Costco and BJ's Wholesale Consumers 'Willing to Pay More' - Jefferies

Jefferies analyst Corey Tarlowe told investors in a note that the impact of potential membership fee increases for Costco (NASDAQ: COST) and BJ's Wholesale (NYSE: BJ) could provide a low-single-digit to mid-single-digit percentage lift to its F'23 and F'24 EPS estimates.

Tarlowe reiterated a Buy-rating on both companies and said their survey data suggests there is an opportunity to raise membership prices.

"In our recent survey of 900+ warehouse club members, ~60% of respondents indicated a willingness to pay more (between $10 and $30+) for their BJ membership (vs. ~40% in LY's survey)," the analyst wrote. "Club retailers provide a strong value proposition to their customers, that this value proposition continues to be improved, and that consumers are willing to pay more for this offering. We believe this suggests an opportunity for COST and BJ to raise membership prices."

Costco recently indicated that now is not the right time to raise membership prices, and the company, according to Tarlowe, typically raises its membership fee every 5 and a half years. With the last price increase in June 2017, Jefferies believes a price increase could come in the next year.

Meanwhile, the Jefferies analyst said BJ's generally keeps its membership fee similar to Costco's, with the latest increase coming at the start of 2018.

"Based on our analysis, we believe that a price increase in line with the historical average in the U.S. and Canada could generate a low-single digit percentage lift to our F'23 and F'24 EPS estimates for COST, assuming the increase occurs November 1st, 2022. For BJ, we believe a price increase in line with the historical average could generate a low-single digit to percentage lift to our F'23 EPS estimate and a mid-single digit percent lift to our F'24 EPS estimate, assuming the increase occurs January 1st, 2023."

By Sam Boughedda

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