Item 1 is the business section. The company describes what it does in its own words.
Item 1 is the business section. The company describes what it does in its own words.
It is the only part of the filing where you learn what the company thinks it is. Everything after it is numbers or risk or lawyers. Item 1 tells you which numbers will matter.
It also carries the counts. How many stores. How many members. How many employees. These are called operating metrics. They are not on any financial statement and they are usually the fastest way to understand a business.
Read Item 1 first. It takes four minutes and it tells you where to look next.
Costco describes itself as a membership warehouse business. Here is what Item 1 reports for the year that ended September 3 2023.
Now read them together.
861 warehouses and 71.0 million paid members is about 82,000 paid members per warehouse. That's the shape of the model. Few locations. Enormous traffic through each one.
71.0 million paid members and 127.9 million cardholders means each paid membership carries about 1.8 cards. Households join, not individuals.
316,000 employees across 861 warehouses is about 367 people per warehouse. Costco is a large employer per site.
None of those three ratios appears anywhere in the document. You made them from Item 1 in under a minute, and they tell you more about Costco than the income statement does.
The trap is skipping Item 1 because you think you know the company.
Everyone knows what Costco is. Almost nobody knows that its own description leads with membership. That word is the instruction. It says read the membership fee line before the sales line, because the fee is where the profit is.
The second trap is comparing a count across companies without checking the definition. Costco's warehouse count is warehouses in operation at fiscal year end. Another retailer might report an average for the year, or include stores it franchises but doesn't own. The word next to the number decides whether two numbers can be compared.
Read the label, not just the figure.
You're briefing a supplier who wants to sell into Costco. She asks how big the opportunity is per location.
Find the two counts you need.
861 warehouses and 71.0 million paid members. Both in Item 1.
Work out paid members per warehouse.
71,000,000 divided by 861 is about 82,500.
She asks how many people that really reaches.
Each paid membership carries about 1.8 cards. 127.9 million cardholders across 861 warehouses is about 148,500 cardholders per site.
She asks why you used cardholders and not members for the second answer.
Because a card is what walks through the door. Members is what pays the fee. Different questions use different counts and Item 1 gives you both.
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