$Costco(COST)$ has announced its first membership fee increase since 2017, which will go into effect on September 1, 2024.The annual fee will increase from $60 to $65 for regular and business members, and from $120 to $130 for premium members.The adjustments are expected to affect about 52 million members.
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Impact on Costco, Inc.
1. Increase in revenue
Increase in membership fee revenue: membership fees are an important source of revenue for Costco.The price increase will directly increase membership fee revenue and is expected to contribute significantly to the company's overall revenue.Previously, membership fee revenue accounted for 1.9% of the company's total revenue.
Rising profit margin: Currently, the company's overall gross profit margin is around 12.5%. If we look at the impact scenario of 50 million members, it is expected to boost revenues by $300 million per year, and the gross profit margin is expected to rise by 0.9%.
2. Enhance member value and increase renewal rate
Renewal Rate Impact.Costco currently has a very high membership renewal rate, with a 93.0% renewal rate in the U.S. and Canada.The price increase may have some impact on renewal rates, but the impact is not expected to be significant due to members' high loyalty to Costco.
Enhanced member loyalty: with the new upgrade, the cash back cap for premium members has been increased from $1,000 to $1,250, which will enhance the sense of value for members and may help increase renewal rates and loyalty.
Competitive Advantage: Despite the increase in membership fees, Costco's membership fees remain competitive.Its main competitors such as $BJ's Wholesale Club Holdings Inc.(BJ)$ and $Wal-Mart(WMT)$ Sam's Club have membership fees of 55and $50, respectively.
The company's stock price is expected to
The membership fee increase is in line with its long-term strategy; Costco typically adjusts its membership fees every five to six years, and this adjustment is in line with its long-term strategy.This adjustment will generate new profit growth for the company and support its ability to offer better prices on a large number of products.
The market expects that the previous move has included the market's anticipation of Costco raising membership fees, and this adjustment removes the uncertainty and helps stabilize market expectations.For now, Sell the Fact is highly likely.
COMPANY VALUATION: The company's current PE TTM of 54x is significantly higher than the industry average of 23x.Peer warehouse membership stores $BJ's Wholesale Club Holdings Inc.(BJ)$ are trading at a PE of 23x, while $Wal-Mart(WMT)$ is trading at a PE of 30x.
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