Most American shoppers say they’re willing to pay more for their retail club memberships — a sentiment that bodes well for Investing Club holding Costco ( COST ). The survey says … According to an Evercore ISI survey of more than 2,500 US consumers, more than 80% said they would be willing to pay a higher annual fee to keep their shopping club, up 25 percentage points from 2015. The survey also found that Americans intend to renew membership at “record high levels,” or more than nine out of every 10 respondents. “We’re looking at member churn less and less than last year’s surveys,” Evercore said, indicating that consumers will be receptive to fee increases following the rise of Amazon’s Prime service ( AMZN) in March and Walmart’s (WMT) Sam’s Club in October. It’s a positive reading for Costco, which hasn’t raised annual membership prices in years. In Evercore’s survey, Costco was reported to have the “highest fee inelasticity,” or steady demand for its products, even in a worsening economy, with 60% of its members willing to pay 10 % or more of membership fees. Additionally, an overwhelming 94% of Costco members in the survey said they would ‘definitely’ or ‘probably’ renew their memberships as loyal customers continue to see value in the model. in the club. The numbers are in line with US and Canadian turnover rates of 92.5%, according to Costco’s latest quarterly results, released earlier this month. The global renewal rate is 90.4%. As a result of the survey results, Evercore favored Costco for a planned fee increase and the potential for a special dividend next year. The company maintained its outperform, or buy, rating on COST and raised its stock price target to $540 per share from $530. “We have increased our base case on COST as a result of today’s survey findings, as the company (Costco) appears well positioned to continue compounding as traffic and rates change. or hit a record high, with the survey adding to the outlook that fee increases are likely to increase. relatively well-received by members while driving double-digit revenue growth,” Evercore analysts said. . Costco’s standard Gold Star Membership costs $60 per year. For an additional $60, customers can obtain Executive Membership and get additional rewards and lower prices on certain products and services. Costco’s last membership price hike was in June 2017, when the wholesale retailer raised its standard membership fee from $55 to $60 and its Executive membership from $110 to $120. Historically, Costco has raised membership fees every five years, an anniversary that passed a few months ago. While no formal announcements have been made yet, CFO Richard Galanti said in the company’s last earnings report that “it’s a question of when, if.” Galanti added during the December 9 call, “We feel we are in a very strong position right now. Earlier this year, management said the company was holding off on raising membership fees because inflation was a burden has weighed on consumers. But with decades of high inflation showing signs of cooling of late, that could support Costco’s case to raise fees. Evercore analysts believe Costco will be able to announcement April 2023 Costco shares closed up nearly 1% on Wednesday at $462.06 apiece. The stock is down 18% year to date, roughly in line with the S&P 500’s decline in 2022. For the Club, we’re sitting of unrealized gains of nearly 60% earned on stock purchased in 2020. We own 110 shares of COST for a 1.8% portfolio weight. On December 1, we sold 55 shares of COST and lowered it of 2 ratings. Bottom line Positive consumer survey results from Evercore – confirming strong membership renewal rates, as seen in the most recent quarter – signal that any increase in Costco’s membership fee is likely to be met with very little resistance from shoppers and may be a factor in the stock. That’s a position we share, and it’s consistent with our wholesale retailer investment case, which we think is best in class. Consumers are willing to pay more for membership fees because they know Costco has cost-saving deals, offering a strong value proposition unmatched by retail stores. competitors. This is a volume-driven company. As inflation erodes the spending power of consumers, Americans seek refuge in discounts. In a recent interview with Jim Cramer, CEO of Costco, Craig Jelinek called the company the “price police,” because it constantly negotiates prices with its suppliers to get the best deal. for its members. Another potential trigger for Costco stock is the company’s likely decision to issue a special dividend, which Evercore thinks could happen in 2023. Costco has more cash sitting on its balance sheet than what it needs to run its business, allowing it to reward shareholders with an additional cash dividend on Costco common stock in addition to its quarterly dividend. The last time Costco declared a special dividend was in November 2020 at $10 per share. The company has issued it four times in the last eight years. As long-term Costco investors, we know the retailer is not immune to a sluggish economy. Overall, we are cautious on the retail sector as macroeconomic headwinds continue to hit consumers, which explains why we prefer value-based stores. Costco is outperforming its peers as it delivers strong earnings, record membership renewal rates and returns cash to shareholders – all while expanding its presence on a global scale. measure. (Jim Cramer’s Charitable Trust is high COST. See the full list of stocks here.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive trade alerts before Jim makes a trade . Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. When Jim talks about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTIES ARE CREATED, OR CREATED, BY YOUR ACCEPTANCE OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Sofa Pictures | Lightrocket | Getty Images
Most American shoppers say they’re willing to pay more for their retail club memberships — a sentiment that bodes well for Investing Club holdings. Costco (RUDE).
Donna ElizabethDecember 21, 2022
