Costco Discusses Membership Fee Increases After Renewals Hit 90%

Costco Wholesale Corp. talks about increases in membership fees after reporting an all-time renewal rate of 90%.

The last time Costco increased its membership fee was in June 2017. Historically, dues have increased every 5 1/2 years. Gold Star and Business memberships are currently $60 per year and Executive Membership, which includes additional offerings, is $120.

Costco COST,
ended the third quarter with 64.4 million paying households and 116.6 million cardholders. The warehouse retailer also ended the quarter with a global renewal rate of 90%, the first time it has reached this level. In the US and Canada, the renewal rate was 92.3%.

Costco also has warehouses in Spain, China, Mexico and other countries around the world. Executive members make up 43% of the membership base and account for 71% of worldwide revenue.

Read: Unlike Target and Walmart, beauty and fashion retailers are posting better-than-expected quarterly results as shoppers fill their social calendars

“Historically, we’ve increased fees every five to six years, with the last three increases occurring over an average of 5.5 years,” said Robert Nelson, senior vice president of treasury, planning and investor relations at Costco the conference call. according to a FactSet transcript of the Q3 earnings call.

Nelson said “there would be further discussion” as the company approaches that timeframe. But “given the current macro environment, historically high inflation and the strain it is having on our members and all consumers in general, we think it is not the right time to increase our membership fee today ahead of our typical timing.”

Costco reported quarterly sales of $52.6 billion and earnings of $3.04 per share at the end of May.

May sales, announced last week, rose 16.9% to $18.23 billion.

With inflation hitting a 40-year high and putting pressure on consumers’ grocery bills, there were concerns that Costco would raise the price of its $1.50 hot dog deal. The retailer isn’t touching that, but muffins and croissants weren’t spared a price hike.

See: Walmart says consumers are shifting to private label for items like dairy and bacon

Costco estimates that price inflation was about 7% in the fiscal third quarter. Costco, like other retailers, was late in receiving some Christmas items due to supply chain disruptions, but will hold inventory through the fall.

“Against a backdrop of inflation, Costco has effectively offset revenue growth and earnings through reinvestments in recent quarters,” Stifel analysts wrote after the May earnings release.

“We expect this trend to continue and lead to double-digit growth in operating income over the next few years.”

Stifel ranks Costco stock buy with a price target of $515.

“In an increasingly challenging economic environment, we believe that Costco’s highly competitive pricing will allow the company to gain further market share (while its higher-income consumer base helps protect it against a broader economic slowdown),” wrote Truist Securities in a recent statement.

Truist ranks Costco stock buy with a price target of $543.

UBS analysts voiced optimism on Costco’s clients and remained bullish on the stock.

“Looking ahead, we expect Costco to see increased interest from consumers as they seek to maximize value against an uncertain backdrop. Also, the rapid sales growth should better insulate it from the price discounting likely to happen across retail due to inventory levels,” UBS said.

UBS rates Costco stock buy with a price target of $595.

And: Target’s moves to reduce inventories are right, but a few weeks late, analyst says

Costco stock is down nearly 17% year-to-date, while the S&P 500 benchmark index SPX,
is down 12.7% for the period. Costco Discusses Membership Fee Increases After Renewals Hit 90%

Brian Lowry

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