Gary Millerchip wanted to set the record straight.
Millerchip made its debut last week as Costco's (COST) new CFO after former CFO Richard Galanti resigned after 40 years at the membership-based retailer.
While the new financial executive couldn't promise analysts that he would be able to match his predecessor's sense of humor, Millerchip did promise to maintain “the same level of open dialogue and transparency.”
Related: Costco shares big news about long-awaited membership price increase
And then he moved on to the real topic of meat.
“Oh, and to clear up some recent media speculation, I also want to confirm that the $1.50 hot dog price is safe,” he said during his first conference on May 30.
Yes, that may not seem like a big deal to non-members, but Costco devotees are very frank about their love for that little dog.
The numbers show the company is on a roll: In 2022, Costco sold 156 million hot dog and soda combos, according to Crushedand then rebounded last year to sell just under 200 million of them.
“We need hot dogs from Costco to save the world and rebuild it.” x.com/costcodogsol/status/1797443626789941454?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1797443626789941454%7Ctwgr%5E53d2d8f02cdfc9d2a9727ff4da034d494c2eae9f%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Ftempest.saymedia.com%2F%2Fcontent-items%2Fcs024f6cc3e00024a1%2FContentArticle%2Fview%2Fci02df0800a0002433″>costcodogsol posted in x, after Tesla CEO (TSLA) and x owner Elon Musk x.com/elonmusk/status/1797442834691445198″>declared that “civilization is moving towards dystopia/utopia.”
<blockquote class="twitter-tweet”>
We need hot dogs from Costco to save the world and rebuild it . Only twitter.com/search?q=%24cost&src=ctag&ref_src=twsrc%5Etfw”>$cost $1.50 pic.twitter.com/2Mz65J2Odm
— Costco Hot Dog (@costcodogsol) twitter.com/costcodogsol/status/1797443626789941454?ref_src=twsrc%5Etfw”>June 3, 2024
CFO: Costco wants 'right time' to raise rates
The response included an illustration of giant sausages with shovels and helmets smiling at passing motorists.
(And if you're smiling at that “giant sausages” line, shame on you.)
Millerchip also discussed Costco's membership fees, which have been a hot topic among analysts and consumers alike.
The company charges $60 a year for a Gold Star membership and $120 a year for an Executive membership, the latter with 2% cash back on purchases. These charges have not increased since 2017.
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“We feel very good about our membership renewal rates,” he said. “We feel very good about testing 'are we providing members with significantly more value than we offered or have we since the last time we raised the membership fee?'”
“But I think we're our toughest competitor on that,” he said.
Millerchip assured analysts that it's still a matter of when Costco raises the fee rather than if.
“But we're still evaluating those considerations to determine what the right time is and when we get to that point where we feel it's the right time, of course, we'll be very open and direct in communicating that,” he said.
Inflation is very much on the minds of money-conscious consumers.
Optimism about the strength of the US economy fell in the second quarter, according to a McKinsey Report, the lowest since late last year, and respondents said they were mainly concerned about rising prices.
Consumers also said they expect to increase their spending over the next three months on most essential items.
The street professionals Chris Versace said Saturday that there are “more signs that consumers are shifting their spending toward non-discretionary items, positioning Costco and PepsiCo (ENERGY) Well.”
Costco reported third-quarter earnings of $3.78, well above Wall Street forecasts, while gross profit margin improved to 10.8% relative to net sales.
Revenue rose 9.1% year over year to $58.5 billion.
Comparable store sales increased 6.5% excluding the impacts of changes in gasoline prices and currencies, while e-commerce sales increased 21% due to strong demand for gold bars and coins. silver.
And membership dues generated about $1.23 billion in revenue during the quarter, an increase of 7.6% from a year earlier.
Analyst cites “solid” results
Wall Street analysts released research reports following the earnings announcement.
Loop Capital raised the firm's price target on Costco to $890 from $840 on Monday and maintained a buy rating on the stock after its fiscal third-quarter earnings beat last week.
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The investment firm sees further improvement in the company's SG&A ratio over time, according to earnings call comments.
Costco's top comps also grew faster in international markets, driving the overall rise. And its e-commerce grew a strong 21% as the company continued to promote its selection and worked to improve an outdated consumer interface, Loop Capital said.
Stifel analyst Mark Astrachan raised the company's price target on Costco to $850 from $800 and maintained his Buy rating on the stock. The company reported “solid” fiscal results that “demonstrate the strength of the company's business model,” he said.
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Astrachan said strong comparable growth, membership growth and member retention rates indicate the company's value proposition remains attractive and contributing to share gains.
Costco's failure to raise membership fees indicates the company's confidence that it can maintain above-average profit growth in the meantime, he said.
And Roth MKM analyst Bill Kirk raised the company's price target for Costco to $676 from $650 and maintained a neutral rating on the stock.
The company is gaining share, even growing in categories where competitors are shrinking, the analyst said. Its profitability remains strong as opportunities for high returns on invested capital abound and its membership statistics are “very healthy,” Kirk said.
He added, however, that the company's performance “does not exceed 50 times expected earnings” and that Costco shares are “close to a fair valuation.”
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