Costco makes huge change, shares news on membership fee increase

The warehouse club has gone well past the normal timeframe when it has raised the cost of a membership.

Jun 2, 2024 - 22:30

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Costco makes huge change, shares news on membership fee increase

For decades, Costco’s earnings call felt a little bit like the movie “Groundhog Day,” where Bill Murray repeats the same day over and over with only his actions changing. Every morning he would wake up and it would be Feb. 2 and the same events would play out.

That’s not exactly how it has worked with Costco’s quarterly earnings calls, but with CFO Richard Galanti leading them, they all followed a very similar script until the question and answer portion. Even that section often featured the same group of analysts asking similar questions to the ones they had asked three months earlier.

Galanti, however, retired a few days after the warehouse club’s second-quarter earnings call. That followed Ron Vachris moving from COO to CEO, taking over from Craig Jelinek in a planned transition.

Both of those changes happening so close together led to many wondering if the company would move toward the structure most companies use for earnings calls, where they are led by the CEO. That’s not going to happen, according to Vachris, who did open the third quarter earnings call, commenting on the role of new CFO Gary Millerchip.

“Consistent with how Craig and Richard manage investor communications, I intend to have Gary host the quarterly conference calls, and I will join as business permits to answer a few questions. So, Gary, let's go to the results, and I'm happy to jump back in for the Q&A portion to field some questions today,” he said.

You have to be a member to shop at Costco.
Image source: Tim Boyle/Getty Images

Costco talks about raising membership fees

For the past few years, Galanti has been asked on every earnings call about whether the chain intends to raise its membership fees. He generally acknowledged that the company’s traditional window for doing that has been exceeded, and he would give a brief statement on how an increase would come, but the company did not have a specific timetable.

Millerchip was more verbose on the subject and gave a much longer commentary when he was asked about Costco’s (COST) plan to raise its Gold Membership from $60 and its Executive Membership, which comes with 2% cash back on most items up to $1,000 a year, from $120.

“I would really kind of revert back to some of the comments that Richard shared previously. I don't think that we're thinking about it any differently than he's talked about in the last few calls. You know, we've historically looked at increasing the membership fee every five years or so. And obviously, we're beyond that time period now in terms of what would be the typical cycle,” he said.

The chain, he shared, has been reluctant to make a change when its business has been performing so well.

“There's nothing about anything that we see within how the business is performing that's changing our view on that. We feel really good about membership renewal rates. We feel really good about the test of are we delivering significantly more value to members than we were or have since we last increased the membership fee. But I think we are our own probably toughest competitor in that,” he added.

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Costco, he added, has also been considerate of the financial pressures regarding inflation and the risk of a recession.

“It’s something that is still a case of when we increase the fee rather than if we increase the fee. But we're still evaluating those considerations to determine what the right timing is and when we reach that point where we feel it is the right time, of course, we'll be very open and direct and communicating that,” he shared.

Costco’s membership keeps growing

Costco continues to enjoy a very loyal membership base and renewal rates remained impressive.

“In terms of renewal rates, at Q3 end, our U.S. and Canada renewal rate was 93%, up one-tenth of a percent from Q2 end. The worldwide rate came in at 90.5%, the same as Q2 end,” the CFO said.

Membership revenue grew to $1.123 billion, an increase of $79 million or 7.6% year over year. That’s obviously not because of a price hike, but because of strong growth.

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“We ended Q3 with 74.5 million paid household members, up 7.8% versus last year, and 133.9 million cardholders, up 7.4% year over year. At Q3 end, we had 34.5 million paid executive memberships, an increase of 661,000 since Q2 end. Executive members now represent over 46% of paid members and 73.1% of worldwide sales,” Millerchip added.

Costco shares ended May 31 at $809.89, down 0.7% on the day and down 1.2% from its 52-week (and all-time) high of $819.59 reached on Thursday.

The shares were up 12% for May and are up 22.7% in 2024.

Costco stock is up 58% over the past 12 months and just over 216% over the past 5 years.