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3 Retailers Booming Stocks: Walgreen, Costco, and AutoNation

The retail industry is going through a challenging period lately, but some companies are still delivering exceptional performance. According to recently released sales data, Walgreen (NASDAQ: WBA  ) , Costco (NASDAQ: COST  ) , and AutoNation (NYSE: AN  ) are firing on all cylinders.

Walgreen is a healthy business
Walgreen is a leading player in the drugstore and pharmacy business, and the company is benefiting from growing demand due to secular tailwinds, such as an aging population, broadening health care insurance coverage, and technical advancements in the health care industry.

Source: Walgreen

Walgreen has produced consistently strong financial performance over the last several years, and there is no slowdown at all in May. On the contrary, sales growth seems to be accelerating as the company leaves the unusually cold winter behind.

Walgreen announced sales of $6.57 billion during May, an increase of 6% from $6.19 billion in the same month in 2013, while total comparable-store sales increased 4.4%. Year-to-date sales for the first five months of 2014 were $31.90 billion, an increase of 5.5% from $30.24 billion in 2013.

Pharmacy sales were particularly strong in May, rising by 7.9% on a total basis. Comparable-store pharmacy sales jumped 7.6% when adjusted for calendar day shifts.

Walgreen reported a 3% increase total in front-end sales during the month, while comparable-store front-end sales increased 2.6%. Customer traffic in comparable stores fell 0.5%, but basket size increased 3.1% during the period.

Costco is the undisputed leader in discount retail
Discount retail is a notoriously competitive industry in which many companies are finding it hard to generate any kind of sales growth. But Costco keeps proving that its amazingly low prices and loyal customer base are invaluable strategic assets when it comes to sustaining performance in a difficult context.

Source: Costco

Costco reported sales of $8.78 billion for the month of May, an increase of 8% versus $8.13 billion during the same month in 2013. Total comparable sales increased by 6% during the month, better than the 4.6% increase forecasted on average by Wall Street analysts. Comparable sales grew 6% in the U.S. and 4% in international markets when measured in U.S dollars.

While rising gas prices had a positive impact on comparable sales, exchange rate fluctuations were a headwind for Costco during the month. Excluding the effects from gasoline prices and exchange rate fluctuations, comparable sales increased 6% in the U.S. and 7% in international markets, for a total increase of 6% at the company level.

Costco currently operates 657 warehouses, and the company plans to open six new warehouses prior to the end of its fiscal year on Aug. 31, 2014

AutoNation is running at full speed
Auto sales are usually quite cyclical and volatile, but AutoNation keeps delivering solid performance, both in terms of sales and profitability. In spite of the negative impact from harsh weather conditions in the first quarter of 2014, AutoNation managed to deliver growing sales and earnings during the period.

Source: AutoNation

AutoNation announced a total increase in sales of 6.5% during the quarter ended on March 31, reaching $4.36 billion versus $4.1 billion in the same period during the prior year. New vehicle units sales grew 6.1% to 71,223 units during the quarter, while used vehicle units sales increased by 3.2% to 52,136.

Both gross and operating profit margin expanded versus the prior year, and AutoNation repurchased 2.4 million shares during the quarter. This allowed the company to produce a healthy increase of 10% in adjusted earnings per share to $0.75, a historical record for AutoNation in the first quarter of the year.

May sales data showed AutoNation continued to perform remarkably well, the company announced retail sales of 30,275 new vehicles during the month, an increase of 15% in comparison to the same month during 2013. On a same-store basis, reported retail new vehicle unit sales in May were 29,471, an increase of 12%.

Performance was healthy across different segments; domestic units increased 12% to 9,289, import sales grew 17% to 15,413, and the premium luxury segment generated a sales increase of 17% to 5,573 vehicles.

Foolish takeaway
While many companies across different categories in the retail business are reporting lackluster financial performance lately, Walgreen, Costco, and AutoNation delivered remarkably solid sales figures for the month of May. Their ability to outperform the industry under difficult conditions speaks wonders about these companies and their competitive strengths.

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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9/3/2015 12:57 PM
AN $58.10 Down -0.41 -0.70%
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WBA $88.68 Up +0.85 +0.97%
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