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Citigroup Inc. (C) - free report >>
Visa Inc. (V) - free report >>
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Costco's (COST) New Partnership with Citigroup (C) Not Quite Smooth Sailing
Costco Wholesale (COST - Free Report) has experienced a decrease in sales recently, presumably due to difficulties involving transitioning customers from American Express (AXP - Free Report) to Citigroup (C - Free Report) cards.
Costco ended their 16-year relationship with American Express after the two firms could not agree on renewal terms. The new partnership was announced in March of 2015, and involves Citi exclusively issuing their co-brand credit cards in all U.S. locations along with Visa (V - Free Report) replacing American Express go-to Costco credit card.
Problems with New Deal?
The new cards became available for use on Monday, when Citi acquired the Costco Portfolio from American Express. However, many customers have complained, citing lengthy wait times as well as difficulty activating their new cards.
As SeekingAlpha points out, Citi states it has issued 11M cards and already received 1.5M customer calls by late Wednesday. However, the call volume is slowly normalizing. According to Bloomberg, some customers have experienced delays in service while others have not yet received their cards.
Why the Switch?
The partnership is believed to serve as a way for Costco to reduce costs. Specifically, analysts believe that the deal should save Costco anywhere between $60M-$150M per year moving forward.
Costco currently sits at a Zacks Rank #4 (Sell). There is 100% agreement in downward estimate revisions for the current quarter, and 67% agreement in downward revisions for next quarter. That coupled with an average EPS surprise of -1.91% have negatively impacted the outlook for Costco.
COSTCO WHOLE CP Price and EPS Surprise
COSTCO WHOLE CP Price and EPS Surprise | COSTCO WHOLE CP Quote
Although this deal may benefit Costco, at this point it is important to lower expectations and watch what happens over the next few months, as this could be a rocky stretch for COST shares.
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