By Teresa Rivas
Costco Wholesale's $1.50 hot dog and soda combo is an oasis in the inflation age, with the warehouse club unwilling to raise its price despite losses on the product, on orders from its founder. However the company is lowering the price of other popular items in its ongoing quest to prove to shoppers that their membership dues are more than worth the price of admission.
Costco cut the price on a number of its private label items, sold under its Kirkland Signature brand, spanning bed sheets to golf balls.
"Our goal is to be the first to lower prices and last to raise them," Costco Chief Executive Officer Ron Vachris said recently about the company's strategy.
Keeping prices low at a time when most consumers up and down the income spectrum are focused on value makes sense, although it's nothing new for Costco. The company has long invested in offering competitive pricing, a decision that can weigh temporarily on margins, but is a major component of the company's long-term success, as it fuels its high membership renewal rates, well north of 90%.
The move to lower prices on certain items seems like a savvy extension of its policy. Private labels tend to carry higher margins than other products, and that's true to an extent of Kirkland Signature products, helped by Costco's scale and supply chain efficiencies, giving the company wiggle room to lower prices without its bottom line taking too much of a hit.
Last week, Costco delivered its May update, saying that U.S. comparable sales (adjusted for gasoline price inflation) were up 8.7%, their highest level in over a year. Much of that comes from consumers choosing its discounted gas, but many shoppers also visit stores when they do a fuel run.
"Overall, we believe Costco's accelerating comp growth and healthy traffic results in May should reinforce the company's position as a defensive, consistent operator," noted William Blair's Phillip Bee. "We believe the strong fundamentals could go a long way to support renewed interest in the stock after shares have slipped...since the all-time highs reached in mid-May on broader rotational pressures."
Costco was far from the only retailer to sell off after earnings; other retail winners like Walmart saw similar pressure. Today, it's down some 11% since its high last month.
That pressure will likely continue as long as investors are worried about the health of the consumer and money keeps pouring into artificial intelligence plays at the expense of other stocks.
However, investors shouldn't count out Costco forever, given the company's strong same-store sales--evidence of its expanding market share--and the increasing popularity of warehouse clubs in general. Jefferies' Carey Kaufman thinks that $850 could be the "magic level" for Costco where it will find support. The average analyst price target is $1,095, more than 12% above current levels.
As long as consumers keep seeing strong value in Costco, investors should follow their lead.
Write to Teresa Rivas at teresa.rivas@barrons.com
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(END) Dow Jones Newswires
June 08, 2026 15:40 ET (19:40 GMT)
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