On Friday, shares of wholesale retailer Costco (COST - Free Report) closed the day down over 4% to $170.26 per share after the company reported disappointing second-quarter fiscal 2017 quarterly earnings.
Earnings per share of $1.17 missed the Zacks Consensus Estimate of $1.35 and declined 5.5% from the prior-year period. Total revenues, which include net sales and membership fees, came in at $29.766 billion, lagging behind our consensus estimate of $29.988 billion but growing 5.7% year-over-year. Breaking that down, quarterly net sales were up 5.7% to $29.130 billion, while membership fees increased 5.5% to $636 million.
Costco’s comparable store sales for the second-quarter increased 3% (excluding the effect of gasoline prices and foreign exchange), and saw comps growth of 3% and 8% across its U.S. and Canadian locations, respectively, despite a comps decline of 2% in its Other International segment.
But the biggest surprise of Costco’s earnings report, and the leading driver of its downward stock movement today, was its announcement that it will raise membership fees for the first time since 2011. The retailer will increase annual membership fees by $5 to $60 for U.S. and Canada Goldstar (individual), Business, and Business add-on members (“Primary” Members). Annual fees for Executive Memberships in the U.S. and Canada will also jump to $120 from $110.
The fee increases will affect about 35 million members of Costco, which operates 508 warehouses throughout the U.S. and Puerto Rico, and will take effect June 1.
Costco is facing increasingly tough competition from Sam’s Club, Walmart’s (WMT - Free Report) warehouse company, as well as Target (TGT - Free Report) , as both have taken initiative on lowering prices across the board. However, Costco still continues to be one of the dominant wholesale retailers based on breadth and quality of merchandise offered, which enables it to ensure an upscale shopping experience for its members, resulting in market share gains and a healthy membership renewal rate.
The company is also in the midst of switching credit card partners, transitioning from American Express (AXP - Free Report) to Visa (V - Free Report) . Costco said that even though this shift helped boost its profit margins, it wasn’t enough to offset lower prices for many of its products.
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