How Costco generates $7.5B in operating income with just 11% margins

“Even though Costco is only an 11% gross margin business and only ever will be at 11% gross margin business, it's still a pretty amazing business to own.”

end up being worth it. Yeah. Even though Costco is only an 11% gross margin business and only ever will be at 11% gross margin business, it's still a pretty amazing business to own. Yeah. I mean, it's what did you say? 230

plus billion dollars of revenue?

And, 7 and a half billion dollars of operating income off that. So, again, tiny little sliver margins, but 7 and a half billion dollars of operating income falling out the bottom is pretty awesome. Yep. Especially 7 and a half billion dollars of highly defensible

operating income.

Yeah. Seriously. And as you've been talking about because of the way that their inventory is financed,

About this clip

The hosts break down Costco's impressive financial performance, explaining how the company generates $7.5 billion in highly defensible operating income from $230+ billion in revenue despite operating on razor-thin 11% gross margins. They discuss what makes this low-margin business model so defensible and profitable.

Why this clip

This clip reveals the counterintuitive insight that extremely low margins can still create massive, defensible profits at scale.

1:48:05 - 1:48:4439smarket insight

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What they said next

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