Is Kirkland's Global Penetration Powering Costco's Margin Story?

Kirkland Signature’s growing global footprint is gradually becoming one of Costco Wholesale Corporation’s COST most strategic margin levers. In the third quarter of fiscal 2025, Kirkland sales outpaced overall sales growth, lifting brand penetration by 50 basis points year over year. Behind this outperformance is a global sourcing strategy that aligns production closer to end markets.

By manufacturing or procuring Kirkland Signature items within the countries or regions where they are sold, Costco significantly reduces transportation costs and mitigates the impact of tariffs. A prime example cited is Kirkland Signature Ultra Clean Laundry products, now sourced in Asia for APAC warehouses, leading to a remarkable 40% reduction in member prices in that region. While the immediate goal is to pass savings to members, this localized sourcing strategy inherently improves the underlying cost structure.

This operational efficiency provides Costco with flexibility. It allows the retailer to maintain its competitive price position, even lowering prices on key items like butter and eggs while simultaneously returning margins to more normal levels. Thus, Kirkland's expanding global footprint and localized production are quietly powering a more resilient and efficient margin story for Costco, enabling value delivery amid a dynamic economic landscape.

With more than 40 new Kirkland items launched in the third quarter and a firm focus on global sourcing efficiency, Kirkland Signature has become a margin engine.

Costco’s Price Performance, Valuation and Estimates

Costco, which competes with Dollar General Corporation DG and Target Corporation TGT, has been a standout performer, with shares rallying 12.1% in the past year, outpacing the industry’s growth of 5.5%. Shares of Dollar General and Target have declined 12.3% and 30%, respectively, in the aforementioned period.

From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 50.35, higher than the industry’s ratio of 32.58. COST carries a Value Score of D. Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 13.33) and Dollar General (18.94). 

The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 8.1% and 11.5%, respectively.