Costco Gains From Switch to Visa -- WSJ
September 30 2016 - 2:03AM
Dow Jones News
By Sarah Nassauer
Costco Wholesale Corp.'s June switch to Visa Inc. is paying
off.
The warehouse club chain reported higher quarterly profit
Thursday boosted by lower credit card fees and other terms from its
new deal to accept Visa-brand cards, replacing a long-term alliance
with American Express Co.
For the quarter ended Aug. 28, Costco's profit rose 1.6% to $779
million despite higher wages, lower gasoline sales and deflationary
pressure on food items including meat and eggs. Those expenses were
"offset in particular with everything related to this credit card
transition," Chief Financial Officer Richard Galanti said on a
conference call.
He said some 11.4 million co-branded American Express cards,
representing about 7.4 million accounts, had been transferred to
new Visa Citi cards, and about 85% of those accounts have now been
activated with Costco. Another 1.1 million members have applied for
the new card since June 20.
Mr. Galanti said the company hopes co-branded Visa cards become
a "top of wallet" card for shoppers, something that was tricky with
American Express, which isn't accepted in as many locations. Mr.
Galanti also said shoppers are spending strongly on discretionary
items like electronics and apparel. Costco's shoppers generally
skew higher income than Wal-Mart Stores Inc. or mainstream
grocers.
The better-than-expected profit lifted shares of the bulk seller
by 1.9% to $150.270 in after-hours trading. Before that, the stock
had fallen 8.7% in 2016.
Sales in existing stores were flat over the quarter ended Aug.
28, but rose 3% excluding negative impact from lower gas prices and
the strong dollar. Net sales, which exclude membership fees, rose
2% to $35.7 billion.
The August quarter report is the second since Costco said it
would raise its minimum wage for store workers for the first time
in nine years. The company had said it would boost what it paid
those workers starting in March, and the move helped to nudge total
operating expenses higher.
The company's selling, general and administrative costs jumped
5.6% from a year earlier to $3.7 billion, while merchandise costs
increased 1.8% to $31.65 billion.
Costco opened or remodeled 23 locations last year, and the
company plans to open about 31 in the next 12 months, including 17
in the U.S. and seven in Canada. Mr. Galanti said the company has
found that its warehouse stores have fared better in smaller
markets than it once expected.
"As we have gone into New Orleans and Birmingham and Rochester
and Toledo, these are markets that again were not high on the radar
seven or eight years ago and what we have seen is that our deal
works," he said. The Issaquah, Wash.-based chain currently operates
715 warehouses, including 501 in the U.S.
Anne Steele contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
September 30, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Costco Wholesale (NASDAQ:COST)
Historical Stock Chart
From Apr 2024 to May 2024
Costco Wholesale (NASDAQ:COST)
Historical Stock Chart
From May 2023 to May 2024