Costco CFO Richard Galanti Discusses Financing Costs and Debt Management
Costco Wholesale Corp.'s Chief Financial Officer, Richard Galanti, recently shared insights on the impact of rising financing costs and the management of debt for companies. Galanti emphasized that the low interest rates experienced over the past decade in the US were an anomaly. He acknowledged that companies now face a balancing act due to the recent increases in financing costs. Costco, for instance, is considering using cash to repay a $1 billion bond maturing in 2024 and does not plan to buy back any debt before its maturity. Galanti explained that refinancing at current rates does not make sense for the company.
Costco maintains a conservative balance sheet, with over $12 billion in cash and short-term investments and less than $7 billion in debt. The company's debt has an average maturity of over five years and a fixed interest rate of just under 2%. Galanti highlighted that Costco's focus is on driving financial valuation, maintaining a strong balance sheet, and generating cash to support business growth. The company prioritizes business expansion, dividend payments, and occasional stock buybacks. While there are opportunities for expansion in the US, Canada, Europe, and Asia, Costco does not heavily prioritize dealmaking. The company believes there is still plenty of room for growth within its existing warehouse club model.
Implications of Rising Financing Costs and Debt Management for New Businesses
The recent insights shared by Costco Wholesale Corp.'s CFO, Richard Galanti, on the impact of rising financing costs and debt management, could have significant implications for new businesses. Galanti's assertion that the low interest rates experienced in the US over the past decade were an anomaly indicates that startups may have to brace for higher financing costs.
Strategic Debt Management
New businesses, like Costco, might need to consider strategic debt management, such as using cash reserves to repay maturing bonds, instead of refinancing at higher rates. This approach requires maintaining a robust balance sheet, with a focus on generating cash for business growth, rather than prioritizing debt buybacks.
Business Expansion vs Dealmaking
Galanti's insights also shed light on the importance of prioritizing business expansion and dividend payments over dealmaking. New businesses might find more value in focusing on organic growth within their existing business models, rather than seeking rapid expansion through acquisitions or mergers. This approach, as demonstrated by Costco, can offer sustainable growth opportunities in various markets, without the need for aggressive dealmaking.