A Costco membership price hike is coming soon, analyst says
"It's a question of when, not-if."
Attention shoppers: Now may be the time to purchase a Costco membership.
UBS US Hardline & Broadline and Food Retail Analyst Michael Lasser told Yahoo Finance (video above) that the company likely sees the current moment as "an opportune time to charge a little bit more for the members because we're delivering so much value to them."
UBS holds Buy rating on shares of Costco and $575.00 price target.
"I suspect that they'll announce it later this spring and implement it early this summer," Lasser said. "What they find is that as they get the profit infusion from this fee, because it really is pure profit, that they take a portion of that and reinvest it back in lower prices. And that helps to drive the model. It helps to differentiate Costco versus other retailers out there."
Costco saw same-store sales increase 6.8% last quarter, primarily driven by consumer shifts to essentials like fresh foods and away from discretionary items, and announced that 92% of U.S. members were renewing. Membership fees brought in $1.03 billion last quarter, up 6.2% year over year.
Asked about raising prices in the latest earnings call, Costco CFO Richard Galanti reiterated: "It's a question of when, not-if." He also explained how the company leverages "wow items" like the $4.99 rotisserie chicken to keep Coscto members coming back.
"If you go do the homework on what the cost of processing and selling a rotisserie chicken, our $4.99 price... is an investment in low prices to drive membership, to drive sales in a big way," Galanti explained.
In December, longtime Costco CEO Craig Jelinek told Yahoo Finance that the retailer had "no plans to change" the prices of its $1.50 hot dog and soda combo.
Costco last raised membership prices — a Costco Gold Star membership costs $60 per year and an Executive Membership goes for $120 — in June 2017. Lasser noted that the company raises prices every 5 years and seven months on average, which suggest the next hike is imminent.
"Costco offers a very good deal for the consumer," the anayst said. "You pay to shop there. And the reason why you pay to shop there is because you find prices that are as good or better than anywhere else."
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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