Costco (COST) may be about to put the burden on its members to pay for higher worker wages.
The warehouse retailer could be "poised" to lift its membership fees within the next 18-months, Wells Fargo analysts said in a research note this week. Wells Fargo views any hike as an earnings catalyst, and lifted its rating on Costco shares to Overweight from Equal-weight ahead of that happening.
"In addition to some sustainability of the COVID benefit, Costco is rapidly approaching its next membership fee increase. The company recently highlighted that the event usually occurs every 5-5.5 years, which would suggest an international fee increase later in C2021 and a US/Canada fee increase in the back half of C2022. While this obviously provides a lift to EPS (we estimate 4-5% on a gross basis), we also expect comp upside since the company has a strong track record of generating attractive returns on some reinvestment," the analysts wrote.
A Costco spokesperson declined to comment to Yahoo Finance on the report.
Costco last lifted its membership fees on June 1, 2017. It took its Gold Star membership fee up $5 to $60. Executive membership fees increased by $10 to $120. At the time, the increases impacted about 35 million members.
Since the increase, Costco has added about $50 billion in sales and nearly $4 a share in earnings as existing members stayed with the retailer and new ones entered at higher rates. Costco's stock has gained about 97% dating back to when the last fees increase kicked in.
Prior to the 2017 hike, Costco raised fees by 10% in the U.S. and Canada on Nov. 1, 2011.
For Costco followers on the Street, any increase in fees would make sense as it battles with higher costs from the pandemic.
Earlier in March, Costco badly missed quarterly earnings estimates due to 41 cents in added COVID-19 costs. Costco spent $1.06 billion pre-tax on COVID-related expenses over the trailing 12 months, according to data from Jefferies. That includes $825 million related to a $2 an hour pay bump and $200 million on PPE and other costs.
In late February, Costco raised the starting wage to $16 an hour for U.S. workers. The decision was first revealed by Costco CEO Craig Jelinek in testimony to the U.S. Senate Budget Committee. Costco raised its starting pay to $15 an hour in 2019. More than half of Costco's hourly workers in the U.S. are paid above $25, Jelinek said.
Costco employs roughly 180,000 workers in the country.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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