Costco Wholesale Corp
The largest U.S. warehouse club operator sells products from paper towels to televisions at a discount to its members, who pay annual membership fees.
Before Wednesday's announcement of fee increases, which take effect November 1 for most U.S. and Canadian members, Costco had not raised its main fees since 2006.
I think Costco was very reluctant to take a membership fee increase, which is essentially inflation of the membership fee, when their core customer was already dealing with a lot of inflation, said Sanford Bernstein analyst Colin McGranahan.
Now that some higher costs, such as cotton, food and gasoline, have subsided, it may have seemed like more of an appropriate time for the increase, he said.
At the same time, Costco waited until this year to raise its regular $50 membership fee to $55, as the new higher rate is not taxable for residents of California. Previously, the tax-free limit had been $50.
EARNINGS MISS EXPECTATIONS
For the fourth quarter that ended on August 28, net income was $478 million, or $1.08 a share, up from $432 million, or 97 cents a share, a year earlier.
Analysts on average had expected $1.10 a share, according to Thomson Reuters I/B/E/S.
Shares of the Issaquah, Washington-based company fell 2.1 percent to $79.90 in early trading on Nasdaq.
The earnings miss was due in part to an inventory charge stemming from inflation. As Costco's product costs rose for items such as food and clothing, it took an inventory charge of $32 million, or 4 cents per share, in the quarter.
The company took a total of 12 cents per share in such charges during fiscal 2011, after no such charges in 2010.
September sales at stores open at least a year, or same-store sales, rose 12 percent including fuel. Analysts, on average, had expected a 10.1 percent rise, according to Thomson Reuters.
Costco's September sales are another data point that suggests despite all of the negative macro headlines, there's not a lot of empirical evidence from the retailers yet that the U.S. consumer is slowing, said McGranahan, who has a market perform rating on the shares.
Not all retailers are faring as well. September sales at top U.S. drugstore Walgreen Co
MAIN FEES GO UP
Costco's membership fee increase follows a similar move by competitor BJ's Wholesale Club Inc, which just went private. BJ's raised its membership fee by $5 to $50 in January.
Costco's U.S. and Canadian household and business memberships will cost $55 a year, up from $50 for most of those memberships.
Executive members, who receive rewards such as an annual rebate check to use in the store based on what they spend, will now pay $110, up from $100.
The fee increases affect a little more than 22 million members, roughly half of whom are executive members. Costco has roughly 35 million members overall.
While the increased fees could add 20 cents to 25 cents to earnings per share over the next two years as memberships are renewed, Janney analyst David Strasser expects roughly half of the fee increase will be used to hold down prices.
Membership fee revenue rose 10.7 percent to $590 million in the fourth quarter.
Costco previously reported that fourth-quarter sales rose 17 percent to $27.6 billion. Excluding inflation in gas prices and stronger foreign currencies, same-store sales rose 7 percent in the quarter.
(Reporting by Jessica Wohl in Chicago and Divya Sharma in Bangalore; Editing by John Wallace and Derek Caney)