3 Hot Retailers Defying the Cold Weather

Costco, Walgreen, and L Brands are delivering strong performance in a tough retail environment, and that says a lot about the fundamental quality of these companies.

Feb 9, 2014 at 8:30PM

A harshly cold weather and an intensely promotional retail environment are generating heavy headwinds for companies in the retail industry. On the other hand, companies such as Costco (NASDAQ:COST), Walgreen (NASDAQ:WBA), and L Brands (NYSE:LB) are reporting surprisingly strong sales figures in a tough environment, and that´s important information to consider when looking for the best companies in the sector.

Captura De Pantalla

Source: Costco.

Costco withstands all weather conditions
Costco has a rock-solid business model that's built to thrive even under the most challenging scenarios. The company sells all kinds of necessities, and it does so at competitively low prices. As opposed to margins on sales, Costco makes most of its money from membership fees, so the company can sell its products at razor-thin profit margins, or even at a loss, to keep its customers happy and loyal.

Costco announced some really strong sales figures for January. Comparable sales, excluding the impact of foreign exchange fluctuations and falling gas prices, increased by 6% during the month. Sales in the U.S increased by 5%, while international markets performed even better, with a big increase of 8% in comparable sales, excluding fuel price and foreign currency volatility.

Costco is clearly gaining market share versus competitors such as Wal-Mart (NYSE:WMT) and its Sam´s Club warehouse clubs. Wal-Mart announced on Jan. 31 that earnings for the fourth quarter of fiscal 2014 will likely be at the low end of, or slightly below, the company's previously issued guidance because of weaker than forecasted sales.

Wal-Mart´s guidance for the quarter is already quite uninspiring: The company expects flat comparable-store sales in Wal-Mart U.S., and a growth rate of between 0% and 2% at Sam's Club comparable-store sales, excluding fuel.

Costco is not only doing quite well in spite of industry headwinds, but it's also outgrowing a leading competitor like Wal-Mart by a considerable margin.

Captura De Pantalla

Source: Walgreen.

Healthy performance from Walgreen
Walgreen reported a 3.7% increase in January sales to $6.39 billion versus $6.17 billion in the same month of 2013. Total comparable-store sales increased by a solid 2.9% during the period. The company opened 139 new stores over the year ended in January 2014, 12 of them in the last month, for a total of 8,678 stores.

Front-end sales grew by 2.4%, and comparable front-end sales increased by 1.6% annually. Pharmacy sales increased by 4.6%, while comparable-store pharmacy sales grew by 4.1% when adjusted by calendar shifts.

While customer traffic in comparable stores fell by 2.2%, basket size increased by 3.8% in January. Lower traffic is not precisely the the kind of news investors like to receive; however, weather conditions are are most likely responsible for that to a considerable degree.

Besides, the fact that consumers continue buying more products and spending more money at Walgreen in spite of visiting the stores less frequently speaks well about the company's resiliency and ability to perform under difficult conditions. Walgreen operates in a defensive industry, and growing health-care demand over the years bodes well for the company in the long term.

Captura De Pantalla

Source L Brands.

Victoria's profitable secret
L Brands announced better-than-expected sales figures for January, and the company also provided encouraging earnings guidance as management now expects fourth-quarter earnings per share to be "slightly above" its previous estimate of $1.60 per share.

This is quite rare in the current retail environment, and it's a materially positive sign, as it may indicate that margins are holding up better than anticipated.

L Brands had to cut its earnings-per-share guidance in January, when it announced weaker-than-expected sales for the key December period. This positive update comes from a reduced guidance level; however, the company seems to finding signs of early stabilization and improving conditions, so things could easily continue getting better in the coming months.

The company reported a big increase of 9% in comparable-store sales during January, and Victoria's Secret was the main growth contributor for L Brands during the month, with a 10% in comparable-store revenues. While Bath & Body Works and La Senza performed quite well, with increases of 6% and 4%, respectively, the popularity of Victoria´s Secret brand is an invaluable asset and source of competitive differentiation for the company.

Bottom line
A rising tide lifts all boats, and even mediocre companies can do well when conditions are favorable for growth. It takes a high-quality business to grow in a challenging scenario, though. Costco, Walgreen, and L Brands are proving their ability to deliver solid performance in spite of industry headwinds, and that's a clear sign of fundamental strength and management savviness for these companies.

3 stocks for a wealthy retirement
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information