The backlash from the Costco-AMEX split has been mostly falling on AMEX, but Costco’s most recent earnings report revealed a significant impact on the wholesaler’s business as well.
“The switch is chipping away at Costco’s profits, as it no longer is receiving a bounty for each new Amex cardholder it signs up, and Visa won’t offer a new card until next year.
On Tuesday, the warehouse retailer reported a drop in quarterly earnings and slowing revenue from membership fees. Shares fell 5.42% in New York trading Wednesday, closing at $159.72.
During a conference call Wednesday, Richard Galanti, Costco’s finance chief, said co-branded customer sign-ups during the quarter ended Nov. 22 had “greatly slowed and now ceased.” That reduced the company’s quarterly earnings by $15 million, or 2 cents a share, and he predicted the negative trend would continue possibly into the fiscal fourth quarter.”
Mr. Galanti emphasized that the transition away from AMEX had not affected membership sign-up rates, although membership fees only rose 1.9% in the latest earnings period, missing the 3% rise expected by industry analysts. Mr. Galanti also offered a quote on the AMEX transition that gives us an interesting glimpse into Costco’s underlying mentality when it comes to negotiating with vendors.
“It’s a royal pain to do this, but it’s what we do,”
Overview by Alex Johnson, Senior Credit Advisory Service at Mercator Advisory Group
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