Costco's Strategy: Stock Split and Membership Fee Hike

Historical Context of Stock Splits and Fee Hikes

Costco's historical approach to stock splits and membership fee hikes shows flexibility in spending increased fees, with financial benefits realized over multiple years. Financing activities, including stock repurchases, highlight strategic financial management, reflecting a consistent approach to enhancing shareholder value.

"We're able to shift that thought process and then move it around. So I wouldn't say that there's any set, okay, if membership fee goes up, it's going to be spent in these areas." --- (COST, earning call, 2024/Q3)

"As with prior increases due to membership fees being accounted for on a deferred basis and the memberships renewing annually, the P and L benefit of the fee increase will flow into the P and L over 2 years spanning FY 'twenty 5 and FY 'twenty 6.Looking ahead, the July reporting period will include 4 weeks beginning July 8 and ending August 4 compared to the 4 weeks beginning July 10 and ending August 6, 2023." --- (COST, event transcript, 2024/07/10)

"Cash flow used in financing activities during the first thirty-six weeks of 2024 was primarily related to the payment of dividends, repayments of short-term borrowings, repurchases of common stock, and withholding taxes on stock-based awards." --- (COST, sec filing, 2024/Q3)

Impact of Membership Fee Hike on Customer Base

The membership fee hike will impact around 52 million memberships, with over half being Executive memberships. Despite the increase, Costco has seen an 8% rise in membership fee revenue, driven by new sign-ups and upgrades, indicating a positive response from the customer base.

"The fee increases will impact around 52 million memberships, a little over half of which are Executive." --- (COST, press release, 2024/07/10)

"Also effective September 1, annual fees for Executive Memberships in the U.S. and Canada will increase from $120 to $130 (Primary membership of $65, plus the Executive upgrade of $65), and the maximum annual 2% Reward associated with the Executive Membership will increase from $1,000 to $1,250. The fee increases will impact around 52 million memberships, a little" --- (COST, press release, 2024/07/10)

"Pharmacy, food court and optical were the top performers. As reported in our release, effective September 1, 2024, our annual membership fees will increase in the U. S. And Canada.Gold Star Business and Business Add on memberships will increase by $5 to $65 and executive memberships will increase by $10 to $130 Additionally, the maximum annual 2% reward will increase from $1, 000 to 12 $50 The fee increases will impact about 52, 000, 000 paid memberships, a little over half of which are executive." --- (COST, event transcript, 2024/07/10)

"Membership fee revenue increased 8% in both the third quarter and first thirty-six weeks of 2024, driven by new member sign-ups and upgrades to Executive Membership." --- (COST, sec filing, 2024/Q3)

"The extent to which we achieve growth in our membership base, increase the penetration of Executive memberships, and sustain high renewal rates materially influences our profitability." --- (COST, sec filing, 2024/Q3)

Comparison with Competitors' Strategies

Costco is considering accelerating unit growth in response to competitors' expansion plans. Target focuses on operational efficiency and balanced growth, while Walmart aims to enhance delivery times and profitability. Amazon emphasizes scale to compete effectively. These strategies highlight diverse approaches to market positioning among Costco's competitors.

"Just want to get a sense of the opportunities to potentially accelerate that unit growth, especially in the U.S. just given some of your competitors are planning to accelerate growth from here." --- (COST, earning call, 2024/Q3)

"We believe these measures provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and, for EBITDA, capital investment." --- (TGT, sec filing, 2024/Q1)

"But they have been studying with the China team to understand, okay, let's understand how you're doing it less than an hour and work out because the competitors have launched a 15 minute delivery, how do we start playing in that space? So I truly think, you know, there's such a great way to leverage learnings across all of the different markets and work out where they can play in other markets and how do we all together move closer towards profitability because we've got some markets that are currently driving profitable growth and others that are still walking their way to it." --- (WMT, event transcript, 2024/06/07)

"attractive value proposition. So they ended up attracting a couple of very large Chinese companies as competitors, and they needed scale." --- (AMZN, AGM, 2024/05/22)

"So we think we've got a very balanced approach to making sure we're leading into the top line, while continuing to look at opportunities for greater efficiency and managing the fundamentals of the business." --- (TGT, earning call, 2025/Q1)