American Express Company (AXP) And Costco Wholesale Corporation (COST) Are Ending Partnership. But Why?

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American Express Company (NYSE:AXP) recently announced that is co-brand and merchant acceptance agreements with Costco Wholesale Corporation (NASDAQ:COST) is set to expire on March 31, 2016. Until that time, the American Express credit cards will be accepted at Costco stores in the U.S. and on Costco.com. All co-branded cards can also be used across places where American Express cards are accepted through the expiration of this contract.

American Express Company scheduled to host a live audio webcast on Thursday morning to discuss the context and business implications related to this issue. The call was hosted by American Express CEO Kenneth I. Chenault and CFO Jeffrey C. Campbell.

Chenault expressed that partnership helped create value for shareholders, card members and Costco Wholesale Corporation (NASDAQ:COST) over many years. American Express began discussing the possible renewal of this contract with Costco, but was not able to reach terms that make economic sense for the company and its shareholders. Hence, they will now be focusing on opportunities that offer significant growth potential and attractive returns over the medium to long term.

Costco recently reported a 3% sales growth during the quarter ended February 1, 2015, which amounted to a whopping $49 billion. The company operates 671 warehouse stores across the world, including 474 in the US and Puerto Rico.

Campbell said during the call that American Express Company (NYSE:AXP) might experience a modest slowdown in billings and revenue growth in connection with the loss of the Costco U.S. co-brand in the coming quarters. The slowdown is expected to increase near the expiration of this contract.

However, the announcement didn’t play in favor of American Express, as its stock plunged nearly 6.5% to $80.48 on Thursday. The stock isn’t doing well, as it is trading 13.5% down since the start of this year. In fact, the stock is trading near its 52-week low of $78.41, quite below its 52-week high of $96.24.

Lisa Ray

Lisa Ray primarily covers Retail and Healthcare. Lisa Ray has completed her MBA (Finance) and an avid market tracker. She is a stock market analyst who closely tracks US markets along with other global markets like India. She has been expressing her views for years about markets and also advises various clients.

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