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Grocery prices are still going up, but Costco membership fees aren’t — for now

After analyst asks whether it makes sense to raise membership fees, Costco CFO responds: ‘Nice try’

Costco on Thursday reported third-quarter results that missed expectations, with U.S. same-store sales slipping 0.1%.

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‘We feel that it’s incumbent upon us to be that beacon of light to our members in terms of holding them for right now.’

— Richard Galanti, chief financial officer, Costco

As inflation has shoppers on what is now a multiyear bargain hunt, membership discount retailer Costco Wholesale Corp. on Thursday appeared to offer some pushback, with qualifiers, to the idea of hiking its membership fees in the near term.

During the company’s earnings call on Thursday, UBS analyst Michael Lasser asked Costco executives: “Given the amount of value you give to your members, wouldn’t it make sense to raise your fees right now … because your renewal rates have been so high and you would be providing even more value in this difficult economic environment?”

In response, Costco COST, +4.26% Chief Financial Officer Richard Galanti said: “As it relates to membership fees, nice try, Michael.”

Still, Galanti said he felt the company could raise those fees — if it wanted to — without hurting demand. But he suggested the company was OK with holding off for now and letting other profit and sales drivers do the work.

“But at the end of the day, with the headline being inflation, we feel very good about if we want to do it can we do it without impacting in any meaningful way renewal rates or signups or anything, and at some point we will,” he said. “But our view right now is that we’ve got enough levers out there to drive business.”

He continued: “We feel that it’s incumbent upon us to be that beacon of light to our members in terms of holding them for right now.”

Earlier in that exchange, Galanti said he was hoping for a cooldown on prices, adding, “You’ll be the first to see it at Costco in my view.”

The exchange occurred after Costco reported third-quarter earnings per share and revenue that missed expectations, with U.S. same-store sales slipping 0.1%. The company made $1.04 billion in membership fees during the quarter, slightly higher than the $984 million it booked in the same quarter last year.

Shares of Costco were up 4.9% on Friday.

Food and gas prices surged last year following Russia’s invasion of Ukraine, which disrupted a large segment of the world’s agricultural production. But as commodity prices show signs of easing, some economists suspect that companies have taken advantage of the past three years of supply shocks to keep prices and profits elevated.

Last week, Walmart Inc.’s WMT, +0.18% chief executive, Doug McMillon, also said that higher grocery prices — which have risen as companies try to cover their own costs to bring product to shelves and as they gauge consumers’ willingness to pay more — risked hurting demand elsewhere in the store.

“The persistently high rates of inflation in these categories lasting for such a long period of time are weighing on some of the families we serve,” McMillon said on Walmart’s earnings call.

“This stubborn inflation in dry grocery and consumables is one of the key factors creating uncertainty for us in the back half of the year because of the cumulative impact on discretionary spending in other categories, specifically, general merchandise,” he said.

McMillon added that higher prices had stuck for dry groceries and consumables like paper products. He added: “We all need those prices to come down.”

Shares of Costco are up 9.4% over the past 12 months. By comparison, the S&P 500 SPX, +1.30% is up 3.8% over that period.