Shares of Costco Wholesale Corp. are higher in premarket trading in New York after the warehouse-club chain announced annual price hikes across its members for the first time in years.
Starting September 1, Costco Gold Star, Business, and Business add-on members across North America will see an increase of $5 to their annual membership costs, bumping up from $60 to $65. Executive members must pay $130, a $10 price hike. Membership price hikes will impact all 52 million members.
In a press release published Wednesday, Costco provided a breakdown to the first membership price hikes since 2017:
The Company also announced that, effective September 1, 2024, it will increase annual membership fees by $5 for U.S. and Canada Gold Star (individual), Business, and Business add-on members. With this increase, all U.S. and Canada Gold Star, Business and Business add-on members will pay an annual fee of $65. Also effective September 1, annual fees for Executive Memberships in the U.S. and Canada will increase from $120 to $130 (Primary membership of $65, plus the Executive upgrade of $65), and the maximum annual 2% Reward associated with the Executive Membership will increase from $1,000 to $1,250. The fee increases will impact around 52 million memberships, a little over half of which are Executive.
Costco typically raises membership fees every five years or so. This has prompted Wall Street analysts, such as ones from Jefferies, to view this as a positive catalyst for the stock.
Here's what Wall Street analysts are saying (courtesy of Bloomberg):
Jefferies (buy)
- Analyst Corey Tarlowe sees the "long-anticipated" membership fee increase as a positive catalyst for earnings and the stock
- Historically, Tarlowe adds, fee increases have not had a significant impact on membership trends; as a result, he expects the impact to be muted
- PT raised to $1,050 from $860; shares closed at $884.31 on Wednesday
Baird Equity Research (outperform)
- "Another month of robust core comps and the announcement of a US/Canada fee increase reinforce our positive view on COST," analyst Peter Benedict writes in note
- Benedict says some of the proceeds from the fee increase "will surely be reinvested," but adds this "provides more oxygen to support COST's sector-leading traffic momentum, market share gains, and ultimately member loyalty."
- PT raised to $975 from $850
William Blair (outperform)
- Analysts Phillip Blee and Sabrina Baxamusa estimate the fee increase will bring in roughly $350 million in incremental sales and operating profit over the next two years
- Blee and Baxamusa expect Costco to reinvest the majority of the extra earnings into increasing its value proposition through lower prices and other membership benefits
- Fee increase likely precedes a similar action from peer BJ's Wholesale, while Sam's Club is likely to remain stable after doing its first fee increase in almost 10 years in late 2022
Bloomberg Intelligence
- "Costco's announcement that it would raise membership fees by $5 for the base level and $10 for the executive tier was expected and is overdue from its usual five-year cadence," analyst Jennifer Bartashus writes
- "The company delayed an increase amid consumer concerns about inflation and the economic outlook, which have eased some"
In markets, Costco shares were up 3% to $912 a share. The overall trend in the stock appears similar to Bitcoin or a parabolic 'meme' stock - right before a blowoff top.
On an earnings call with investors in May, CFO Gary Millerchip said Costco's hotdog-soda combo would remain at $1.50 - a price that hasn't changed since the mid-1980s.
Costco is merely following the path of its rival Walmart-owned Sam's Club, which hiked membership fees for the first time in nine years in 2022.
