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Costco Is Hiking Its Membership Fees

Phil Wahba
It's their first hike in more than five years.

Wholesale on Thursday announced a membership fee hike, even as it reported disappointing revenues and profit for its second fiscal quarter.

The company, the second largest U.S. retailer after , will raise the price of its Gold Star membership by $5 per year to $60, and lift its Executive membership fee $10 a year to $120 as of June 1. Costco last increased the fee November 2011 and raises it about every five or six years.

The hike was widely anticipated by Wall Street analysts and is revenue that will go straight to Costco’s bottom line: Costco's 86.7 million card holders spent $2.6 billion on membership fees in fiscal 2016, essentially making up nearly three-quarters of its $3.6 billion in operating income.

And the increase could prove to be a boon. Last year, Costco switched its Citi-issued membership credit card to from , making Costco membership available to far more households and vastly increasing Costco’s potential customer base.

In a research note earlier this week, UBS predicted consumers would not balk at an increase and noted that the increased incentives from the Visa card, which gives customers 2% cash back on Costco transactions, compared to 1% with the previous AmEx cards, mean that “Costco credit card customers would need to spend just $500 in a year to break even on a $5 membership fee hike.”

The Wall Street Journal has reported that Chase projects a membership fee increase could add another three to five percentage points to annual earnings growth over the next two years. That would be a welcome boost for a company whose profit growth has slowed in recent years.

Still, the news of hike were not enough to overshadow Costco’s results, which sent its shares down 4% in after hours trading.

Revenue in the quarter ended Feb. 12, was $29.13 billion, below Wall Street forecasts for $29.86 billion, while earnings per share were $1.17, compared to $1.36. Comparable sales were up 3%, missing expectations for a 3.5% increases.

See original article on Fortune.com

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