Costco Sales and Profit Come Up Short, Hikes Membership Fees

Costco will raise its fees for membership, a move that should boost the bottom line, even as the warehouse giant posted disappointing earnings on Thursday for its second quarter.

A hike in membership fees of between $5 and $10, which Costco said would affect some 35 million members, is not a surprise as its been expected.

In March of 2016, Costco said it was taking into consideration a membership fee hike something it does usually each five to six years.

Its last hike in membership fees was in late 2011 for the U.S. Membership fees represent just a small percentage of revenues for Costco, or just 2% during its second quarter. However, the fees are a significant contributor to the bottom line.

Close to 70% of the operating profit at Costco is through membership fees, said one analysts in 2016.

The CFO of Costco Richard Galanti said on Thursday to investors that the hike in membership fees would affect earnings slightly during June, when that increase kicks in, but will boost the company’s net income during the upcoming two years.

That is good news for the company, whose shares dropped over 4% in trading after hours following the release of the earnings report.

The company posted $29.77 billion in revenue, which was a 5.7% increase compared to the same quarter one year ago. However, Wall Street was expecting $29.85 in revenue.

Per share earnings were just over $1.17 which also was less than the same quarter one year ago of $1.24 and far below expectations of analysts that was $1.36.

Galanti said that lower profit from gas than in the same period one year ago had been the biggest culprit for lower overall earnings during the quarter.

The company expanded the number of different merchandise it sells online on its site, and has worked with Instacart and Google while testing other options for delivery.

Online sales at Costco, though only reaching 4% of its overall revenue, continue to grow. The Costco CFO added that the company is a brick and mortar business and still wants its customers to visit to shop because they may just purchase more when they see all the merchandise.

Relative to a possible import-tax hike by the GOP, one an analyst said could cost Costco a great deal, Galanti said it was not clear if the tax would even move forward.

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