selling products at low prices, often at very high volume at its warehouses worldwide, which together earned nearly $88 billion in revenue in 2011. This increased from approximately 76 billion from the previous year. Key economic factors such as, high unemployment rates, consumer...
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