Geographic analysis of Costco’s revenue
Costco Wholesale (COST) derived revenue of $116.2 billion on a warehouse base of 686 in fiscal 2015. However, its revenue stream isn’t very geographically diverse. Most of its revenue stems from the US and Canada markets. This can be both a benefit and a disadvantage. As the company reports in US dollars, a higher exposure to the US market (XRT) minimizes fluctuations in reported results due to currency movements. On the other hand, it makes the company more vulnerable to the fundamental performance of the US and Canadian economies.
US operations overview
At the end of fiscal 1Q16, Costco reported 487 warehouses in the US and 90 in Canada. The US (SPY) accounted for 72.6% of the company’s sales and 63.7% of the company’s operating income in fiscal 2015. Same-store sales excluding fuel rose 6%.
Among US states, Costco’s performance in California is critical. The state has a relatively larger percentage of higher-volume warehouses compared to the other markets in which the retailer operates. The company derived about 31% of US sales from California, or ~$26.2 billion in fiscal 2015, on a warehouse base of ~120[1. fiscal 2013 estimate].
Canada operations overview
Costco derived 14.9% of total sales and 21.3% of its operating income from Canada in fiscal 2015, making its Canada operations the most profitable geography. Same-store sales (XRT), excluding fuel and the impact of the higher US dollar, rose 8%.
Besides the US and Canada, Costco operates warehouses in the United Kingdom, Japan, South Korea, Australia, Mexico, Spain, and Taiwan. The company derived 12.5% of total sales and 15% of its operating income from outside the US and Canada in fiscal 2015. Same-store sales excluding fuel and the impact of the higher US dollar rose 6%.
International operations also present a sizable growth opportunity for Costco. International sales have grown at a CAGR of 18.3% over the past five years. International growth would enable the company to take the concept of the warehouse club to new markets and diversify its revenue stream.
However, the appreciating US dollar was a critical drag on overseas performance in fiscal 2015. Sales took a hit of 303 basis points, or $3.3 billion, due to adverse forex movements.