Costco Wholesale shares powered higher in early Thursday trading, and look set to open at a fresh record peak, after the bulk discount retailer unveiled a huge change in its membership fees and issued its quarterly dividend update.
Costco (COST) , which hasn't increased its membership fees since 2017, has been under pressure from analysts and investors to wring more cash from its 134 million Costco Club cardholders, who were paying between $60 and $120 a year to shop at the group's 609 North American locations.
The appointment of new finance chief Gary Millerchip, who took over from veteran predecessor Richard Galanti earlier this year, added fuel to the speculation, although the former Kroger executive was clear on one legacy from the Galanti era:
"The $1.50 hot-dog price is safe," Millerchip told reporters in May.
The group's famous hot-dog-and-soda combination has been pegged at $1.50 since 1985, and Galanti told investors in 2022 that it would stay in place "forever."
That's not the case with fees, however, and Costco said Wednesday that, starting in September, the group will "increase annual membership fees by $5 for U.S. and Canada Gold Star (individual), Business, and Business add-on members," taking it to $65 per year.
Related: Costco makes major change customers will notice right away
Around half the 74.5 million households that hold cards are Executive members who pay the higher annual cost. This membership includes 2% cash back on in-store and online purchases.
Costco's Executive membership fee will also increase by $5, to $125 per year, but so will the maximum annual 2% reward the group pays to its cardholders, which will increase by $250 to $1,250.
D.A. Davidson analyst Michael Baker said the increases will likely add around $377 million in total revenues of the next two years and generate an annual profit boost of around $189 million.
Alongside the membership fee update, Costco also said that sales for the five weeks ending on July 8 rose 7.4% from the same period last year to $24.48 billion, taking the year-to-date tally to $210.55 billion, a 6.9% increase from last year.
The group also said it would pay a quarterly dividend of $1.16 per share, matching the previous payout.
Costco will publish its fiscal fourth-quarter earnings, covering the three months ending in early August, on September 26.
Related: Costco membership-fee update prompts analysts to reset stock outlook
Membership fees, one of the group's most important profit drivers, generated around $1.23 billion in revenue over the second quarter a 7.6% increase from the year-earlier period.
Costco's bottom line improved 29% to $3.78 a share, well ahead of Wall Street forecasts, while gross profit margins improved to 10.8% relative to net sales.
"We're all reading a lot about the consumer, of course, and what they're going through right now," Millerchip told investors on May 20. "And I think what we see is that value and quality has never been more important."
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"I think we're drawing customers to what Costco has offered for many years," he added. "And it's never more relevant than now based on what we're hearing from members and consumers."
Costco shares were marked 3.13% higher in premarket trading to indicate a Thursday opening bell price of $912.00 each, an all-time high that would extend the stock's year-to-date gain to around 39%.
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