‘It’s not a question of if,’ analyst explains

Will Costco raise its membership fees, given that it’s previously done so roughly every five years, and we are now five years from the last hike?

“It’s not a question of if but a question of when,” UBS analyst Michael Lasser said on Yahoo Finance Live (video above). “A shift back from raising its fees for six months is not going to have that dramatic an impact on the share price. And, if anything, raising fees will provide a pool of savings that Costco can use to reinvest back into lower prices for its customers.”

Costco’s last membership fee increase kicked in on June 1, 2017, when warehouse club took its Gold Star membership fee up $5 to $60 and executive membership fees increased by $10 to $120.

“Costco is an excellent retailer,” said Lasser, who has covered Costco for years. “They have been in this strategy for a long time, so we have confidence they can continue to balance the needs of their customers and the needs of their shareholders.”

Costco recently surprised a few analysts on Wall Street last week for delaying its latest increase, holding the line on its popular $1.50 hot dog offer despite inflationary pressures.

“Given the current macro environment, the historically high inflation, and the burden it’s having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time,” Costco CFO Richard Galanti told analysts on the company’s May 26 earnings call. “When we introduced the hot dog-soda combo in the mid-’80s, it was $1.50. The price today is $1.50, and we have no plans to increase the price at this time.”

Why the Street is clamoring for a membership fee increase isn’t a shock since it’s proven to be a catalyst to earnings and the stock price.

Guggenheim analyst John Heinbockel’s analysis Costco’s last three membership fee increases in 2006, 2011, and 2017 shows the stock rose on average 11% three months prior to the announcement and an average of 15% six months prior to the announcement as savvy investors piled in amid the expectation of the profit-inducing hike.

Story continues

Lasser fully expects another price increase for membership — but not for the hot dog.

“As far as the hot dog, it’s quite tasty,” Lasser added. “And it’s a great deal. We expect Costco will continue only charging $1.50.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube