Costco Wholesale (COST) has announced its first membership fee increase in seven years, raising the annual cost by $5 to $65, effective September 1st. Jefferies senior vice president of equity research, Corey Tarlowe, offers insights into this development.

Tarlowe views the membership fee hike as "a positive" for Costco, given the company's business model. He explains that the majority of Costco's profits stem from membership fees rather than product sales. "We think this is incrementality to Costco's bottom line and should help drive further earnings growth ahead," Tarlowe notes.

Addressing the timing of Costco's membership increase and the length between the last hike, Tarlowe states: "We're in a bit of a different time here. The value proposition that Costco has is better than it's ever been. Inflation has been essentially zero for the last three quarters in the business," he told Yahoo Finance. He adds, "So the savings are there, the value is there, and the timing, while it could've been earlier, didn't quite seem right at that normal historical cadence."

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This post was written by Angel Smith