Most U.S. shoppers say they’re willing to pay more for their retail club memberships, which bodes well for Investing Club, which owns Costco ( COST ) . Survey … According to an Evercore ISI survey of more than 2,500 US consumers, more than 80% are willing to pay a higher annual fee to stay in their shopping clubs, up 25 percent from 2015. The survey also found that Americans intend to renew their membership at “record levels,” or more than nine in 10 respondents. “We view member pushback as slightly lower than in previous year’s surveys,” Evercore said, adding that consumers are more receptive to fee increases following increases for Amazon’s ( AMZN ) Prime service in March and Walmart’s ( WMT ) Sam’s Club in October. That’s a positive reading for Costco, which hasn’t raised annual membership prices in years. The Evercore survey found that Costco has “higher price volatility,” or consistent demand for its products. There is consistent demand for its products, with 60% of its members willing to pay 10% or more for membership fees. In addition, An overwhelming 94% of Costco members in the survey said they were ‘definitely’ or ‘probably’ likely to renew their membership as loyal customers continue to see value in the club model. Those numbers were in line with renewal rates in the U.S. and Canada, according to Costco’s latest quarterly results released earlier this month. The worldwide renewal rate is 90.4%. Evercore likes the prospect of a planned fee increase and a special dividend next year, according to the survey findings. The company maintained its outperform or buy rating on COST and increased the stock’s price target to $540 per share from $530. “The company (Costco) is well-positioned to continue to combine with additional survey insight that charges are likely to increase as traffic and renewal rates hit record highs, so we are improving our COST base case with today’s survey findings. It was well-received by members while driving double-digit revenue growth,” Evercore analysts said. Costco’s standard Gold Star membership costs $60 per year. More For $60, customers can get an Executive Membership and receive additional perks and lower prices on certain products and services. Costco’s last membership price hike was in June 2017, when the retailer increased its standard membership from $55 to $60 and its Executive membership from $110 to $120. Historically , Costco raised its membership fee every five years on the anniversary that passed a few months ago. Although no official announcement has yet been made, CFO Richard Galanti said in the company’s latest earnings report, “It’s never going to happen.” Galanti said during a Dec. 9 call, “We feel like we’re in a very strong position. If we have to wait a few months or months, that’s fine.” Management said the company had put the membership fee hike on hold earlier this year because the burden of inflation was weighing on consumers. But with decades of high inflation showing signs of cooling of late, This could support Costco’s case for raising fees. Evercore analysts believe Costco could make the announcement in April 2023, sending Costco shares up nearly 1% on Wednesday to $462.06. The stock has fallen 18% in 2022, in line with the S&P 500’s decline. for the club We are sitting on almost 60% unearned profit of the stock purchased in 2020. COST holds 110 shares for a 1.8% weight in the portfolio. On December 1, we sold 55 shares of COST, downgrading it to a 2 rating. Positive consumer survey results from Evercore — which confirmed strong membership renewal rates as seen in its most recent quarter — signal that there may be little resistance from shoppers if a Costco membership fee increase could help the stock. It is a position we share. We match the investment case for a wholesale retailer that we think is best in class. Consumers are willing to pay more for membership fees because Costco has low-cost deals and offers a great value proposition unmatched by retail rivals. It is a volume-driven company. As inflation erodes consumer spending, Americans seek refuge in discounts. In a recent interview with Costco CEO Jim Cramer, Craig Jelinek called the compamy the “price police” because it constantly negotiates prices with its suppliers to get the best deals for members. Another upside for Costco stock is the company’s potential decision to issue a special dividend, which Evercore thinks could happen in 2023. Costco has more cash on its balance sheet than it needs to run its business, allowing it to reward shareholders. An additional cash dividend on Costco common stock in addition to its quarterly dividend. Costco last declared a special dividend of $10 per share in November 2020. The company has issued it four times in the past eight years. Despite our long-term investment in Costco, we know the retailer is not immune to a slow economy. In general, Explaining why we like value-based stores, we’re keeping an eye on the retail sector as macroeconomic momentum continues to infect consumers. Costco has long-term earnings; Best among its peers for record membership renewal rates and cash back to shareholders – all while expanding its presence globally. (Jim Cramer’s Charitable Trust is a long expense. See the full list of stocks here.) As a subscriber to the CNBC Investment Club with Jim Cramer, you’ll receive a trade alert before Jim trades. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust portfolio. If Jim is talking about a stock on CNBC TV. There is a 72 hour wait after issuing a trade alert. 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Most U.S. shoppers say they’re willing to pay more for their retail club memberships — a good sentiment for holding Investing Club. Costco (cost).
Donna ElizabethDecember 21, 2022
