Ross Q1 Earnings Miss Marginally, Rise Y/Y

Zacks

Ross Stores Inc.’s (ROST) first-quarter fiscal 2014 earnings rose 7.5% year over year to $1.15 per share, meeting the higher end of the guided range of $1.11–$1.15 per share. Earnings benefited from aggressive inventory and cost-control measures, which completely negated the impact of inclement weather and retail headwinds. However, earnings missed the Zacks Consensus Estimate by a penny.

Net sales advanced 5.5% to $2,681.0 million, backed by improvement witnessed in April sales owing to the favorable Easter shift. However, sales came below the Zacks Consensus Estimate of $2,706.0 million.

Ross’s comparable-store sales (comps) climbed 1% year over year, meeting the lower end of the company’s guidance range of an improvement of 1–2%.

Gross margin contracted 40 basis points (bps) to 28.8% and operating margin shriveled 25 bps to 14.6%. However, operating margin was better than anticipated, as management had forecasted it to contract nearly 30–50 bps. Selling, General & Administrative expenses, as a percentage of sales, improved 10 bps to 14.2%, on the back of effective cost curtailment.

Stores Update

During the quarter, the company introduced 26 net new Ross outlets and 7 dd’s DISCOUNTS. During fiscal 2014, the company plans to add 95 new stores including nearly 75 Ross and 20 dd’s DISCOUNTS. Following these openings, Ross intends to close or relocate about 10 current stores.

The company intends to open 29 stores in the second quarter, including 22 Ross stores and 7 dd’s DISCOUNTS.

Financials

Ross ended the quarter with cash and cash equivalents of nearly $596.0 million, long-term debt of $150.0 million and total shareholders’ equity of $2,075.3 million.

Further, the company bought back 2 million shares worth $139.0 million during the reported quarter. Going forward, the company expects to repurchase shares worth $550.0 million in fiscal 2014. This will close the $1.1 billion program authorized by the company in Jan 2013.

Guidance

The company envisions comps to grow by 1–2% in the second quarter, as against 4% and 7% growth in the comparable quarters of 2013 and 2012, respectively. Also, sales are expected to improve by 5–6%, supported by the comps growth and new store openings.

Operating margin is anticipated to range from flat to an increase of 20 bps. Further, it projects earnings per share to lie in the band of $1.05–$1.09. The current Zacks Consensus Estimate stands at $1.09 per share.

Following first-quarter results and the aforementioned guidance, Ross forecasts earnings to lie in the $4.09–$4.21 per share for fiscal 2014. The current Zacks Consensus Estimate is pegged at $4.23 per share, which may witness a downward revision.

With its strategy of providing customers with attractive bargain offers and off-price business model, Ross is confident about exploiting opportunities amid all climates and driving top and bottom lines.

Other Stocks to Consider

Ross currently carries a Zacks Rank #4 (Sell). Other better-ranked stocks in the retail sector include Citi Trends, Inc. (CTRN), Rite Aid Corporation (RAD) and Foot Locker, Inc. (FL). While Citi Trends and Rite Aid hold a Zacks Rank #1 (Strong Buy) each, Foot Locker carries a Zacks Rank #2 (Buy).
 

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