Shares of big box retailer Costco Wholesale (NASDAQ:COST) gained over 2.5% in the extended trading session on Wednesday. The upside came after it announced plans to raise annual membership fees for the first time since 2017.
Effective September 1, the membership fee in the U.S. and Canada will increase to $65 from $60. Also, the higher-tier executive membership fees will increase to $130 per year from $120.
Investors should note that the company has a track record of increasing membership fees every five and a half years. Since the last hike occurred in June 2017, the company was expected to raise fees again in late 2022 or early 2023. However, Costco opted to delay the increase due to high inflation concerns among consumers.
Revenue Boost
Interestingly, these fees are a major source of revenue for Costco. In 2023, membership fees generated $4.6 billion in revenue, an 8% increase from the previous year.
It is worth noting that COST expects the recent fee increases to affect about 52 million memberships, with over half being executive memberships. Thus, this move is expected to bolster the company’s top-line growth.
Impressive Sales Report for June
In addition to its plan to raise membership fees, Costco disclosed an impressive sales report for June.
Comparable store sales, a key metric that tracks sales at stores open for at least a year, rose by 5.3% in June. This growth was fueled by strong performance in both core markets, the U.S. and Canada.
Overall net sales for June 2024 reached $24.48 billion, which reflects a year-over-year increase of 7.4%.
Is Costco a Buy, Sell, or Hold?
On TipRanks, COST has a Strong Buy consensus rating, which is based on 19 Buy and six Hold ratings. After a year-to-date rally of 34.4% in its share price, the analysts’ average price target on Costco stock of $866.48 implies a 2.02% downside potential.
