Costco’s Membership Fees Remain Unchanged Despite Strong Q4 Earnings

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Costco Wholesale Corporation (NASDAQ: COST), the world’s largest warehouse club operator, reported its fourth-quarter earnings for the fiscal year 2023 on Tuesday, September 26, 2023. The company beat analysts’ expectations on both revenue and earnings per share, and also improved its gross margins year over year. However, Costco did not announce any changes to its membership fees, which have remained the same since 2017.

Costco’s Q4 Highlights

According to the company’s press release, Costco’s net sales for the fourth quarter were $64.75 billion, an increase of 17.5% from $55.11 billion in the same period last year. The company’s comparable sales, which exclude the impact of foreign exchange and gasoline price fluctuations, rose by 9.4% in the U.S., 8.9% in Canada, and 6.2% in other international markets. The company’s e-commerce sales grew by 11.2% in the quarter.

Costco’s net income for the fourth quarter was $1.67 billion, or $3.76 per diluted share, compared to $1.39 billion, or $3.13 per diluted share, in the same quarter last year. The company’s earnings per share beat the consensus estimate of $3.57 by Thomson Reuters. Costco’s gross margin, which measures the percentage of revenue that the company retains after deducting the cost of goods sold, improved by 12 basis points to 11.41% in the quarter.

Costco’s Membership Model

One of the key drivers of Costco’s success is its membership model, which generates a steady stream of recurring revenue for the company. Costco offers two types of memberships: a basic one that costs $60 per year, and an executive one that costs $120 per year and comes with additional perks such as cash back rewards and travel discounts. As of the end of the fourth quarter, Costco had 109.3 million cardholders and 60.6 million households as members.

Costco’s Membership Fees Remain

During the quarter, Costco said that its membership renewal rates remained high, at 91% in the U.S. and Canada, and 89% worldwide. The company also said that its executive members, who tend to spend more and shop more frequently at Costco, accounted for a record 44% of its total membership. Costco’s membership fees totaled $4.64 billion for the fiscal year 2023, an increase of 7.7% from $4.31 billion in the previous year.

Costco’s Membership Fee Hike

Despite its strong performance and loyal customer base, Costco has not raised its membership fees since 2017, when it increased them by $5 for the basic membership and $10 for the executive membership. The company typically raises its fees every five to six years, so many analysts and investors expected a fee hike announcement in the fourth-quarter earnings call. However, Costco’s management did not mention any plans to do so, and instead focused on highlighting the company’s value proposition and competitive advantages.

Some analysts believe that Costco is holding out on raising its membership fees because of the uncertain economic environment and the competitive pressure from other retailers such as Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN). Others think that Costco is waiting for the right time to announce a fee hike, as it did in 2017, when it announced it in January and implemented it in June. Either way, Costco’s membership fees remain unchanged for now, but they could change in the near future.

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