When asked about raising annual fees, CFO says ‘you’ll see it happen at some point’
Costco Wholesale Corp.’s financial chief assured analysts late Tuesday that theft hasn’t been a problem over the past year, after the membership warehouse chain reported quarterly results that topped Wall Street expectations.
Costco COST, -1.01% reported fourth-quarter net income of $2.16 billion, or $4.86 a share, compared with $1.87 billion, or $4.20 a share, in the year-ago period, and revenue of $78.94 billion, up from $72.09 billion in the year-ago quarter.
Analysts on average expected earnings of $4.82 a share on revenue of $78.81 billion, according to FactSet.
Sales at stores open for at least a year rose 1.1%, or 3.8% adjusted for gasoline and currency, compared with the Street’s 3.5% growth estimate.
Total annual revenue rose to $242.29 billion from $226.95 billion in the previous fiscal year, while analysts were forecasting $242.17 billion in revenue.
On the conference call following the earnings release, Chief Financial Officer Richard Galanti said that inventory overall at Costco is “in good shape,” and that “inventory shrinkage,” which refers to stolen merchandise, has not dramatically increased over the past year.
Over the past several years, inventory shrink has increased by a couple of basis points, Galanti said, but he said he believes that comes from the rollout of self-checkout.
“Over the past year it has increased by less than 1 basis point more, so no, thankfully not a big issue,” the CFO told analysts on the call.
Meanwhile, retailer Target Corp. TGT, -2.48% said that it was closing nine stores across four metropolitan areas — New York, Seattle, the San Francisco and Oakland area, and Portland, Ore. — because of the impact of organized theft rings.
Galanti told analysts Costco opened 23 net new warehouses in the fiscal year, with plans to open somewhere in the mid-to-high 20s in the current one.
Galanti was also asked if membership price increases were part of Costco’s plan for the fiscal year.
“My pat answer, of course, is it’s a question of when, not if,” Galanti said. “It’s a little longer this time around since June of 2017, so, we’re six years into it.” Back then, Costco hiked its basic annual membership by $5 to $60, and executive memberships rose to $120 from $110.
Galanti said membership growth continues across the board, with 71 million paid household members and 127.9 million cardholders, both nearly 8% gains from a year ago. Paid executive memberships, which include rewards back and other perks, increased by more than 3% to 32.3 million, Galanti said, noting that executive members now represented slightly more than 45% of Costco’s paid memberships.
“But you’ll see it happen at some point,” the CFO assured analysts. “We can’t really tell you if it’s in our plans or not. We’ll let you know when we know.”
Galanti said membership fee income of $1.51 billion in the fourth quarter, or nearly 2% of sales, was up from $1.33 billion in the year-ago period, which represented 1.9% of sales.
Costco reported U.S. and Canada membership renewal rates of 92.7%, while global rates were 90.4%.
Costco shares fell 1.8% after hours, following a 1% decline in the regular session to close at $552.96. The stock’s price has gained 21.1% year to date, while the S&P 500 index SPX, -1.47% has increased 11.3%.