State of the consumer, potential membership price hike in focus

Costco (COST) is set to report its fiscal 2023 third-quarter earnings results Thursday after market close.

Analysts expect the wholesale, membership-based retailer to continue to be a go-to for cautious consumers but are expecting slower sales growth as people are spending less than in previous years, particularly on big ticket items, amid higher grocery prices.

On a two-year basis, sales are expected to jump 14.76%, and compared to a year ago, sales are expected to increase 4.28%. International growth is expected to lead overall sales growth, up 6.65%. In the U.S., sales are expected to increase 3.48% and higher in Canada, up 4.75%.

Adjusted earnings per share are expected to be $3.30. Revenue is expected to come in at $54.66 billion. That’s according to Bloomberg consensus estimates.

This report comes as shares of Costco are up 5.8% year-to-date, outpacing its competitors. Shares of Sam’s Club’s parent company Walmart (WMT) are up 3.5% so far this year, and shares of BJ’s are down 2.9%, after it saw Q1 same-store sales growth come in shy of expectations.

Recently, Costco reported monthly positive same-store sales growth of 1.4% for the month of April.

That increase was led by international growth, up 4.9%, followed by the U.S., up 0.9% last month, and then Canada, up 0.5%.

Per a breakdown from Goldman Sachs (which has a Buy rating), fresh food sales were up mid-single digits, led by the bakery and produce category, while sales of food and sundries (miscellaneous items) were up high single digits. Discretionary, non-foods items like home furnishings and jewelry saw a decline in sales.

Big box retailers Target (TGT) and Walmart (WMT) beat same-store sales estimates in their recent quarterly results, but also showed a similar slowdown in discretionary sales.

In a note from Stifel (Buy rating), the firm said, “Costco remains our favorite retailer with ongoing share gains potentially benefitting from pass through of lessening inflation to consumers in the form of lower prices, benefitting value proposition and brand loyalty, and contributing to traffic and volume growth.”

Value is key for the company, but it comes at a cost. UBS Analyst Michael Lasser, who has a Buy rating on shares, said, “It [Costco] has been rolling back prices of products like bottled water and prime beef. For the near-term, we think it can fund some of these investments with a decline in raw materials and transportation costs. But, over time, it might choose to use its P&L to shoulder the investments.”

A membership fee increase may be coming, analyst says

Minneapolis, Minnesota, Costco Business Center. Costco is a members-only warehouse selling everything from groceries to electronics. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)

Minneapolis, Minnesota, Costco Business Center. Costco is a members-only warehouse selling everything from groceries to electronics. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)

Another potential catalyst to keep prices low: a membership fee increase.

In the note, Lasser said now is the right time to raise fees, despite consumer wallets’ being stretched. “This will be a key focus this quarter. We think there’s a good chance that COST will bump its Gold Star Membership fee by $5 and its Executive Membership fee by $10 either this quarter or next.”

Last quarter, membership fees brought in $1.03 billion, up 6.2% year-over-year.

Costco last raised membership prices — a Costco Gold Star membership costs $60 per year and an Executive Membership goes for $120 — in June 2017. The company typically raises prices every 5 years and seven months on average, which suggests the next hike is imminent.

As of Wednesday, there are 27 Buys, 14 Holds and 0 Sells on shares of Costco.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at

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