Costco CEO Says Membership Price Hikes Likely: What Investors Should Know

One of the largest subscription-based retailers could be raising prices for its members soon. Here’s what Costco Wholesale Corp COST investors need to know. 

What Happened: Costco reported second-quarter net sales of $50.9 billion, up 16.1% year-over-year. Total revenue of $51.9 billion for the quarter included $967 million from membership fees and beat a Street consensus estimate of $51.4 billion.

Along with the revenue, earnings per share and same store sales figures, Costco investors got another piece of news Thursday night.

On the company’s earnings call, CFO Richard Galanti discussed the potential for raising membership fees.

“I looked at the last three increases over the last 15 years and on average, they were done about every five, a little over every 5.5 years,” Galanti said. “And five years from the anniversary of the June of 2017 would be this June.”

The answer was in response to a question from UBS analyst Michael Lasser on the potential to raise subscription prices.

“At the end of the day, we certainly feel very good about our member loyalty, our success in getting members to move to exclusive member,” Galanti added. “You guys will know when we tell you, and at some point, it will happen, but stay tuned.”

Related Link: Costco Q2 Eanings Highlights: Revenue, EPS Beat, Store Sales Up 12.6% And Early February Numbers 

Why It’s Important: Costco last raised its membership fee in June 2017. The company’s gold star membership went up from $55 to $60 annually at the time and the exclusive membership tier price rose from $110 to $120 annually.

Costco’s membership revenue made up only 1.8% of total revenue in the second quarter, but it comes as a high-margin item that can help boost profits to the bottom line.

Galanti highlighted Costco’s renewal rate of 92% at the end of the second quarter. Galanti also highlighted the shift of members to the exclusive membership pricing tier, which makes up 72% of total sales.

“What happens when it gets to 85 or 90, do you eliminate the lower membership?” Galanti said. “At some point, we might, but that’s again, not in the cards at any time in the near future.”

Costco ended the second quarter with 63.4 million member households. Total cardholders stood at 114.8 million at the end of the second quarter. The last time Costco raised its membership fee, it had 35 million members, a figure that has nearly doubled in five years.

The question from Lasser raised also highlighted how other companies like Inc AMZN have recently announced price increases.

Costco’s rival Sam’s Club, which is owned by Walmart Inc WMT , ffers memberships in two tiers of Club and Plus that $45 and $100, respectively, on an annual basis.

COST Price Action: Costco shares were down 1.42% at $525.46 Friday afternoon. 

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Posted In: EarningsNewsTrading IdeasAmazon PrimeMichael LasserRetail StocksRichard GalantiSam's ClubUBS
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