Here’s What Costco Says About Inflation — And An Increase In Membership Fee

Here’s What Costco Says About Inflation — And An Increase In Membership Fee

Since the market is obsessed with inflation and what would cause the Fed to kick the accelerator, it’s worth considering what some companies are saying about it.

The view of Costco Wholesale, the warehouse seller known for its competitive prices, seems so good for a start. And CFO Richard Galanti’s comments on his conference call suggest that the Fed will still remain in anti-inflation mode for the rest of the year, although a pivot could come next year.

“We’ve seen a little improvement in a few areas,” Galanti said, according to a transcript of the call from S&P Global Market Intelligence. “But all in, the pressures of higher commodity prices, higher wages and higher transportation costs and supply chain disruptions – they are still there, but we only see a little bit of light at the end of the tunnel.”

For its fiscal fourth quarter ended Aug. 28, Costco absorbed inflation of about 8%, compared to 7% plus in the prior quarter.

“We’re seeing commodities — some commodity prices are falling, like gas, steel, beef, compared to a year ago, even some small cost changes in plastics. We’re seeing some relief in container pricing. Wages are still the highest when we talk with our suppliers. And as we all know, wages still seem to be the only thing that’s still relatively higher. But overall, there’s a beginning of light at the end of that tunnel,” Galanti said.

The supply chain improved slightly, with Galanti noting the drop in spot container prices. “And then hopefully you’ll start seeing it in some other contracts as they go through. No more major capacity problems or container shortages,” he says. Port delays have improved, he added. The only lesson the company learned, he told an analyst, was to try to spread deliveries across different ports.

The operator of 838 warehouses worldwide was asked when membership fees will increase. The last three increases occurred on average five years and seven months apart. That means that if Costco adhered to that timetable, there could be a rate hike in January 2023. “Now I’m not suggesting that it’s January ’23. I’m just saying it’s not there yet,” Galanti said. “And our view is that we are confident in our ability to do this. And at some point we will. But the question is when, not if.”

Costco COSTS,
-1.20%
late Thursday reported earnings and earnings that exceeded Wall Street expectations. But the stock slumped in after-hours trading and is down 14% this year.

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