Analysis of Revenues
Accounting Policy on Revenue Recognition
Costco recognizes sales for the amount of consideration collected from the member, which includes gross shipping fees where applicable, and is net of sales taxes collected and remitted to government agencies and returns. Costco reserves for estimated returns based on historical trends in merchandise returns and reduces sales and merchandise costs accordingly. Costco records, on a gross basis, a refund liability and an asset for recovery, which are included in other current liabilities and other current assets, respectively, in the consolidated balance sheets.
Merchandise Sales - Costco offers merchandise in the following core merchandise categories: food and sundries, hardlines, softlines, and fresh foods. Costco also provides expanded products and services through warehouse ancillary and other businesses. The majority of revenue from merchandise sales is recognized at the point of sale. Revenue generated through e-commerce or special orders is recognized upon shipment to the member to the extent there is no installation provided as a part of the contract. For merchandise shipped directly to the member, shipping and handling costs are expensed as incurred as fulfillment costs and included in merchandise costs in the consolidated statements of income. In certain ancillary businesses, revenue is deferred until the member picks up merchandise at the warehouse. Deferred sales are included in other current liabilities in the consolidated balance sheets.
Principal Versus Agent - Costco is the principal for the majority of its transactions and recognizes revenue on a gross basis. Costco is the principal when it has control of the merchandise or service before it is transferred to the member, which generally is established when Costco is primarily responsible for merchandising decisions, maintains the relationship with the member, including assurance of member service and satisfaction, and has pricing discretion.
Membership Fees - Costco accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the one-year membership period. Deferred membership fees at the end of 2019 and 2018 were $1,711 and $1,624, respectively.
In certain countries, Costco’s Executive members qualify for a 2% reward on qualified purchases (up to a maximum of approximately $1,000 per year), which does not expire and can be redeemed only at Costco warehouses. Costco accounts for this reward as a reduction in sales, net of the estimated impact of non-redemptions (breakage), with the corresponding liability classified as accrued member rewards in the consolidated balance sheets. Estimated breakage is computed based on redemption data. For 2019, 2018 and 2017, the net reduction in sales was $1,537, $1,394, and $1,281 respectively.
Shop Cards - Costco sells and otherwise provides proprietary shop cards that do not expire and are redeemable at the warehouse or online for merchandise or membership. Revenue from shop cards is recognized upon redemption, and estimated breakage is recognized based on redemption data. Costco accounts for outstanding shop card balances as a shop card liability, net of estimated breakage. Previously, the shop cards were branded as cash cards.
Co-Branded Credit Card Program - Citibank, N.A. (“Citi”) became the exclusive issuer of co-branded credit cards to U.S. members in June 2016. Costco receives various forms of consideration, including a royalty on purchases made on the card outside of Costco, a portion of which, after giving rise to estimated breakage, is used to fund the rebate that cardholders receive. The rebates are issued in February and expire on December 31. Breakage is estimated based on redemption data.
Source: 10-K (filing date: 2019-10-11).
Revenues as Reported
Costco Wholesale Corp., Income Statement, Revenues
US$ in millions
|12 months ended:||Sep 1, 2019||Sep 2, 2018||Sep 3, 2017||Aug 28, 2016||Aug 30, 2015||Aug 31, 2014|
|Food and Sundries|
Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).
|Net sales||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Costco Wholesale Corp.’s net sales increased from 2017 to 2018 and from 2018 to 2019.|