4 Key Takeaways From Costco’s Earnings Call

After Costco (COST) reported better-than-expected earnings but its revenue growth came in lower than anticipated for the second quarter of fiscal 2024, shares fell more than 6% in early trading Friday.

The call was Richard Galanti’s final as Chief Financial Officer (CFO), with ex-Kroger (KR) CFO Gary Millerchip set to assume the role after Galanti’s near 40-year run at the position ends later this month. The shift has led to speculation on how Costco could change with a new CFO, including whether the company will still provide monthly sales reports and be as transparent as it was during Galanti’s tenure.

In Costco’s earnings call, the longtime CFO fielded questions on a number of topics, ranging from when Costco will raise its membership prices, to its recent crackdown on membership sharing, and same-day delivery in China.

A Matter of When, Not if, on Raising Membership Prices

On the call, Galanti once again said it’s a matter of “when, not if,” Costco raises membership prices. The company last raised them in June 2017, to their current levels of $60 per year for the “Gold Star” and business memberships, and $120 per year for the executive membership. Galanti has suggested on multiple earnings calls that membership prices will be raised eventually.

Since 2000, Costco has raised membership prices about every five to six years. Galanti said during the call that he has told his successor Millerchip that it’ll happen “on his watch, not mine.”

Galanti said the company is comfortable with its membership numbers, renewal rates, and customer loyalty, and doesn’t want to risk changing any of those trends with a hike in membership prices.

Costco has 73.4 million members worldwide across its 875 warehouses, totaling $1.11 billion in membership fees for the second quarter, both up about 8% from the same time last year.

Membership Sharing Crackdown Is Working

While Galanti didn’t give specific numbers, he hinted at the fact that at least some of the new members that signed up in the second quarter did so as a result of the company’s crackdown on membership sharing.

Earlier this year, the retailer began testing a variety of measures intended to stop Costco members from sharing their membership cards, including checking the picture on the card at self-checkout lanes and scanning membership cards upon entry.

Galanti said the company was relatively lenient during the pandemic in cases “where one family member, maybe not one that had one of the two memberships, was coming in to shop with mom or dad’s credit card, and we allowed it.”

Over the last six months, however, Galanti said the company had heard some complaints from other members who said things like “I pay, why shouldn’t they?”

He said the number of new memberships isn’t “terribly meaningful” in the scope of the over 70 million members the company has, but he believes it’s “more fair and the right thing to do.”

Improvements to Digital Experience

As a brand that has historically been slow to adopt and improve their website and online shopping experience, Galanti highlighted recent improvements to Costco’s digital infrastructure as an important point going forward.

The homepage in the Costco app now loads in an average of less than two seconds, compared to up to eight seconds in older versions of the app, Galanti said.

He also said the company has also done a better job of advertising and explaining why big-ticket items are a deal at Costco, including factors like free installation and a five-year road hazard warranty on a set of tires in the website’s “Why Buy Now” section.

Apple Pay was introduced last week as a payment option in the app and online, as Galanti said people are less likely to have a payment method stored digitally with Costco, which means Apple Pay can be a more convenient option.

Over the next few months, he said Costco’s app and website will also roll out the ability for customers to see whether a product is in stock in a store they typically shop in or one that’s in their ZIP code.

Same-Day Delivery in China Could Expand

By next month, Costco’s China locations will all have an online shopping option to receive about 400 of the warehouse’s products through same-day delivery within a certain radius of the store, a feature Galanti said has received significant positive social media attention in China.

The retailer has a same-day partnership in the U.S. with Instacart and Galanti said Costco is working on a test with Uber in Texas, indicating the company could be more willing to expand same-day delivery in the future.