Big-box retailers have an advantage over smaller rivals in that their costs are lower. By operating huge stores located far away from city centers, these giants can attract a higher sales volume at a reduced real estate cost. The resulting power to offer rock-bottom prices keeps the companies popular with shoppers.
But which stocks are the best options for investors looking for exposure to big-box retailers? Here are a few key statistics on these companies:
| Market Cap | Profit Margin | Sales Growth | P/E | P/S | |
| Wal-Mart (WMT 1.32%) | $261 billion | 6% | 1.5% | 16 | 0.5x |
| Best Buy (BBY -0.81%) | $14 billion | 4% | 0.5% | 11 | 0.3x |
| Costco (COST 0.17%) | $66 billion | 3% | 5% | 29 | 0.6x |
| Home Depot (HD -1.77%) | $151 billion | 13% | 5.3% | 24 | 1.9x |
| Lowe's (LOW -1.40%) | $71 billion | 9% | 4.3% | 28 | 1.3x |
Growth is comparable store sales improvement in the last fiscal year. Profit margin is over the past 12 months. Source: Company financial filings and YCharts.com.
Home Depot over Lowe's
Despite its massive size, Home Depot is the fastest-growing big-box retailer around. Comparable-store sales bounced higher by 8% last quarter and by over 5% for all of 2014. That puts the home-improvement giant solidly ahead of rival Lowe's, which booked 7% and 4% comps for the fourth quarter and full year, respectively.
But an even better reason to like Home Depot stock is its incredible financial efficiency. Return on invested capital is almost twice that of Lowe's, and management believes it can boost that figure to 27% by the end of this year.
HD Return on Invested Capital (TTM) data by YCharts.
That efficiency helps power huge stock buybacks and dividend hikes, boosting shareholders' total return. In fact, Home Depot's management just raised the dividend by 26% and announced a new $18 billion stock repurchase program. The company is dedicated to sending 50% of earnings back to shareholders in dividends, so investors can expect that payout to march higher along with profits.
Costco over Wal-Mart
Costco carries the lowest profit margin of this group, by far. The warehouse giant earns a lowly 3% of sales in operating profit, putting it closer to shrinking Best Buy than to surging Home Depot. But don't let that profitability figure scare you away from this stellar investment.
Source: The Motley Fool.
Costco is outgrowing Wal-Mart, its major competitor, by a huge margin. Comparable-store sales rose by 5% or more in each of the last three fiscal years. In contrast, Wal-Mart did not break above 2% growth in that time. The reason for that outperformance is simple: Costco keeps its members happy. It consistently leads the nation in customer satisfaction. And that shopper delight has helped push its membership renewal rate above 90%.
Meanwhile, management has a great track record of rewarding long-term shareholders. Costco in February delivered its second multibillion-dollar special dividend in the past three years. The payment was on top of its regular $0.36 quarterly payout that equates to a 1% annual dividend yield.
Sure, at 29 times last year's earnings, Costco isn't a cheap investment. But its membership fees are a steady, recurring source of income that make profitability stronger than it appears. That focus on membership gains, along with management's success at achieving steady market share growth, is why patient shareholders reap greater rewards the longer they own this business.
