Costco Wholesale Corp. (NASDAQ: COST) reported its fiscal fourth-quarter and full fiscal year earnings before markets opened this morning. The headline numbers look pretty good, but the fine print might be telling a different story for the company and for other big box stores, like Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Best Buy Co. Inc. (NYSE: BBY), and Dollar General Corp. (NYSE: DG).

For the quarter, Costco reported sales of $27.6 billion, up 17% from the same period a year ago. Analysts were expecting $27.8 billion in revenue. Excluding its Mexican joint venture, sales were up 14%. For the year sales totaled $87.1 billion, up 14% from 2010 and up 11% without Mexican sales.

Same-store sales, excluding gasoline and foreign exchange effects, grew 6% in the US and 10% internationally during the quarter. For the full year, same-store sales grew 5% in the US and 10% internationally. The combined totals for the quarter were 7% and for the year 6%.

Backing out an inventory charge left the company with quarterly EPS of $1.08, compared with a consensus estimate of $1.10. The EPS number includes a $0.04/share inventory charge. Operating margin for the quarter fell from 2.9% a year ago to 2.7% this year, and for the full year, operating margin rose from 2.6% a year ago to 2.7% in 2011.

Costco’s membership fees for the quarter totaled $590 million, equal to 77% of operating income. The company announced plans to raise membership fees for some 22 million Canadian and US individual and business members. About half that total are ‘Executive’ memberships for whom the membership fee will rise from $500/year to $750.

Costco has done pretty well managing its merchandise costs, which make up about 89% of its costs. But without rising membership fees, Costco would be far less profitable. Operating income grew by $362 million year-over-year, and membership fees made up nearly half of that growth. For the quarter, operating income grew by $74 million year-over-year, and membership fee growth made up $57 million of that, or 77%.

The company’s success depends as much on being able to manage its membership fees as it does on selling stuff. The other big box retailers don’t get any help from membership fees.

Costco’s same-store sales growth in September, excluding gasoline and currency fluctuations, rose 8%, compared with analysts’ consensus expectation of 10%. That trend is not a good sign for the other big box stores, or indeed, for retailers in general. Only discounter Dollar General is bucking the trend in the current general economic climate.

Target and Walmart have both scheduled their next quarterly earnings reports for November 15th, for the quarter ending in October. Best Buy and Dollar General have not scheduled their next earnings release yet, but they should come sometime in December for Best Buy and November for Dollar General.

For the past 12 months, Costco’s shares have risen more than 25%, while Walmart’s shares are about flat, Target’s have dropped nearly -7.5%, and Best Buy’s shares are down about -44%. Costco’s membership fees make the difference. Dollar General’s shares are up more than 27% in the same period.

Paul Ausick

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