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Costco 4Q profit climbs; will hike membership fees

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ISSAQUAH, Wash. » Costco Wholesale Corp.’s fiscal fourth-quarter net income climbed 11 percent as the wholesale club operator made more money on membership fees and saw its sales rise.

The Issaquah, Wash., company also said Wednesday that it will raise annual membership fees starting next month.

Costco’s net income rose to $478 million, or $1.08 per share, for the period ended Aug. 28. That’s up from $432 million, or 97 cents per share, a year earlier.

Analysts polled by FactSet predicted earnings of $1.10 per share.

The quarter included a "last-in, first out" inventory charge of 4 cents per share. This charge reflects a requirement that the company revalue its inventory if prices rise or fall notably.

Costco has been facing rising costs for everything from meat to cotton for T-shirts, which is why it has been dealing with such charges.

Revenue climbed 17 percent to $28.18 billion from $24.12 billion as membership fee revenue increased to $590 million from $533 million. The company said its performance was also helped by sales from its Mexico joint venture.

Revenue at wholesale clubs open at least a year rose 12 percent in the quarter, up 10 percent in the U.S. and 19 percent overseas. Removing the impact of inflation in gas prices and strengthening foreign currencies, revenue at wholesale clubs open at least a year increased 7 percent. The metric gained 6 percent in the U.S. and 10 percent abroad.

This figure is a key gauge of a wholesale club operators performance because it excludes results from wholesale clubs recently opened or closed.

Costco said that it will raise annual membership fees by $5 to $55 for U.S. individual, business and business add-on members as well as Canada business members beginning Nov. 1. Executive membership annual fees will also increase in the U.S. and Canada to $110 from $100. The maximum 2 percent reward tied to the executive membership will rise from $500 to $750.

Costco said the fee increases will affect a little more than 22 million members. About half of those are executive members.

For the year, Costco’s earnings climbed 12 percent to $1.46 billion, or $3.30 per share. That compares with earnings of $1.3 billion, or $2.92 per share, in the previous year.

The yearly results included a "last in, first out" charge of 12 cents per share.

Annual revenue rose 14 percent to $88.92 billion from $77.95 billion.

Revenue at wholesale clubs open at least a year increased 10 percent, with a 7 percent gain in the U.S. and a 16 percent rise overseas.

Excluding the impact of higher gas prices and strengthening foreign currencies, revenue at wholesale clubs open at least a year rose 6 percent. The figure climbed 5 percent in the U.S. and 10 percent internationally.

Revenue at wholesale clubs open at least a year climbed 12 percent for the September period, which included five weeks. In the U.S. the metric gained 11 percent. It was up 14 percent overseas.

Taking out the impact of inflation in gas prices and strengthening foreign currencies, revenue at wholesale clubs open at least a year increased 8 percent, with the U.S. up 7 percent and international results up 10 percent.

Costco runs 592 warehouses, including 429 in the U.S. and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the U.K., nine in Japan, eight in Taiwan, seven in Korea and three in Australia.

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