Costco Fiscal Q2 Profit Shrinks on 8% Sales Gain

Costco Wholesale Corporation announced net sales for the second quarter of fiscal 2003 increased 8% to $9.92 billion from $9.21 billion during the second quarter of fiscal 2002. Net income for the second quarter of fiscal 2003 decreased 5% to $182.1 million, or $.39 per diluted share, compared to $192.6 million, or $.41 per diluted share, during the second quarter of fiscal 2002.

Included in the second quarter fiscal 2003 operating results is a pre-tax charge of $26 million ($16 million, or $.03 per share after tax) reflecting an increase in workers compensation loss reserves, in response to both recent adverse development of prior years loss costs and as a result of other developments indicating continuing trends of rising claims costs, most particularly in the State of California. According to Richard Galanti, CFO of Costco Wholesale, “While the costs of workers compensation claims are on the rise everywhere, the trends in California have been most alarming. Whereas approximately one-third of Costco’s U.S. employees work in California, and the incidence of injuries on the job in California is proportional to the size of our workforce, over two-thirds of the total costs associated with workers compensation is incurred there. With recent legislative changes in California, effective January 1, 2003, we believe these rising trends will continue to impact us.”

Net sales for the first half of fiscal 2003 increased 8% to $18.93 billion from $17.51 billion during the first half of fiscal 2002. Net income for the first half of fiscal 2003 increased 2% to $327.8 million, or $.70 per diluted share, compared to net income for the first half of fiscal 2002 of $322.2 million, or $.68 per diluted share.

In addition to reporting second quarter fiscal year 2003 operating results, the Company today reported net sales of $3.06 billion for the 4-week retail reporting month of February, the four weeks ended March 2, 2003, an increase of 10% from $2.77 billion in the same four-week period of the prior fiscal year.

For the 6-month retail reporting period of September through February, the twenty-six weeks ended March 2, 2003, which includes the first two weeks of the Company’s fiscal third quarter, the Company reported net sales of $20.45 billion, an increase of 8% from $18.90 billion during the comparable period of the prior fiscal year.

Comparable sales for the 4-week retail-reporting month of February and the 26-week retail-reporting period of September through February are as follows:

                      4           26
                    Weeks        Weeks
                 -----------  -----------
US                        7%           3%
International             3%           5%

Total Company             6%           4%
                 ===========  ===========

Comparable sales for the fiscal second quarter (12 weeks) and fiscal first half (24 weeks) of fiscal 2003, both ended February 16, 2003, are as follows:

                     12           24
                    Weeks        Weeks
                 -----------  -----------
US                        3%           3%
International             5%           5%

Total Company             4%           4%
                 ===========  ===========

Costco currently operates 413 warehouses, including 305 in the United States, 61 in Canada, 15 in the United Kingdom, five in Korea, three in Taiwan, three in Japan and 21 in Mexico. The Company also operates Costco Online, an electronic commerce web site, at www.costco.com. The Company plans to open 7 to 9 additional new warehouses (including the relocation of one warehouse to a larger and better-located facility) prior to the end of its fiscal year ending August 31, 2003.

A conference call to discuss these second quarter results is scheduled for 8:00 a.m. (PST) today (March 5th), and is available via a webcast on www.costco.com (go to Customer Service, Investor Relations, Financial Releases and click on the “Live Webcast” icon).

                     COSTCO WHOLESALE CORPORATION

              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
             (dollars in thousands, except per share data)
                              (unaudited)

                         12 Weeks Ended           24 Weeks Ended
                --------------------------  --------------------------
                February 16,  February 17,  February 16,  February 17,
                   2003           2002         2003          2002
                                                              
                ------------  -----------   ------------  ------------

REVENUE
 Net sales      $ 9,920,324   $9,208,413    $18,930,895   $17,505,489
 Membership 
  fees and other    193,843      174,439        381,857       343,916
                ------------  -----------   ------------  ------------
  Total revenue  10,114,167    9,382,852     19,312,752    17,849,405
OPERATING 
 EXPENSES
 Merchandise 
  costs           8,840,411    8,212,030     16,889,308    15,646,427
 Selling, general
  and 
  administrative    967,051      840,005      1,855,830     1,626,123
 Preopening
  expenses            7,145        8,616         25,262        30,750
 Provision for
  impaired assets
  and closing costs   4,500        3,000          9,500        11,550
                ------------  -----------   ------------  ------------
  Operating 
   income           295,060      319,201        532,852       534,555
OTHER INCOME
 (EXPENSE)
 Interest expense    (8,003)      (6,199)       (16,471)      (12,437)
 Interest income
  and other           8,983        7,926         16,617        14,903
                ------------  -----------   ------------  ------------
INCOME BEFORE
 INCOME TAXES       296,040      320,928        532,998       537,021
 Provision for
  income taxes      113,975      128,372        205,204       214,809
                ------------  -----------   ------------  ------------
NET INCOME      $   182,065   $  192,556    $   327,794   $   322,212