Retail ROIC Rankings: Why Costco's 3% Margins Beat Walmart's
Walmart's net margin is actually higher than Costco's (3.96% vs 2.97%). But Costco's ROIC is 2x higher (41.2% vs 20.9%). The difference isn't profit margin—it's asset turnover. Here's the DuPont decomposition of retail capital efficiency.
Retail ROIC Rankings: Why Costco's 3% Margins Beat Walmart's
Last Updated: December 29, 2025 Data Currency: Q1 FY2026 for COST (Nov 2025), Q3 FY2026 for WMT (Oct 2025), Q4 FY2026 for BJ (Nov 2025). COST, WMT, BJ
Costco and Walmart have nearly identical net margins (~3%). Yet Costco generates 2x the return on invested capital. This isn't a margin story—it's an asset turnover story.
Key Findings:
- COST: 2.97% margin × 3.47x turnover = 41.2% ROIC (improving +2.3pp over 8Q)
- WMT: 3.96% margin × 2.76x turnover = 20.9% ROIC (flat over 8Q)
- BJ: 3.05% margin × 3.03x turnover = 28.6% ROIC (declining -3.5pp over 8Q)
The membership warehouse model generates higher ROIC—but BJ's declining trend suggests scale thresholds matter.
- Costco ROIC: 41.2% vs Walmart's 20.9%—a 2x difference despite similar net margins
- Net Margins: COST 2.97%, WMT 3.96%, BJ 3.05%—WMT actually has the highest margin
- Asset Turnover: COST 3.47x, WMT 2.76x, BJ 3.03x—COST turns assets 26% faster than WMT
- Membership Fee Growth: COST +14% YoY ($1.33B/quarter); 92.2% renewal rate (US/Canada)
- COST ROIC Trend: Improving from 38.9% to 41.2% over 8 quarters (+2.3pp)
- BJ ROIC Trend: Declining from 27.9% to 24.4% over 8 quarters (-3.5pp)
- WMT Litigation: $3.3B opioid settlement paid; ongoing DOJ trial Nov 2027
- Market Share: COST 62%, Sam's Club 31%, BJ 7% of US warehouse club market
Sources: Company 10-Q filings, BigQuery computed metrics, SEC EDGAR
MetricDuck tracks ROIC, margins, and 8-quarter trends across 1,000+ companies. Compare COST vs WMT vs BJ →
The Margin Paradox: Same Margins, 2x Different Returns
Every retail analyst focuses on margin expansion. "Walmart improved margins." "Target beat margin expectations." But here's what this margin obsession misses:
Walmart's net margin (3.96%) is higher than Costco's (2.97%). Yet Costco generates 2x the return on invested capital.
| Metric | COST | WMT | BJ |
|---|---|---|---|
| Revenue (TTM) | $280.4B | $703.1B | $21.2B |
| Net Margin | 2.97% | 3.96% | 3.05% |
| ROIC | 41.2% | 20.9% | 28.6% |
| Asset Turnover | 3.47x | 2.76x | 3.03x |
| Gross Margin | 12.9% | 25.2% | 19.1% |
The data reveals something counterintuitive: margin is not the primary driver of retail capital efficiency. Asset turnover is.
How Does DuPont Analysis Explain the ROIC Gap?
DuPont analysis decomposes ROIC into its fundamental drivers:
ROIC = Net Margin × Asset Turnover × (Leverage Adjustment)
When you multiply each company's margin by turnover:
| Company | Net Margin | × Asset Turnover | = Pre-Adjustment |
|---|---|---|---|
| COST | 2.97% | × 3.47x | = 10.3% |
| WMT | 3.96% | × 2.76x | = 10.9% |
| BJ | 3.05% | × 3.03x | = 9.2% |
The pre-adjustment numbers are similar! The full ROIC gap (41.2% vs 20.9%) comes from how each company structures its invested capital base—Costco maintains lower inventory levels relative to sales, uses supplier credit effectively, and requires less fixed capital per dollar of revenue.
The insight for investors: When analyzing retail stocks, don't chase margin expansion. Look at the combination of margin AND turnover. A company improving turnover by 0.2x has the same ROIC impact as improving margin by ~0.6 percentage points.
Product Link: View COST Capital Efficiency Metrics | View WMT Capital Efficiency Metrics
Why Does the Membership Model Generate Higher Asset Turnover?
The membership warehouse model creates structural advantages that translate directly to asset turnover:
1. Membership Fees = Nearly 100% Margin Revenue
Costco's membership fee revenue is functionally pure profit:
"Membership fee revenue increased 14% to $1,329, primarily driven by membership fee increases and new member sign-ups." — Costco Q1 FY2026 10-Q
"Our membership renewal rate was 92.2% in the U.S. and Canada and 89.7% worldwide." — Costco Q1 FY2026 10-Q
$1.33 billion per quarter at near-100% margin = $5.3B+ annually in membership fees. This revenue requires no inventory investment, no store space, no supply chain—just a database and card printers.
2. Lower SKU Count = Faster Inventory Turns
| Model | SKU Count | Inventory Strategy |
|---|---|---|
| Costco | ~3,700 SKUs | Curated selection, high velocity |
| Walmart | ~120,000 SKUs | Comprehensive assortment |
Fewer SKUs mean higher sales per SKU, faster inventory turns, and less capital tied up in slow-moving stock.
3. Negative Working Capital Cycle
Costco sells inventory before paying suppliers in many categories. This "negative cash conversion cycle" means suppliers effectively finance Costco's working capital—reducing the invested capital denominator in the ROIC calculation.
What Do 8-Quarter Trends Reveal About Each Retailer?
Point-in-time ROIC misses trajectory. Is the gap widening or narrowing?
| Metric | COST (8Q Trend) | WMT (8Q Trend) | BJ (8Q Trend) |
|---|---|---|---|
| ROIC | 38.9% → 41.2% (+2.3pp) | 18.2% → 18.1% (-0.1pp) | 27.9% → 24.4% (-3.5pp) |
| Net Margin | 2.7% → 3.0% (+0.3pp) | 2.4% → 3.3% (+0.9pp) | 2.6% → 2.7% (+0.1pp) |
| Asset Turnover | Stable | 2.57x → 2.63x (+0.06) | 3.02x → 2.94x (-0.08) |
Trend Interpretation
Costco (COST): ROIC improving across all dimensions. Margin stable, turnover stable, capital efficiency increasing. The gap with peers is widening.
Walmart (WMT): Margin improved +0.9pp (the largest margin gain of the three), but ROIC stayed flat. The margin improvement was offset by capital allocation elsewhere—likely inventory buildups and supply chain investments.
BJ's (BJ): Concerning trajectory. Despite similar business model to Costco, ROIC is declining -3.5pp over 8 quarters. Asset turnover is deteriorating (3.02x → 2.94x). This suggests scale thresholds exist—the membership model may require critical mass to sustain capital efficiency.
Product Link: Track COST 8-Quarter Trends | Track BJ 8-Quarter Trends
Does the Membership Model Work at Smaller Scale?
BJ's provides a natural experiment: same membership warehouse model, 7% market share vs Costco's 62%.
"We have over 8 million members paying annual fees to gain access to savings on a curated assortment." — BJ's Wholesale Q4 FY2026 10-Q
| Metric | COST (62% share) | BJ (7% share) |
|---|---|---|
| ROIC | 41.2% | 28.6% |
| ROIC Trend | Improving (+2.3pp) | Declining (-3.5pp) |
| Membership Growth | +14% YoY | +9.8% YoY |
| Renewal Rate | 92.2% (US/CA) | ~90% (implied) |
The membership model still beats traditional retail (BJ's 28.6% > WMT's 20.9%), but BJ's declining trend suggests scale advantages compound:
- Purchasing power: Costco's 10x revenue means 10x negotiating leverage with suppliers
- Distribution efficiency: Fixed costs spread over larger volume
- Membership network effects: Higher member density = more locations = more value proposition
Investor implication: The membership model works, but execution and scale matter. BJ's declining trajectory warrants monitoring—if ROIC continues falling, the capital efficiency advantage may erode.
The Sam's Club Paradox: Same Model, Different Results
Here's an interesting wrinkle: Walmart owns Sam's Club—a membership warehouse model competing directly with Costco. Yet Sam's Club's operating margin trails Walmart U.S.:
| Segment | Operating Margin | Model |
|---|---|---|
| Walmart U.S. | 4.76% | Traditional retail |
| Sam's Club | 2.77% | Membership warehouse |
Same parent company, same management capability, same supply chain infrastructure—but the membership segment underperforms the traditional retail segment on margin.
This suggests the membership model's capital efficiency advantage isn't automatic. Costco's 92.2% renewal rate and 14% fee growth demonstrate execution excellence, not just model superiority.
What Are the Hidden Liability Risks?
Beyond capital efficiency, filing intelligence reveals differentiated risk profiles:
Walmart: Elevated Litigation Exposure
"The Company entered into settlement agreements with all 50 states... to resolve opioid-related claims... approximately $3.3 billion." — Walmart Q3 FY2026 10-Q
- Opioid settlements: $3.3B already paid
- Ongoing DOJ litigation: Trial scheduled November 2027
- FTC investigations: Driver platform operations under review
Costco & BJ: Clean Profiles
Both Costco and BJ's have minimal litigation disclosure—typical retail claims with no material expected impact.
| Company | Hidden Liabilities | Debt Level |
|---|---|---|
| COST | LOW | $5.75B total debt |
| WMT | HIGH | Significant litigation exposure |
| BJ | LOW | $600M total debt |
Product Link: View COST Filing Intelligence | View WMT Filing Intelligence
When Does Margin Matter vs Asset Turnover?
For retail investors, the DuPont framework provides a decision rule:
| Situation | Focus On | Why |
|---|---|---|
| Commoditized retail | Asset Turnover | Margins compressed by competition |
| Differentiated brands | Net Margin | Pricing power enables margin |
| Subscription/membership | Both | Fee income + turnover advantage |
| Turnaround plays | Margin trajectory | Early indicator of execution |
For Costco vs Walmart, the answer is clear: both operate in commoditized retail where margins are structurally compressed. The differentiation comes from how efficiently each company deploys capital—and Costco wins decisively on asset turnover.
Investment Implications: What Should Retail Investors Track?
Based on this analysis:
-
Don't obsess over margin expansion. Walmart improved margins +0.9pp but ROIC stayed flat. Turnover matters more in retail.
-
Monitor membership fee growth. COST's 14% membership fee growth at 92.2% renewal is the leading indicator of model health.
-
Watch BJ's trajectory. Declining ROIC despite the membership model suggests scale thresholds. If ROIC stabilizes, the model is proven at smaller scale. If it continues declining, scale may be necessary condition for membership model success.
-
Factor in litigation risk. WMT's $3.3B opioid settlement and ongoing DOJ trial create overhang that doesn't appear in ROIC calculations.
-
Use ROIC as primary comparison metric. It captures both margin and turnover in a single number that measures true capital efficiency.
MetricDuck automatically calculates ROIC, asset turnover, and 8-quarter trends for retail stocks. Compare Retail Capital Efficiency →
Methodology and Data Sources
Metrics Calculation
- ROIC: NOPAT / Average Invested Capital (operating approach)
- Asset Turnover: Total Revenue / Average Total Assets
- Net Margin: Net Income / Total Revenue
- 8-Quarter Trends: Linear regression of quarterly TTM values over 8 quarters
Data Sources
| Category | Source |
|---|---|
| Financial metrics | BigQuery filing_metrics table (SEC XBRL extractions) |
| Filing intelligence | BigQuery filing_intelligence table (5-pass AI analysis) |
| Quality scores | MetricDuck computed metrics |
| SEC quotes | Direct extraction from 10-Q/10-K filings |
Time Periods
- COST: Q1 FY2026 (fiscal year ends August)
- WMT: Q3 FY2026 (fiscal year ends January)
- BJ: Q4 FY2026 (fiscal year ends January)
Limitations
- Different fiscal year ends create temporal misalignment
- ROIC calculations may vary by data provider methodology
- Sam's Club metrics are segment-level, not standalone entity
Disclaimer
This analysis is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.
MetricDuck provides data extraction and analysis tools—investment decisions remain the responsibility of individual investors.
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