You may want to consider grabbing or renewing a Costco (NASDAQ:COST) membership sooner rather than later. The warehouse club operator reports quarterly results tomorrow afternoon, and with a membership rate hike seeming likely later this year, do you really want to take a chance that it doesn't get the announcement over with as it hosts Thursday afternoon's earnings call?
Costco has historically boosted its membership rates every five or six years. The last time it happened was November 2011. Do the math. We're now thigh-deep into the sixth year.
UBS analyst Michael Lasser feels that Costco will announce a membership fee increase during the conference call for its fiscal third quarter, but it could happen as soon as its call to discuss its fiscal second quarter. Spoiler alert: Costco's fiscal second-quarter call will take place on Thursday afternoon.
Take a hike
How high can rates go? Costco's current rates are $110 for Executive memberships. Business and Gold Star memberships are setting warehouse club shoppers back $55 a year. Lesser feels that a $5 hike for Gold Star members and a $10 uptick for Executive accounts -- a 9% increase -- is more reasonable..
These increases are a pretty big deal. Costco runs a tight ship. True to its warehouse club roots, it commands meager markups on its wares. Membership fees make up a big part of its bottom-line results.
The increase will happen eventually. Costco's CFO hinted as much during the retailer's fiscal first-quarter earnings call. Investors shouldn't be surprised if it announces the hike after Thursday's market close, especially if it's a weak report.
All signs point to a robust quarter. The chain of 725 warehouse clubs posted a 3% uptick in comparable-store sales for December, following that up with a chunky 7% surge in comps for January.
However, Costco has been far from perfect these days. It has missed Wall Street's profit targets in three of the past five quarters. Revenue growth has decelerated in four of the past five fiscal years. If Thursday afternoon's report has a chance of falling short of expectations, isn't it logical to expect Costco to announce the rate hike then? Pushing through an increase just as it offers ho-hum results is one way to make sure that the stock doesn't take a hit on the news.
Costco stock closed slightly lower in 2016, and you have to go all the way back to 2008 to find the last time Costco's stock experienced an annual decline before last year's meager retreat. Costco isn't going to want a repeat performance. If the quarter's a dud, announcing the inevitable rate increase will be the perfect misdirection play. Customers -- and even shareholders in that scenario -- better hope that the rate hike doesn't happen tomorrow.