By Robin Sidel And George Stahl
American Express Co. said its 16-year-old exclusive relationship
with warehouse club Costco Wholesale Corp. will end next year,
dealing a blow to the card company that has already been falling
short of its revenue goals.
The New York-based company, which issues cards and owns a
processing network, said it had been unable to reach a new
agreement with Costco on terms that "would have made economic
sense."
Costco is one of the few big U.S. merchants that only accepts
AmEx cards. Cards branded by Visa Inc., MasterCard Inc. and
Discover Financial Services can't be used at its warehouse
stores.
American Express said the pact would end on March 31, 2016. The
news battered AmEx shares, which were down 5.2% to $80.73 in
morning trading.
AmEx Chief Executive Officer Kenneth Chenault said in a
conference call that the pact's end would have a negative impact on
revenue and earnings per share in 2015 and 2016. Earnings per share
are now expected to be "flat to modestly down" in 2015 compared
with 2014 and then return to growth in 2016, said Chief Financial
Officer Jeffrey Campbell.
Mr. Chenault said he is confident that the company will be able
to achieve its earnings-per-share growth target of 12% to 15% in
the "moderate to long term" without the Costco arrangement.
"We will invest in other opportunities that we think can
generate greater returns over time," he said in the conference
call.
AmEx ended its exclusive arrangement with Costco in Canada last
year. Costco now has a partnership in Canada with MasterCard Inc.
and Capital One Financial Corp.
Costco's deal with American Express had benefits for both sides.
American Express was the only credit card accepted at the retail
giant that had nearly $113 billion in sales in its most recent
fiscal year. In exchange for that exclusivity, Costco likely
negotiated a lower discount rate from the credit-card company.
Write to Robin Sidel at robin.sidel@wsj.com and George Stahl at
george.stahl@wsj.com
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