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Costco Leads the Retail Pack in May

According to Thomson Reuters, comparable-store retail sales rose 4.3% on average in May. That result came in above analysts' consensus estimates, which many have pinned on the good weather. One retailer not included in the result is Gap (NYSE: GPS  ) , which put up a lowly 1% increase in comparable sales. Winners were easier to find, with L Brands (NYSE: LB  ) rising 3% and Costco (NASDAQ: COST  ) leading the pack with a 6% rise.

May has ended up being a decent month for same-store sales for the past few years. In 2013, for instance, comparable sales rose 4.8%, also attributed to the nice weather. Apparently, all you need to do to run a successful retail business is open a store somewhere sunny -- sorry, Portland.

Highlights from May
Gap's performance in May was frustrating for anyone who follows this brand. Old Navy and Banana Republic both grew comparable sales, but Gap dropped comparable sales by 3%. Last year, the combined brands managed to increase sales by 7%, with the Gap brand rising 8%. Gap has been a slow grower recently, and the only real success story has come from Banana Republic, which has managed to stabilize and finally put up some growth.

One step up from Gap is L Brands, owner of Victoria's Secret and Bath & Body Works. Both brands put up increases, with Bath & Body Works coming out on top with a 5% increase compared to Victoria's Secret's 2% rise. L Brands ran into trouble with its Victoria's Secret direct sales, though, where sales fell 10% in May, bringing year-to-date comparable sales down 3%. 

If you want to find an out-and-out winner in May, Costco is your man. Costco's 6% result was a welcome increase from its year-to-date rate, which is now sitting at 4%. The company has had solid returns this year on its food, which has been leading the way in terms of comparable sales. 

Costco don't need no stinking sunny days
Luckily for Costco investors, increases in comparable sales are really just icing on the big-box cake. Costco's memberships generate a huge chunk of the business's income. The company operates on a shoestring gross margin of just 11%. Over three-fourths of Costco's operating income for the first three quarters of the fiscal year is accounted for by membership fees. 

Looking at these three retailers, it's clear that Costco is the most consistent brand. Clearly, Gap and L Brands both have a chance to jump if they can make their clothes click with the right cliques, but Costco doesn't need to rely on those sorts of trends. The warehouse concept seems like it's here to stay, and Costco is leading the way.

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You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


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Andrew Marder

Andrew Marder worked in retail for years, holding jobs ranging from bookseller to bank strategy analyst. He has worked for the Motley Fool since 2012, and loves coffee.

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Related Tickers

8/28/2015 4:00 PM
COST $139.95 Down -0.26 -0.19%
Costco Wholesale CAPS Rating: *****
GPS $32.83 Down -0.14 -0.42%
Gap CAPS Rating: ***
LB $83.64 Up +0.83 +1.00%
L Brands CAPS Rating: ****