"Even though this positive news [membership fee increase] was outweighed by disappointing earnings results in the second quarter, nothing has changed in our stance toward this important development and we continue to expect it to contribute $0.30 to fiscal year 2018 earnings per share on a standalone basis," says Instinet analyst Jessica Schoen Mace. The analyst warns giddy Costco investors that fee increases typically take two years to full reflect on the bottom line as members are charged the new rate once their membership comes up for renewal.
Mace isn't alone in her bullishness on the higher fee-driven profit lift for Costco. "We estimate an incremental $265 million of EBIT [earnings before interest and taxes] to be recognized over two years, which represents about 40 cents to earnings per share," points out Morgan Stanley analyst Simeon Gutman. Like Mace, Gutman offers a dose of caution to Costco bulls, saying the wholesaler may choose to invest a good chunk of its new revenue stream in lowering prices for members.
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On Thursday, the wholesale retailer said it would hike the price of its Goldstar membership by $5 per year to $60. Executive membership fees will increase by $10 to $120. The new fee increases will go into effect June 1, 2017, and will impact nearly 35 million members.
Anyone mildly associated with the Costco story should have seen this one coming from miles away.