Costco may raise its membership fees, UBS says

Published Mon, Feb 27 20174:59 PM EST

Membership fees at Costco could be going up soon as the buy-in-bulk retailer capitalizes on momentum in membership renewals and new signups, according to analysts at UBS, who reiterated a buy rating on the company. "Looking ahead, we continue to believe a fee hike is most likely to occur next Q, though there's a chance it could happen alongside its 2Q results," equity analyst Michael Lasser wrote in a research note on Monday. "Considering fees have historically accounted for ~75% of its EBIT [profit before interest and taxes], any increase would likely help support further upward momentum for its shares." UBS' analysis was released ahead of Costco's quarterly results, which are scheduled to come out on Thursday after the market close. "Traffic growth was impressive in late November, December, and January, which likely supported new membership signups and renewals," Lasser said. UBS says next quarter the basic membership fee could rise by $5 to $60, while the executive membership could increase by $10 to $120, implying a 9 percent jump in membership fees for each offering. Costco, 1 year Source: FactSet The analyst forecasts a 3 percent increase in members on average per store last quarter, attributing that trend in part to the company's switch to Visa from American Express , which was finalized last year. "This suggests members continue to be intrigued by the company's value proposition, and leads us to believe that renewals likely at least remained steady at 90.3% in the US & Canada and 87.5% worldwide," he said in reference to higher foot traffic and memberships. Apart from higher membership trends, a pause in the U.S. dollar's ascent this year may have aided Costco's international operations, which account for about 27 of total sales. "When coupled with moderating FX headwinds, we see these factors driving $643.5m in membership fee income, which is slightly above the $642m consensus," Lasser wrote. Analysts on Wall Street predict earnings per share in the second quarter rose to $1.36, an increase of 6 percent on a year-over-year basis, according to FactSet. Revenue is expected to come in at $29.85 billion, representing a gain of 4.7 percent. Shares of Costco are already up 11 percent this year compared to a gain of 7 percent for the S & P consumer discretionary sector. UBS has a buy rating on the stock. —CNBC's Michael Bloom contributed to this story

A customer pushes a cart of outdoor items past a membership desk at a Costco Wholesale Corp. store in Naperville, Illinois.

Daniel Acker | Bloomberg | Getty Images

"Looking ahead, we continue to believe a fee hike is most likely to occur next Q, though there's a chance it could happen alongside its 2Q results," equity analyst Michael Lasser wrote in a research note on Monday. "Considering fees have historically accounted for ~75% of its EBIT [profit before interest and taxes], any increase would likely help support further upward momentum for its shares."

UBS' analysis was released ahead of Costco's quarterly results, which are scheduled to come out on Thursday after the market close.

"Traffic growth was impressive in late November, December, and January, which likely supported new membership signups and renewals," Lasser said.

UBS says next quarter the basic membership fee could rise by $5 to $60, while the executive membership could increase by $10 to $120, implying a 9 percent jump in membership fees for each offering.