That $1.7 billion is net income, which is after subtracting out the income tax. You have to compare to pre-tax income, which in the case of Costco is essentially just operating income.
75% of Costco's income came from membership fees in the last fiscal year, and similar or higher percentages in other recent years.
From Costco's FY 2012 annual report, page 25 (in millions of dollars):
Membership Operating income
2008 1,506 1,969
2009 1,533 1,777
2010 1,691 2,077
2011 1,867 2,439
2012 2,075 2,759
The membership fee, of course, serves another purpose. It reduces patronage by lower-income shoppers, and therefore helps to reduce shoplifting. The receipt-check is another deterrent. Since Costco has such a tight margin on its merchandise, it cannot tolerate industrywide shrinkage rates.
I'm pretty sure the revenue isn't net. It would mean they have absurd retail margins on their members and negative ones on every other product sold; which doesn't make a lot of sense.
>>In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
That could just be their way of handling stocking fees. They handle a lot of merchandise they can't afford to stick into inventory.
AFAIK most supermarkets run this model; when I was in school in Ireland in the 90s, this model was explained to me with reference to the main Irish chains. They end up with a big chunk of free cash that they invest.
Net income is literally the "bottom line" number on the accounting statement. It's the number that coes out after accounting for everything in the business.
The console is the up-front purchase, which equates to Costco's membership fee. But Xbox and Playstation lose money up-front.
Instead, Costco operates on the Wii or the iPhone model, where you take most of your profit up-front and then operate the rest at a much smaller profit. (Though still positive.)
In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
Everything about Costco's business model is backwards.