Costco May Hold Off On North American Membership Fee Increase Due To Light Store Traffic

Costco posted fourth-quarter EPS of $1.77, in line with Deutsche Bank and above the Street at $1.73. Sales grew 2.1 percent to $35.7 billion with flat SSS, while membership fee income improved 6 percent versus Deutsche Bank's estimate for up 5.6 percent. Gross margin advanced 28 bps to 11.42 percent, slightly above DB's 11.41 percent estimate.

On the call, Costco highlighted that signups for new Visa cards have surpassed expectations. Costco said about 85 percent of the 11.4 million Amex (American Express Company AXP) co-branded cards (7.5 million accounts) that transferred to Citi have been used in the prior 60 days. Since June 20, there have been 1.1 million applications for Visa and 730,000 new accounts.

In addition, the company noted that its recent international fee raise adds $50 million of pretax income over a 23-month period.

Other positives include the pricing advantage versus rivals is at a "meaningful spread," and categories with the highest online penetration are outperforming.

"FX headwinds are behind us, core merchandise margins remain solid, the pipeline for door growth is plentiful, and the likelihood of a fee raise in U.S. & Canada is high over the next year," analyst Paul Trussell wrote in a note.

Related Link: Costco To Raise International Membership Fees, And The Street Approves

Trussell sees a flat comp for September versus the Street at -0.2 percent, flat in August and down -2 percent in July. Excluding forex and gas, the analyst forecast core SSS up 0.8 percent versus August up 2.5 percent. On a two-year stack basis, Trussell's September estimate represents 8.4 percent versus 8.7 percent in August.

Trussell maintains his Buy rating and $195 price target on the stock, which is currently up 3.94 percent to $153.30. The $195 target represents a potential return of 32 percent based on Thursday's close of $147.49.

At time of publication, Costco was up 4.24 percent at $153.74.

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