Costco Reports Higher Fourth-Quarter Profit, Revenue on Resilient Consumer Spending - WSJ

Costco's fourth-quarter profit and revenue growth demonstrate how to read earnings announcements using horizontal analysis—comparing current-period numbers to prior-year figures to spot trends. The warehouse retailer's resilient consumer spending shows why year-over-year percentage changes matter more than raw dollar amounts for financial interpretation.

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Teaching notes are auto-generated. Worth a fact-check before class.

Why this matters

Costco is a membership-based warehouse retailer—think of it as a large store where customers pay an annual fee to buy bulk goods at discounted prices. The company releases quarterly earnings reports (profit and revenue figures) to investors, analysts, and the public. When Costco reports "higher fourth-quarter profit and revenue," the company is announcing absolute dollar amounts for the three-month period ending late in its fiscal year. But those raw numbers alone—say, $5 billion in revenue or $1.2 billion in profit—don't tell you whether the company is actually doing better or worse than it did in the same quarter last year. That's where financial statement analysis enters the picture.

Key points

Costco reported higher Q4 profit and revenue → horizontal analysis compares these current-period figures to the same prior-year quarter to spot growth or decline.
Year-over-year comparison shows whether the trend is real → isolates Costco's genuine performance from seasonal effects that hit all retailers in Q4.
Profit growth exceeding revenue growth suggests margin improvement → horizontal analysis of both lines reveals operating leverage or cost discipline.
Resilient consumer spending appears in comparable-store sales trends → horizontal analysis tracks whether Costco's stores attracted more traffic or higher basket sizes period-to-period.

Key terms

Horizontal analysis: Comparing a company's financial statement line items (revenue, profit, assets) across two or more time periods, usually expressed as a dollar change or percentage change year-over-year, to spot trends.
Vertical analysis: Expressing each line item on a financial statement as a percentage of a base figure (e.g., each expense as a percentage of revenue), to see the relative weight of each component within a single period.
Earnings report: A public announcement of a company's profit, revenue, and other financial results for a quarter or fiscal year, released to shareholders and the press.
Fiscal year: The 12-month period a company uses for financial reporting; it may or may not align with the calendar year (e.g., Costco's fiscal year ends in August).
Comparable-store sales: Revenue from stores open for at least one full year, comparing the same stores' sales in the current period to the same stores' sales in the prior-year period, to isolate growth from new store openings.
Year-over-year (YoY): Comparison of a metric in one period to the same metric in the same period the prior year, eliminating seasonal noise.

Discussion prompts

01
Costco's fourth-quarter profit and revenue both rose; which analytical method—horizontal or vertical—tells you whether profit grew faster than revenue?
Answer: Horizontal analysis compares the Q4 profit figure to prior-year Q4 profit, and revenue to prior-year Q4 revenue, as a dollar or percentage change. This reveals which metric grew faster. Vertical analysis, by contrast, expresses both as percentages of a base (e.g., revenue) in a single period, showing their relative size, not their period-to-period trend.
02
If Costco's Q4 revenue increased 10% year-over-year but profit increased only 5%, what cost or expense issue might horizontal analysis prompt you to investigate?
Answer: Students should recognize that revenue growing faster than profit (10% vs. 5%) signals margin compression—costs or expenses are rising faster than top-line sales. Horizontal analysis of cost of goods sold and operating expenses would pinpoint which line item is eating into profit, prompting management questions about pricing power, labor inflation, or supply-chain costs.
03
How would expressing Costco's fourth-quarter operating expenses as a percentage of revenue (vertical analysis) help you compare its efficiency this quarter to last year's same quarter?
Answer: Vertical analysis converts Q4 operating expenses to a percentage of Q4 revenue (e.g., "operating expenses are 12% of revenue"). Comparing this ratio to prior-year Q4's ratio (e.g., "prior-year Q4 was 11% of revenue") shows whether Costco is managing costs as a share of sales more or less efficiently. This blend of vertical analysis within each period and horizontal comparison across periods reveals efficiency trends.

Bringing it to class

Start by showing a simple side-by-side table on the board: Q4 current year (e.g., $60B revenue, $3B profit) and Q4 prior year (e.g., $55B, $2.7B). Calculate the percentage changes aloud (+9% and +11%) and ask students which number grew faster and why it matters. Then sketch a one-line income statement as a percentage of revenue for both periods (e.g., "COGS was 87% of revenue in both years, operating expenses 4% this year, 4.2% last year")—this is vertical analysis layered on top of horizontal. The payoff: students see that two methods answer different questions: "Is the company bigger and more profitable?" (horizontal) versus "Is the company running more efficiently?" (vertical).