This is a news article about Costco raising its annual membership fees for the first time since 2017.This is a news article about Costco raising its annual membership fees for the first time since 2017. * Bank of America recommends buying Costco shares after the company announced the fee increase. * Costco’s shares have risen 29% this year, outperforming the S&P 500. * The fee increase is expected to generate $400 million in additional revenue over the next two years. * Costco’s comparable-store sales rose 6.9% in June, beating analyst expectations.
Getty Images; Jenny Chang-Rodriguez/BI
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According to Bank of America, Costco shares rose 12% after the company raised annual membership fees for the first time since 2017.
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Costco had delayed its membership fee increase for two years due to inflation and recession concerns.
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Costco shares have soared, rising 29% this year, easily outpacing the S&P 500’s 18% gain.
Costco shares are a buy after the company raised annual membership fees for the first time since 2017, according to Bank of America.
The bank said in a statement Thursday that Costco’s first membership increase in seven years will give investors more insight into its profits through 2026.
“We reiterate our Buy rating and expect COST to gain share in the current environment as consumers continue to adjust to higher prices, making COST’s impressive value proposition and price positioning even more compelling,” Bank of America said.
The bank raised its price target to $962 per share from $874, representing potential upside of 12% from current levels.
Costco shares rose as much as 3% to a high of $914 per share in premarket trading Thursday, marking a continuation of this year’s record rally. But the stock has since erased those gains, falling about 3% when regular trading began Thursday.
Costco shares are up 29% this year, far outpacing the S&P 500’s 18% gain over the same period.
Costco’s annual membership fee is going up $5 to $65 for its Gold Star and Business memberships, while its Executive membership fee is going up $10 to $130. The fee increase goes into effect on September 1.
Costco’s Executive membership gives users a cash back reward of 2% on what members spend in-store each year. As part of the new rate increase, the maximum cash back reward limit has been increased from $1,000 to $1,250.
Costco normally raises its membership fees about every five years, but rising inflation, recession fears and recent management changes have pushed the membership fee increase back to seven years, Costco management told Goldman Sachs in early June.
“In our view, the hesitation/delay in increasing membership fees was likely also due to the success the company has had in organically growing membership fee revenues by approximately 7% in recent quarters (driven by new members, a high renewal rate and increased penetration of higher-tier members),” Goldman Sachs said in a note on Wednesday.
Goldman estimates that Costco’s rate increase will generate about $400 million in membership fee revenue over the next two years.
In addition to the rate hike, Costco also reported June sales figures, which showed comparable-store sales rose 6.9% year-over-year to $24.48 billion.
The story continues
Same-store sales growth in June was 6.9%, according to data from Goldman, which beat the consensus estimate of 6.6% and was an acceleration from Costco’s sales growth in May, which rose 6.5%.
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