Ross Comps Exceed Expectations

Zacks

Ross Stores Inc. (ROST) – one of the largest off-price apparel and home fashion chain retailers in the U.S. – reported better-than-expected same-store sales (comps) numbers for the four weeks ended November 24, 2012.

Ross Stores’ comps for November increased 2% compared with 5% in the prior-year period ended November 26, 2011, ahead of the company’s guidance of a flat to 1% increase. Comps for the month were affected by unfavorable weather in Western U.S. in the beginning of November, which was well compensated by strengthened sales in the latter half of the month as weather improved. Consequently, the company’s total sales for the four-week period climbed 6% to $813 million compared with $765 million in the year-ago period.

Further, Ross Stores reported ten months comps gain of 7% versus a 5% increase registered in the year-ago period. Net sales for the period jumped 11% to $7.773 billion from $6.976 billion in the year-ago period.
   
Robust sales mainly reflect the company’s relentless focus on offering an exciting collection in its name-brand fashion for the family and home, which appeals to its value-oriented customers.

Bolstered by solid top-line performance in November as well as expectations of improved sales in the holiday season that lies ahead, the company expects comps to increase 2% to 3% in December and 1% to 2% in January.

Peer Performance

One of Ross Stores’ peers, Gap Inc. (GPS) registered a 3% increase in its November 2012 comps. The company’s net sales came in at $1.52 billion, up 3.4% compared with the prior-year period.

Our Recommendation

Ross Stores has implemented a micro-merchandising strategy, through which it expects to enhance total sales and profitability by expanding in its existing markets. Moreover, Ross remains focused on new store growth, share buybacks and attractive dividend payouts amidst a situation in which other retailers are implementing cutbacks. Moreover, the company has the financial strength to continue on its course and build shareholders’ value.

Ross Stores' shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. However, we remain slightly cautious regarding the stock due to sluggish economic recovery and intense competition from other players, and therefore maintain a long-term Neutral recommendation on the stock.

Ross Stores and its subsidiaries operate two chains of off-price retail apparel and home accessory stores in the U.S. These stores offer branded apparel, shoes and accessories for the entire family, as well as gift items, linens and other home-related merchandise.

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