Date of Release: 2005-03-28

Costco Wholesale Corporation and Costco Wholesale Canada Ltd.

Confirms at A (high) & R-1 (middle)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Costco Wholesale Corporation (“Costco” or the “Company”) and Costco Wholesale Canada Ltd. (“Costco Canada”) as indicated above.

The rating confirmation for Costco is based on the following:
(1) Costco continues to increase its sales leadership position in the warehouse club sector through expansion and same-warehouse sales growth. Strong and profitable growth is expected to continue as the Company expands geographically, increases penetration in existing markets, and provides a wider assortment of value-added products.
(2) Improving operating cash flows are expected to meet internal requirements, notwithstanding an expected increase in capital expenditures up to US$1 billion for fiscal 2005 and the recent introduction of a dividend.
(3) Costco has substantial financial flexibility based on the strong cash position (in excess of US$3 billion at the most recent quarter end), excellent working capital management, and substantial ownership of real estate.
(4) Costco’s interest income and equity earnings continue to exceed interest expense.
(5) The contribution of foreign operations to profitability is increasing, and that trend should continue as additional stores are added and the acceptance of warehouse-style stores increases internationally.

Despite these strengths, Costco faces several key challenges:
(1) Competition in the retail industry remains intense, with over 1,100 warehouse club sites (including Sam’s Club and BJ’s Wholesale Club) across North America. Each of the three major players had strong market leadership in certain geographic areas, however increasing store development has led to two and sometimes three warehouse concepts existing in one market. This may increase price competition or limit membership fee increases.
(2) Competition from non-warehouse formats including Wal-Mart Supercentres and other super discount formats continues to increase, eroding some of Costco’s price advantage.

Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.

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