Walmart (NYSE: WMT) and Costco (NASDAQ: COST) both are recession-proof retailers. Walmart’s scale allows it to sell its products at lower prices than many of its competitors, and it also leverages its brick-and-mortar stores to satisfy its online orders. Costco warehouse stores attract customers with deep discounts and sticky membership plans.
Over the past three years, Walmart’s inventory has increased by more than 90%, while Costco’s has increased by more than 60%. The S&P 500 handiest better 23% at some level of this period. Let’s ask why these two retailers beat the market – and which one is better now.
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Differences between Walmart and Costco
Walmart is a more diverse retailer than Costco. It operates its namesake department stores in the U.S., Mexico, China and entirely other markets overseas, while its smaller members, its most convenient flagship Sam’s Club, competes against Costco in the warehouse club market. In addition, it owns completely different physical banners and e-commerce sites in 19 countries.
Walmart operates more than 10,600 golf equipment stores and warehouses worldwide, but generated more than 80% of its revenue from its US Walmart and Sam’s Club stores in fiscal year 2024 (which ended in January 2024).
Costco handiest operates a golf equipment warehouse with the most convenient members, selling discount and bulk products. It will give you money to sell many of its products at low margins because it makes most of its profits from its high-margin membership fees.
Costco’s beeping cycle basically encourages acquiring new members, inserting exorbitant renewal fees upfront, raising costs every few years, and opening new warehouses. At the end of its most recent quarter, it operated 897 warehouses, with 617 locations in the US and Puerto Rico, with the remainder in Asia, Europe, Australia and Original Zealand.
Which retailer is growing faster?
Walmart’s revenue grew 7% in fiscal 2021 at a pandemic level, but Handiest grew 2% in fiscal 2022 as it divested only a few of its side and overseas businesses. Its revenue rose 7% in fiscal 2023 as those headwinds dissipated. Profit rose another 6% in fiscal 2024 as its US revenue rose 5.6% and global revenue rose 13%.
Walmart’s overall reliance on the retailer has decreased from fiscal 2021 to fiscal 2024 as it has shed just a few of its overseas ads, but its main domestic industry is peaceful. Amazon and completely different complex competitors. Or it’s no longer bringing in that realistic level of sizzle by matching its competitors’ prices, automating the volume of processing in its success centers, expanding its e-commerce ecosystem, and locking additional customers into its Walmart+ subscriptions without paying for delivery and completely different perks.
From fiscal 2024 to fiscal 2027, analysts are calling for Walmart to grow its revenue and earnings in half (EPS) at a compound annual hissing rate (CAGR) of 5% and 17%, respectively. Those sizzling costs are healthy, but its inventory looks historically expensive given the 34 cases of revenue over the next year. Its low upfront yield of 1% additionally could no longer attract significant profit traders in this exorbitant interest rate environment.
Costco’s revenue rose 17% in fiscal 2021 (which ended in August 2021) as the pandemic forced more people to stock up on packaged meals and home products. Its revenue grew by another 16% in FY2022, 7% in FY2023 and 5% in FY2024.
Its overall hiss slowed as it weathered headwinds from the pandemic and faced tougher inflationary hits to consumer spending. Its total adjusted earnings (excluding currency conversion costs and gross gasoline sales) rose 5.9% in fiscal 2024 as its stronger overseas hiss outpaced its U.S. hiss. Its e-commerce gross sales increased 16% as additional customers switched from its stores to the online marketplace.
Costco is also recruiting new members and introducing exorbitant renewal fees up front. In the first quarter of fiscal 2025, total cardholders rose 7% year-on-year to 138.8 million, as the worldwide renewal rate handiest fell 10 basic aspects to 90.4%. Or he is no longer quietly opening fresh stores around the world, and he honestly hasn’t raised his membership fee for too long for the first time in seven years.
From fiscal 2024 to fiscal 2027, analysts expect Costco’s revenue and earnings per share to grow at a CAGR of seven% and 11%, respectively. However, like Walmart, Costco’s inventory is no longer discounted all the time to 47 earnings opportunities over the next year. It also pays a small dividend yield of 0.5% upfront.
Easier shopping: Walmart
Costco and Walmart are huge time-frame investments, but their multiples are currently inflated by expectations of cost-cutting and rotation versus safer evergreen stocks. Because of that truth, I wouldn’t be running to acquire any of these stocks right now. However, if I had to save one over the other completely, I’d buy Walmart over Costco. Its industry is very broad, it is less dependent on regular memberships and its stock is cheaper.
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John Mackey, longtime CEO of Total Meals Market, an Amazon subsidiary, serves on The Motley Idiot’s board of directors. Leo Sun has positions in Amazon. Motley Idiot has positions and recommends Amazon, Costco Wholesale, and Walmart. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are those of the author and are no longer accepted as true by these Nasdaq, Inc.