Costco banking on loyalty amid inflation, recession fears

Costco ( COST ) customers seem to be swallowing the cost of membership fees to gain access to the wholesale retailer.

In the company’s fiscal fourth-quarter earnings report, it beat on the top and the bottom line with reported revenue of $72.09 billion dollars, slightly higher than Bloomberg estimates of $71.89 billion, and adjusted earnings of $4.20 per share, higher than estimates. $4.14.

Wall Street analysts are confident in Costco’s ability to keep the momentum going, despite shares falling 2 percent in aftermarket trading Thursday.

In a note to investors, Goldman Sachs reiterated its Buy rating with an updated 12-month price target of $548, citing top-line trends that remain healthy, supported by membership gains.

“We remain confident in COST’s value proposition that is relevant to consumers, and the company’s scale and limited SKU model enable it to manage current inflationary cost pressures,” the note said.

JPMorgan currently has an overweight rating on the company with a $550.00 price target. However, JPMorgan retail analyst Christopher Horvers calls out the company.

A Costco store is seen on September 23, 2022, in Monterey Park, California. (Photo by Eric Thayer/Getty Images)

In the note, Horvers said: “We believe COST remains a core asset given its unrivaled value proposition (11% of gross margins) to its extremely loyal customer base (~90% renewal rate) and growth opportunity global (2-3). % per year and probably double the warehouse base right now here) is a rare combination in retail and consumer staples.”

After market close on Friday, the company’s shares closed at $466.40 per share, down -4.26%.

This quarter, Costco had 65.8M paying household members and 118.9M cardholders, both up 6.5% compared to a year ago.

With customers willing to pay up and inflation taking a toll on skyrocketing grocery prices, Chief Financial Officer and Executive Vice President Richard Galanti said a fare increase could come in the future, but not right now.

“There are no specific plans to raise fees at the moment. We are pleased with our growth in top line sales and membership households over the past several quarters, and member loyalty is reflected in rising member renewal rates. We will let you know when something is about to happen,” he said on a call with investors.

To enable screen reader support, press ⌘+Option+Z To learn about keyboard shortcuts, press ⌘slash

Typically, Costco raises its membership every 5 years and seven months, putting the next possible hike in January 2023. Galanti added that he was not suggesting it happen, but that the team is “confident” in its ability to do so. to do that.

“We are confident in our ability to do that and at some point, we will. But it’s a question of when it’s not.”

Costco’s annual fees are more expensive than one of its closest competitors, Walmart-owned Sam’s Club ( WMT ), which recently raised prices in August for the first time since 1999. Effective Oct. 17, annual membership fees will move the competitor to $50 from $45 for Club members, and to $110 from $100 for Plus members.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

Yahoo Finance continued Twitter, Instagram, YouTube, Facebook, Flip chartand LinkedIn.

Leave a Reply

Your email address will not be published.