Costco turns higher profit off Visa deal
Clarification: An earlier version of the story stated Costco.com only accepts Visa credit and debit cards for its online channels. The website also accepts Discover and MasterCards.
Costco announced a higher than expected quarterly profit Thursday, bumped up on higher sporting goods, electronics and hardware spending and lower fees paid to credit card partner Visa.
The wholesaler announced profit rose to $779 million, or $1.77 per share, in the fourth quarter, a jump from the $767 million, or $1.73 per share, the company made last year. Analysts polled by S&P Global Capital Intelligence were expecting $761.68 million in net income, or $1.73 per share.
Earlier this year, the company transitioned away from using American Express cards, striking an exclusive deal with Visa to be the new credit card for Costco's retail channels.
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As part of the transition, around 11.4 million co-branded American Express Costco cards were moved over to Citi during the switch, said Richard Galanti, Costco's chief financial officer, on a conference call discussing the recent earnings. This makes up "just under 7.5 million accounts."
Since the June 20 switch, "1.1 million members have applied for the new card and over 730,000 new accounts have been activated," said Galanti, adding this makes for slightly over 1 million additional Citi Visa cards in circulation. "It's still early. We launched only 14 weeks ago, but so far, we're beating our initial expectations in terms of conversion, usage and new sign-ups to the card."
Galanti also noted that while the deal has benefits to consumers, it does provide some perks for the wholesaler, lowering the "effective cost of accepting credit and debit cards."
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The transition to Visa also helped "offset" deflation in gas and fresh food sales as well as the company's recent increase in minimum wages to employees earlier this year.
Shares of Costco were up over 4% in early trading Friday, to $153.65.
Follow Eli Blumenthal on Twitter @eliblumenthal.