Costco reveals huge increase in takings from membership fees - but share price falls after sales disappoint

Costco shares took a tumble on Thursday after it announced it fell short of sales estimates - but beat earnings thanks to shrewd cost-cutting.

The wholesale retailer's revenue was $58.44 billion in the most recent quarter - up 5.6 percent on the same quarter last year but less than expectations of $59.16 billion.

It netted $1.74 billion in the quarter ending February 18, beating Wall Street expectations of $1.61 billion.

Membership fees were a key source of revenue. They came in at $1.11 billion for the three months, up from $1.03 billion a year ago. It means Costco nets around $4 billion-plus a year from the fees, which are either $60 or $120 a year.

Profits were also helped by expense control - 'doing a better job of budgeting' and 'control of labor costs', its CFO Richard Galanti said during an earnings call on Thursday.

Same-store sales jumped 5.8 percent overall - 9 percent in Canada and 4.8 percent in the US.

It came just hours after the wholesale retailer's share price hit a 52 week high of $787. In after hours trading it had fallen around 4 percent to $750.

Costco shares have rallied nearly 62 percent over the last year, more than twice the 30 percent gains of the S&P 500.

When Costco executives discuss earnings, investors are usually watching closely for updates on its membership fees.

The company hasn't increased it annual membership fees in almost seven years.

It charges $60 for Business and Gold Star and $120 for Executive, which offers a 2 percent rebate on all Costco purchases made that year up to a total of $750. 

Higher fees would cause revenue to spike and mark good news for shareholders. 

When asked about the issue of raising membership fees, Galanti repeated his now well-known response: 'It's not if, it's when.'

He added that he was 'pleasantly surprised by the rate of new sign ups'. Membership was up 7 percent over the year.

Galanti will be stepping down as CFO on March 15, having held the position for almost 40 years. 

Thursday's earnings call was the last he will take. He told investors that since he became CFO in 1985 he has hosted all but one call.

Galanti will hand over the reins to Gary Millerchip. When membership fees are finally raised, it will be raised on his watch, Galanti said.