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Rating Action:

Moody's upgrades Costco's senior unsecured rating to A1; outlook stable

Global Credit Research - 26 Mar 2012

New York, March 26, 2012 -- Moody's Investors Service today upgraded Costco Wholesale Corporation's ("Costco") senior unsecured rating to A1 from A2. The rating outlook is stable.

Ratings upgraded:

Senior unsecured to A1 from A2

Senior subordinate to A2 from A3

RATING RATIONALE

"Costco continues to demonstrate its ability to profitably manage growth across various avenues, including within North America, International markets, and online," stated Moody's Senior Analyst Charlie O'Shea. "Its food business continues to generate increasing levels of store traffic, which Costco then is able to leverage by providing compelling non-food offerings, resulting in higher basket sizes. Costco's solid performance throughout various economic cycles clearly demonstrates that its model and merchandise resonates well with consumers no matter the environment."

Costco's A1 rating recognizes its position as the leading warehouse club operator in North America, with a destination grocery business that drives significant store traffic, a solidly-performing international presence, and an innovative complementary internet business. Additional drivers of the rating include Costco's world-class operating capability and its liquidity profile.

The stable outlook reflects our expectation that Costco will maintain current levels of operating performance and that debt protection measures will remain solid despite a financial policy that will likely continue to become more aggressive given the build-up of cash.

An upgrade could result from Costco sustaining its operating performance, as measured by margins and credit metrics, largely at present levels, which would demonstrate that the company's merchandise and membership model are continuing to resonate with consumers. An upgrade would also require Costco's financial policy to remain balanced with respect to its shareholder and debtholder constituencies, and that its track record of conservative, mostly-organic expansion be handled prudently and flawlessly. As a result of its strong credit metrics and the upgrade, there is presently little downward rating pressure, however a downgrade could occur if financial policy becomes aggressive enough or operating performance softens such that credit metrics weaken substantially from current levels, or if the company has missteps in its expansion efforts, or if liquidity were to weaken measurably.

The principal methodology used in rating Costco Wholesale Corp. was the Global Retail Industry Methodology published in June 2011.

Costco Wholesale Corp., headquartered in Issaquah, WA, is a leading warehouse membership club retailer, with 601 warehouse locations including 434 in the U.S. and Puerto Rico, 82 in Canada, 22 in the United Kingdom, 8 in Taiwan, 13 in Japan, 7 in Korea, and 3 in Australia, and generates around $93 billion in annual revenue. Costco also operates 32 warehouses in Mexico through a 50% owned joint venture.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Charles O'Shea
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Costco's senior unsecured rating to A1; outlook stable
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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