Costco Wholesale (COST, Financials), the warehouse retailer known for bulk groceries, household goods and membership pricing, may be heading into a more competitive summer.
Walmart and Kroger have both been cutting prices, especially in food, as they try to bring in budget-conscious shoppers. Evercore ISI said that could set up a broader grocery price battle over the next few months.
Costco still has plenty of momentum. Comparable sales rose 8.8% in June, while U.S. same-store sales climbed 10.6%. The company also reported $29.24 billion in net sales for the five weeks ended July 5, up 10.6% from a year earlier.
Those numbers suggest shoppers are still responding to Costco's value proposition. The harder part will be protecting profit margins if rivals keep discounting.
Costco has built its business around low prices, limited product selection and membership income, so it may be better placed than many retailers to handle a price fight.
Evercore kept its Buy rating and $1,100 price target. The next few months should show whether Costco can keep sales moving higher without giving up too much on margins.