Costco's (NASDAQ:COST) transition away from an American Express (NYSE:AXP)-branded credit card has cost the retailer over $40 million since it stopped taking new card sign-ups last Fall. Thankfully, those losses are set to end as soon as the Visa (NYSE:V) co-branded cards open up for use on the official transition date later this month.
Because this represents a huge change -- both for Costco and its members -- executives had plenty to say about the Visa transition in last week's earnings conference call. Here are a few key quotes for investors from the retailer's chief financial officer, Richard Galanti.
The financial toll so far
The short-term negative earnings impact of the lost co-brand credit card sign-ups in the quarter year-over-year was about $11 million, or $0.02 a share.
Costco didn't accept any new credit card sign-ups this past quarter, which executives estimate removed about $11 million from profits. That's in addition to the $33 million of lower earnings over the prior two quarters.
All told, the sign-up freeze has removed about $0.07 per share of profits in the last three quarters. Beginning in late June, that negative will turn into a positive as the warehouse giant is set to earn more from its new Visa relationship.
Not hurting sign-ups
I don't think many people coming in to sign up for a Costco membership have walked away because they can't sign up for the new AMEX card.
While it's hard to be sure, executives don't see the switch significantly hurting membership growth, the real engine behind Costco's profits. That said, the company did endure a slight drop in renewal rates this quarter (down to 94.4% from 94.5%) that could be related to confusion around the card transition. Galanti said the dip was "pretty much in line with what we thought," but investors will likely want to keep an eye on renewal rates over the next few quarters to see how the shift is making its way through Costco's member base.
Splitting the benefit with members
It's a great reward for our members...and we will keep a little of it ourselves in terms of merchant fee reduction.
The company has explained that its fees will drop significantly with this new card. At the same time, shoppers will get much better rewards, including a bump up in cash back in the categories of gas, travel, and restaurant purchases. As it does with most efficiency savings it wins from suppliers, Costco will likely pass along a good portion of the gains to customers in the form of lower prices.
Go-live date is Monday, June 20
We've just got a lot of people on our side and on the issuer side doing a lot of work to make sure it goes as smoothly as possible.
The scope of this transition is huge. For example, over 10 million cards were sent to subscribers by mail in just the past few weeks.
The sheer size of that shift is bound to create friction and confusion around membership renewals, sign-ups, and questions on card rewards and eligibility. Costco and its issuer are both working to minimize these bumps.
While there's no way to anticipate all possible logistical issues ahead of the June 20 launch date, Costco execs believe they've laid the groundwork for a smooth transition of its massive loan portfolio. "We are ready to go and we are excited about it," Galanti said.
Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Costco Wholesale and Visa. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.