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Costco profit rises on higher membership fees

Costco shopping carts are shown at the entrance of Costco in Mountain View, Calif. in this file photo.

Paul Sakuma/AP

Costco Wholesale Corp. posted a higher-than-expected quarterly profit on Wednesday after the U.S. warehouse retailer raised membership fees.

Costco, which has millions of members who pay annual fees to shop at its giant stores, earned $609-million (U.S.), or $1.39 per share in the fiscal fourth quarter ended Sept. 2, compared with $478-million, or $1.08 per share, a year earlier.

Analysts on average forecast earnings of $1.31 a share, according to Thomson Reuters I/B/E/S.

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Membership fee revenue rose 18 per cent to $694-million, due in part a 10 per cent fee increase for most U.S. and Canadian members that went into effect starting in November 2011.

Strength in membership fee revenue should continue due to the increase in fees, solid renewal rates, more sign-ups due to new club openings, and a continued shift to higher-priced "executive" memberships, Janney Capital Markets analyst David Strasser said.

Costco, which competes against Wal-Mart Stores Inc's Sam's Club and privately-held BJ's Wholesale, is willing to take a hit on margins to keep prices low so shoppers visit stores more often. Costco typically prices everyday goods such as bananas below supermarket prices, hoping shoppers will stock up on other goods as well.

"While merchandise margins appear unlikely to expand materially near-term (and perhaps contract slightly in any given quarter), we believe Costco's recent pricing actions are decidedly tactical," Robert W. Baird analyst Peter Benedict said in a research not. He said the company was giving up a little margin to reinforce customer loyalty.

The company previously reported that sales in the fourth quarter rose 14 per cent to $31.52-billion. Same-store sales rose 5 per cent and were up 6 per cent excluding the impact of fluctuations in gasoline prices and foreign currency exchange rates.

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