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CASE: A-186A DATE: 06/19/03 Brian Tayan prepared this case under the supervision of Professor Maureen McNichols as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: [email protected] or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. C OSTCO W HOLESALE C ORPORATION F INANCIAL S TATEMENT A NALYSIS (A) I NTRODUCTION Margarita Torres first purchased shares in Costco Wholesale Corporation in 1997 as part of her personal investment portfolio. Between 1997 and 2002, she added slightly to her holdings from time to time when the company sold stock for what she felt was a reasonable valuation, and up to that time she did not sell any of her shares. Having watched Costco grow from 265 warehouses to 365 worldwide, and from sales revenue of $21.8 billion to $34.1 billion, she wondered what factors led to such successful growth. She also wanted to determine whether those factors would hold consistent going forward. At this point, Costco was one of a special breed of retailers called wholesale clubs. Unlike other retailers, wholesale clubs required that customers purchase annual memberships in order to shop at their stores. Costco operated a chain of warehouses that sold food and general merchandise at large discounts to member customers. The company was able to maintain low margins by selling items in bulk, keeping operating expenses to a minimum, and turning inventory over rapidly. Costco’s closest competitors were SAM’S Club (a division of Wal-Mart) and BJ’s Wholesale, which both operated as wholesale clubs. Other competitors included general discounters (such as Wal-Mart), general retailers (such as Sears), grocery store chains (such as Safeway), and specialty discounters (such as Best Buy). Torres first considered investing in Costco because she herself was a member. She was impressed by the company’s low prices and noticed in particular that her local Costco was always crowded. She decided to research the company and started, as always, with their annual reports. She discovered a company with tremendous growth potential, strong operational efficiency, and a dedicated management team – and a stock selling at a reasonable price. Now, in July 2002, having profited well from her investment, she decided it was time to update her analysis and determine whether the company was still operating efficiently.
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Costco Wholesale Corp.: Financial Statement Analysis (A) A-186A p. 2 I NDUSTRY O VERVIEW – R ETAIL
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