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Updated Thursday, December 13, 2012 at 10:31 AM

Higher Costco membership fee gives first-quarter revenue a boost

By Amy Martinez
Seattle Times business reporter

Apparently, Costco customers had no problem with a recent 10 percent increase in membership fees at the chain’s U.S. and Canadian stores.

Costco Chief Financial Officer Richard Galanti said on an earnings call Wednesday that the hike in membership fees, which took effect Nov. 1, 2011, had virtually no impact on renewal rates.

Issaquah-based Costco reported a 14.3 percent jump in revenue from membership fees, helping to boost its fiscal first-quarter profit by 30 percent.

Costco said it earned $416 million, or 95 cents a share, for the period that ended Nov. 25, beating Wall Street’s forecast of 93 cents a share.

Total revenue rose 10 percent to $23.72 billion, slightly better than analysts’ expectations.

But Costco’s rise in membership-fee revenue, down from an increase of about 18 percent in the previous quarter, underwhelmed some analysts, and the stock closed down 59 cents at $97.72.

Deutsche Bank analyst Charles Grom projected 17 percent growth in membership-fee revenue. Still, he described Costco’s performance as solid, especially considering “today’s choppy retail environment.”

Sales at stores open at least a year climbed 7 percent in the quarter, partly reflecting the effects of higher fuel prices. Stripping out gas-price inflation and stronger foreign currencies, sales at stores open at least a year increased 6 percent.

Galanti noted that Costco expects to see inflation in beef and poultry prices over the next six to nine months, but not enough to dampen consumer demand.

He also mentioned that Costco benefited from strong sales of nonfood items such as large-screen TVs, jewelry and private-label clothing, adding that it was “getting people in the door via gas and fresh foods and having them walk by those types of things.”

Last month, Costco said it would pay a special dividend of $7 a share on Dec. 18 to shareholders of record Dec. 10. It will pay for the dividend with proceeds from a $3.5 billion debt offering.

Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013, unless Congress and President Obama reach a compromise on taxes and government spending.

Galanti told analysts that Costco is somewhat optimistic for a compromise on the so-called “fiscal cliff.”

“We, like everybody, have a little cautious optimism that they’re going to do at least a compromise and — or they better,” he said. “So we’re not really focusing a lot on it right now.”

Costco currently runs 621 warehouses: 448 in the U.S. and Puerto Rico, 85 in Canada, 32 in Mexico, 23 in the U.K., 13 in Japan, nine in Taiwan, eight in South Korea and three in Australia.

For fiscal 2013, Costco plans to open as many as 30 new stores, nearly twice as many as last year.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com


The Associated Press
A customer shops at a Costco store in California. The company plans to open as many as 30 stores in 2013.








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