Dive Brief:

• Costco on Thursday announced a long-anticipated membership fee hike, for its U.S. and Canadian operations, which provide some 90% of its membership income. Effective June 1, the annual cost of its household and business membership will rise by $5 to $60 in the U.S. and Canada and its “executive memberships” will rise $10 to $120. The increases will affect some 35 million members, about half of them executive memberships, according to a company press release.

• The warehouse retailer also said that its fiscal year 2017 Q2 total revenue, including net sales plus membership fees, rose 5.7% from last year to $29,766 million, shy of the Zacks Consensus Estimate of $29,988 million. Q2 net sales rose 6% to to $29.13 billion from $27.57 billion last year as membership fee income rose 5.5% to $636 million in the period. 

• U.S. same-store sales rose 3% and Canada same-store sales rose 8%; adjusting for currency fluctuations and excluding fuel sales, same-store sales rose 3% in the U.S. and 2% in Canada. Q2 earnings fell 5.6% to $1.17 per share, missing the Zacks Consensus Estimate of $1.35 per share.

Dive Insight:

Costco’s membership fees contributed some 72% to its operating income last year, and with price competition heating up from the likes of Target and spearheaded by low price juggernaut Wal-Mart, they help shelter Costco from the fallout of a price war.

The company is once again revising its multi-vendor mailer, the coupon booklets that feature year-around promotional prices, executives told analysts on Thursday. Some of those have been eliminated in favor of everyday low price approach, while others have been scaled back or are featured for fewer days. “We've reduced the number of items per mailer, but we've overall increased the offering in terms of total savings of those items,” CFO Richard Galanti said. “And we're also moving in some cases, to everyday low pricing (EDLP), where we can drive higher over sales, and show better every day pricing and value.”

But Galanti downplayed the company’s experiments with its pricing approach. “I can't overemphasize that this is — EDLP is not a word we use a lot historically,” he said, adding that the retailer has tweaked its MVM vs EDLP approach many ways and many times over the years. “We're trying a lot of different things and again, we think we feel pretty good about what we've got going forward here.”

Costco’s membership renewal rate is between the “high 80s to low 90s in the U.S. and Canada,” Galanti told analysts, with executive members renewing at even higher rates. Based on fee increases in past years (they tend to occur every five years or so, he said, and the last one was in 2012), he has “absolutely no concern” that the fee hike will hit those rates very hard.