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Costco customers willing to pay increased membership fees

Yahoo Finance's Brooke DiPalma discusses Costco earnings, membership fees, and the wholesaler's stalwart stance toward its hot dog deal despite rising inflation.

Video Transcript

AKIKO FUJITA: Well, shares of Costco moving lower this morning, well down more than 2 and 1/2% here after the wholesale retailer reported earnings that beat expectations yesterday after the bell. But Wall Street was left disappointed in after hours trading. Brooke DiPalma is here with the details. Brooke, let's start with the membership fees because the expectation has been for a while that it is going to go up. And yet, this is a company that still has a lot of loyalty baked in.

BROOKE DIPALMA: That's right, a lot of loyalty here. Renewal rate about 90%, so customers are continuing to return year over year, willing to pay that cost. Of course, yesterday, on the call, Richard Galanti, Costco's CFO, saying, quote, "There are no specific plans regarding a fee increase at this time. We're pleased with our growth in both top line sales and membership households over the last several quarters. And member loyalty is reflected in increasing member renewal rates. We'll let you know when something is about to happen."

Of course, let's take a step back and take a look at how much exactly it costs. So for a basic membership at Costco, it's about 60 bucks. Now for their gold membership, the executive membership runs about 120. Of course, that is a little more expensive than one of its top competitors, Sam's Club. That is owned by Walmart. They recently announced an annual increase set to take effect October 17. That's about $50 for club members, $110 for plus members. That was about a $5 increase and a $10 increase.

But of course, that was the chain's first in nine years for the basic membership and the first time for-- since 1999 for Sam's Club. But to give more context here on when those Costco loyal customers might expect to increase, the CFO said that typically, they do every year every five years and 7 months. So the last increase was June 2017. That would bring us to January 2023. They said no plans as of yet, but it's not a matter of if it'll happen than a matter of when it'll happen.

Of course, Wall Street reacting to that earnings report yesterday after the bell. But Goldman this morning reiterating a buy, saying that it continues to have increased confidence in the stock, as the big box retailer's strong earnings report yesterday. And they have confidence in those customers to continue to return.

AKIKO FUJITA: So Costco is always a good gauge of where inflation is right now, but also how customers are responding. The question they get over and over on every call is, what about that hot dog and soda combo? $1.50 is still an incredible deal. Are those prices going to go up now?

BROOKE DIPALMA: Well, Akiko, those prices are not going to go up as of now. Now, this has gotten a lot of attention in this past year. It even brought back up on the call last night. In Q3, someone tweeted that they were adding an extra dollar because of inflation, and then quickly, they shut down those rumors in the third quarter earnings call.

This quarter, they also addressed that. They said that the fresh foods business, they saw about 30%, 40% sales, 20% plus increase each year. They said that it's an improvement on the bottom line. They have no plans to make that price higher for the hot dog and soda combo. But they have increased a few other items in that fresh foods court, you could say. But no plans to increase that price as of now. Of course, it's a staple at Costco. And so customers--

AKIKO FUJITA: It is.

BROOKE DIPALMA: --will certainly respond if they do.

AKIKO FUJITA: A big sigh of relief. I mean, $1.50, I think that's cheaper than pizza.

BROOKE DIPALMA: A 20 ounce soda?

AKIKO FUJITA: Cheaper than pizza.

BROOKE DIPALMA: And a hot dog? Cheaper than pizza. Cheaper than just about anything right now.

AKIKO FUJITA: All right. Glad to hear they're keeping it for now. Thanks for that, Brooke.