What Costco is saying about inflation – and membership fee increases

As the market worries about inflation and what will keep the Fed off the gas pedal, it’s worth considering what some companies are saying about it.

A warehouse retailer known for its competitive prices, Costco’s wholesale perspective seems as good as any to start with. And comments by CFO Richard Galanti on the conference call suggest the Fed will remain in inflation-fighting mode for the rest of the year, though a pivot is likely next year.

“We’ve seen some improvement in a few areas,” Galanti said in a call from S&P Global Market Intelligence. But overall, the pressures of rising commodity prices, rising wages and higher transport costs and supply chain disruptions are still there, but we’re seeing some light at the end of the tunnel.

For the fiscal fourth quarter ending Aug. 28, Costco reported inflation of about 8%, compared with 7%-plus in the year-ago quarter.

“Commodities – like gas, steel, beef, we’re seeing some commodity price declines compared to a year ago, and some small price changes in plastics. We are seeing some relief in mortgage rates. Salary is still the top thing when we talk to our suppliers. And as we all know, wages still seem to be relatively high. But overall, some beginnings of light at the end of that tunnel,” Galanti said.

The supply chain was improving a bit, Galanti said, with container prices dropping. “And then as you go along, you’ll hopefully start looking at other contracts. There is no longer a huge capacity problem or container shortage,” he said. He added that port delays have improved. One lesson the company has learned is trying to spread shipments to different ports, he told an analyst.

The operator of 838 warehouses worldwide was asked when membership fees would increase. The last three increases were made an average of five years and seven months apart. That means if Costco sticks to that schedule, there could be a fee increase in January 2023. Anyway, I’m saying not yet,” Galanti said. “And our view is, we’re confident in our ability to do that. And at some point, we do. But the question is when, not if.

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Late Thursday, it reported earnings and earnings that came in ahead of Wall Street expectations. But the stock entered after-hours trading, and is down 14% this year.

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