Costco holding the line on fees, hot dog hikes, analyst says

Costco holding the line on fees, hot dog hikes, analyst says

Costco execs stated on its earnings call this month that it is holding the line on membership fees and the legendary $1.50 hot dog, even as rival Sam's Club has recently jacked up prices.

Wall Street hasn't stopped speculating when Costco will lift fees for a profit windfall, according to John Heinbockel, analyst at the Guggenheim.

Heinbockel said in a new note to clients, the membership fee hike will occur in the second half of fiscal year 2023, a three-year financial windfall. He said that the predicted hike would be between March and August 2023, with next spring in our view most likely. On June 1, 2017, Costco's last membership fee increase kicked in. The Gold Star membership fee went up $5 to $60 and executive membership fees went up by $10 to $120.

Heinbockel is a big fan of Costco's stock, despite mounting economic pressures on consumers, because of the potential for a membership fee increase.

Heinbockel thinks that Costco is waiting for the perfect time to lift fees.

The potential membership fee increase is a story that won't end. For the past year investors have been anticipating and discounting it, and we expect an increase during the second half of fiscal 2023, even though management remains non-committal as to timing. This would be after the holidays, higher home heating bills this winter, and moderate food inflation. Sam s Club's recent increase is positive, but Costco's decisions are always independent of the competition. A fee increase could be a jolt to Costco's top and bottom lines.

The benefit is spread over two years based on the cadence of renewals and monthly accruals. The impact would be modest in 2023 and much larger in 2024 and 2025. Costco's stock tends to perform well around a fee increase chart below. This is a positive catalyst, usually 6 -- 9 months in advance. We believe that it won't be discounted until a few months before the event or early 2023 because of uncertainty with regard to both the macro backdrop and the timing of the membership fee increase. You can follow Sozzi on Twitter and LinkedIn.