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Costco puts off membership fee increase as renewals hit all-time highs

Costco is postponing a possible increase in membership fees as renewal rates hit record highs in the fourth quarter.

“In terms of membership fees and a potential increase, there are no specific plans at this time regarding an increase in fees,” Costco Chief Financial Officer Richard Galanti said during the company’s earnings call on Thursday. “We are pleased with our growth in both revenue and membership households in recent quarters and in member loyalty as reflected in the increasing number of member renewals.”

ticker Safety Last Change Change %
COST COSTCO WHOLESALE CORP. 464.74 -22.43 -4.60%

At the end of the fourth quarter, Costco’s membership renewal rate was 92.6% in the US and Canada and 90.4% globally, up from 92.3% and 90%, respectively, in the previous quarter.

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The company has 65.8 million paying household members and 118.9 million cardholders at the end of the fourth quarter, both 6.5% more than a year ago. Paid executive membership was 29.1 million, an increase of 1.2 million compared to the third quarter. Executive members now represent more than 44% of Costco’s members and just under 72% of its worldwide revenue.

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Historically, Costco has increased its membership fees about every five and a half years. Galanti noted that the last three increases were five years and seven months apart on average. The company, which last increased its membership fees in June 2017, currently charges $120 per year for executive memberships and $60 per year for its Gold Star and corporate memberships.

“If you look at June ’17, plus five years and seven months, you have about January ’23,” Galanti said. “Now I’m not suggesting that it’s January 23. I’m just saying that at least it isn’t there yet. And our view is that we’re confident in our ability to do this. And at some point we will, But it’s a question of when, not if.”

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“Given the headline of inflation and concerns about a recession, we feel quite comfortable driving sales and profits as we are now, and we still have that arrow in our quiver as we move forward,” he added.

Costco reported net income of $1.868 billion, or $4.20 per diluted share, in the fourth quarter, compared to $1.67 billion, or $3.76 per diluted share, in the same period last year. Net sales increased 15.2% to $70.76 billion, from $61.44 billion in the same period a year ago. Membership revenue for the quarter came in at $1.3 billion, up from $1.2 billion a year ago.

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The comments come as Walmart-owned Sam’s Club is preparing to increase its annual membership fee for the Club for the first time in nine years and its annual Plus membership fee for the first time since its introduction in 1999. Beginning October 17, the annual membership fee will be $50 for Club members and $110 for Plus members, of $45 and $100, respectively.

“We are aware of the financial pressures on portfolios right now, so this year’s extension is on us,” said Sam’s Club CEO Kath McLay in a message to customers. “We are returning $5 in Sam’s Cash to Club members and $10 in Sam’s Cash to Plus members shortly after renewal.”

Sam's Club Logo

Beginning October 17, Sam’s Club will charge $50 for its annual Club membership and $110 for its Plus membership, of $45 and $100 respectively. (REUTERS/Rick Wilking/File Photo/Reuters Photos)

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WMT WALMART INC. 128.93 -4.43 -3.32%

Earlier this month, the Department of Labor reported that the consumer price index rose 8.3% in August from a year ago. Prices rose 0.1% in the one-month period from July.

Although Galanti said Costco’s overall price inflation was about 8% in the fourth quarter as a result of pressures from higher commodity prices, higher wages, higher transportation costs and supply chain disruptions, he noted that there have been minor improvements in some areas.

“We’re seeing some commodity prices, such as gas, steel and beef, compared to a year ago, even some minor cost changes in plastics. We’re seeing some easing in container pricing,” Galanti said. “Wages still seem to be the only thing that’s still relatively higher. But overall, there’s light at the end of that tunnel.”

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