Leading warehouse retailer Costco Wholesale Corp (NASDAQ:COST) reported third-quarter financial results after market close Thursday. Along with the earnings report, the company also addressed two important questions on the minds of investors and customers.
What Happened: Costco reported third-quarter revenue of $52.6 billion, beating a Street estimate of $51.8 billion, according to data from Benzinga Pro.
On the earnings call, the company addressed rumors of a price increase for its hot dog and soda combo and comments previously made about raising the price of its annual membership.
“I want to address some incorrect information floating around on social media and a few other media outlets claiming that we have increased the price of our hot dog and soda combinations sold in our food courts. The price today is $1.50, and we have no plans to increase the price at this time,” Costco Senior Vice President Bob Nelson said.
Nelson said the price started at $1.50 in the mid-1980s and has remained that price since being introduced.
Nelson also used the earnings call to address comments about a potential increase to the membership fee for its customers.
“Given the current macro environment, the historically high inflation and the burden it is having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time,” Nelson said.
Costco ended the third quarter with 27.9 million paid memberships, up around 800,000 since the end of the second quarter.
Related Link: Costco CFO Says Membership Price Hikes Likely: What Investors Should know
Why It’s Important: A rumor on social media gained traction that Costco was raising the price of its hot dog and soda combo by $1 due to inflation. The combo is known as being one of several benefits to having a membership.
As Benzinga reported recently, an increase to the price of the hot dog combo is unlikely to happen as company founder Jim Sinegal is highly against it.
“I came to (Jim Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends.’ And he said, ‘if you raise the effing hot dog, I will kill you. Figure it out’,” Costco CEO W. Craig Jelinek said, as reported by 425business.
Costco has typically raised its membership fee every five to six years. The company’s last fee increase came in June 2017.
Nelson said the company typically gets questions as the company gets close to the 5 1/2 year mark of the last raise and wanted to use the earnings call to share that a fee increase was not in the cards at this time.
“We’re not saying that, we’re not going to do it. We’re just saying it’s not right for us right now.”
The comments from Nelson come after CFO Richard Galanti said during the company’s second-quarter earnings call that a price increase was coming sometime in the future.
“I looked at the last three increases over the last 15 years and on average, they were done about every five, a little over every 5.5 years,” Galanti said. “And five years from the anniversary of the June of 2017 would be this June.”
Galanti said at the time the company felt good about its member loyalty and strong renewal rate of 92%.
“You guys will know when we tell you, and at some point, it will happen, but stay tuned.”
The last membership fee increase changed the annual fee from $55 to $60 for the gold star plan and from $110 to $120 for the exclusive plan.
Costco’s membership revenue makes up less than 2% of total revenue, but is a high margin item that can help boost profits and the bottom line for the company.
Price Action: Costco shares are up 0.75% to $468.49 on Friday.
Photo: dennizn via Shutterstock
