Costco CEO Craig Jelinek said a membership price increase is “not on the table” for the bulk-discount retailer.
Costco (COST) – Get Costco Wholesale Corporation Report shares edged lower Monday after CEO Craig Jelinek said it’s ‘not the right time’ to consider raising membership fees and dismissed any suggestion he would lift the price of its famously-valued hotdogs amid surging inflation pressures.
Speaking with CNBC Monday, Jelinek said there was no inflation environment that would compel Costco to raise the price of its hotdogs, which, when combined with a 20-ource soda, have remained at pegged $1.50 for members since 1985.
Jelinek also noted that he thought the strength of the U.S. consumer was “not so bad”, given the recent pullback in gas prices and the current tightness in the labor market, but cautioned that he couldn’t completely dismiss the threat of recession, as it could mean you “end up with huge amounts of inventory.”
Costco inventories were up 26% over its fiscal third quarter, which ended on May 8, thanks to both the ongoing inflation surge and the addition of a “few hundred million dollars” worth of late-arriving holiday merchandise.
On the issue of membership fees, a crucial top and bottom-line driver for Costco, Jelinek said that “right now, it’s not on the table and I don’t think it’s the right time.”
Costco shares were marked 0.5% lower in early Monday trading to change hands at $498.80 each, a move that would extend the stock’s year-to-date decline to around 12%.
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Costco saw a 10.8% jump in same-stores sales over the three months ending on May 8, with online sales rising just under 8%. That helped overall revenues rise 16.3% to a Street-beating $51.61 billion. Membership revenues rose 9.2% to $984 million.
Inflation pressures and freight costs, which Jelinek said Monday remain a factor in terms of Costco’s input, trimmed overall gross margins by around 100 basis points in the third quarter, but that erosion was blunted by some of the group’s broader price increases.
Still, Costco said third quarter earnings came in a $3.04 per share, up 10.5% from the same period last year and bang in-line with the Street consensus forecast.
Target Corp. (TGT) – Get Target Corporation Report cautioned last month that excess inventories and higher input prices would pressure near-term profit margins and said deeper discounts would be needed to shift the excess goods. Target said operating margins would narrow to around 2% over the current quarter before rebounding into the second half of the year.
Jelinek noted that Costco is a “volume business, not a margin business”, thanks in part to its focus on growing sales over a narrower basket of goods, allowing it to negotiate better primary price points.