The retail business is particularly challenging lately, but some companies are still generating exceptional performance. Costco (NASDAQ:COST), L Brands (NYSE:LB), and Rite Aid (NYSE:RAD) all announced rock-solid sales for June, so let's look at what those numbers may say about the health of their businesses.
Costco is consistently solid
Costco's year-over-year sales rose 10% in June, reaching $10.89 billion versus $9.91 billion in the same month last year. Companywide and U.S. comparable sales during the five-week period ended on July 6 both increased 6%; comparable sales in international markets jumped 7%.
Total comparable sales excluding the impact of gas prices and foreign exchange fluctuations increased 6% last month on the back of a 6% increase in the U.S. and 8% growth in international locations.
Costco benefits from a smart business model and a particularly loyal customer base, both of which generate superior financial performance for the company against industry peers in the discount retail business.
The company makes most of its profit from membership fees, not profit margins on product sales. This means Costco can sell its products at cost, or sometimes even at a loss, a key competitive advantage in the business.
Customers really appreciate the conveniently low prices and high-quality service provided by Costco. The company in 2013 had a ranking of 84 in the American Customer Satisfaction Index, the highest in its industry group, and membership renewal rates are usually above 85%. The global renewal rate was 87.3% during the last quarter, while major markets were even stronger, with a renewal rate of 90.6% for the U.S. and Canada .
L Brands has a profitable secret
Weak consumer spending and a highly promotional pricing environment in recent months have put a hurt on apparel retailers. However, L Brands is proving to investors that it has what it takes to outperform the competition in this challenging context, thanks to the popularity of its Victoria's Secret and Bath & Body Works brands.
L Brands announced total sales of $1.176 billion for the five weeks ended on July 5, an increase of 7% from net sales of $1.101 billion in the same period during 2013. Comparable-store sales grew 2% annually during the period.
Comparable-store sales of Victoria's Secret products jumped 3% in June versus the same month in 2013, while Bath & Body Works' comparable-store sales increased by a more modest 1%. Victoria's Secret also brought in an additional 6% in revenue from its direct-to-consumer segment during June.
Brand differentiation is a key competitive advantage in the fashion and apparel business. Judging by the June sales numbers, Victoria's Secret is as hot as it gets, and this bodes well for L Brands and its chances for sustaining healthy growth rates in the medium and long terms.
Rite Aid's turnaround still on track
Rite Aid stock has risen more than 160% over the last 12 months as the company has made significant progress in its turnaround. Store base restructuring, an increased focus on health care services, and initiatives aimed at consolidating customer loyalty are yielding solid results in terms of both sales and profit margins.
However, Rite Aid has recently reduced its earnings guidance for fiscal 2015, which generated some concerns among investors. During the quarter ended on May 31, Rite Aid was hurt by higher than expected drug costs, and this had a negative impact on financial performance during the period.
But sales performance during June confirms that the company remains on the right track, and Rite Aid still offers substantial room for gains in the years ahead. The way things are going, it appears the recent reduction in earnings guidance was just a bump on Rite Aid's road to recovery.
For the four weeks ended June 28, 2014, Rite Aid reported a 3.9% increase in same-store sales over the prior-year period. Front-end same-store sales increased 0.9%, while pharmacy same-store sales grew 5.4%. Prescription count at comparable stores jumped 3.5% over the prior-year period.
While many retailers blamed their poor performance on macroeconomic headwinds and a harshly competitive industry environment, Costco, L Brands, and Rite Aid announced remarkably healthy sales figures for June. It takes a high-quality business to outperform the industry during a challenging time, and this says a lot about these companies and their fundamental strengths.