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Why Did Ross Stores Miss Fiscal 1Q16 Sales Estimates?

Ross Stores Updates Guidance after Fiscal 1Q16 Earnings

(Continued from Prior Part)

Fiscal 1Q16 sales missed expectations

Off-price retailer Ross Stores (ROST) reported sales of $3.09 billion in fiscal 1Q16, which ended on April 30, 2016. The company missed analysts’ consensus sales estimate of $3.12 billion. Ross Stores had exceeded analysts’ sales expectations in all four quarters of fiscal 2015. The company is facing tough comparisons with a strong fiscal 2015 performance in an uncertain retail environment.

What affected fiscal 1Q16 sales?

Ross Stores’ sales in fiscal 1Q16 rose by 5.1% on a year-over-year basis. The company’s same-store sales growth of 2% in fiscal 1Q16 was mainly driven by a higher average basket. However, this growth was lower than same-store sales growth of 4% in fiscal 4Q15 and 5% in fiscal 1Q15.

The lower-than-expected sales growth in fiscal 1Q16 was mainly due to the underperformance of the ladies’ apparel category. In the fiscal 1Q16 conference call, Barbara Rentler, Ross Stores’ chief executive officer, stated that the company had merchandising execution issues in ladies apparel that occurred mainly in the transition to spring product. The merchandise categories that performed well in the quarter included home and shoes. The iShares Russell Mid-Cap Growth ETF (IWP) has 0.7% exposure to Ross Stores.

Peer performance

Leading off-price retailer TJX Companies (TJX) beat analysts’ sales expectations in the comparable first quarter with 9.9% sales growth. Nordstrom (JWN) reported lower-than-expected sales growth of 1.1% in fiscal 1Q16 due to lower full-line store sales. The company experienced 7.6% growth in the sales of its off-price Nordstrom Rack stores in fiscal 1Q16. Macy’s (M), which entered the off-price space through Macy’s Backstage stores in 2015, reported a decline of 7.4% in its fiscal 1Q16 sales.

Overall, TJX Companies and Ross Stores delivered higher sales growth than department stores in the first quarter. This reflects the fact that consumers are continuing to look for bargain deals in off-price stores in a volatile market.

Sales guidance

Ross Stores expects its same-store sales in fiscal 2Q16, which ends on July 30, 2016, to increase by 1%–2% compared to 4% growth in fiscal 2Q15. The company expects its total sales to increase by 4%–5% in fiscal 2Q16. Ross Stores’ total sales rose by 8.7% in fiscal 2Q15.

In the next part of this series, we’ll look at Ross Stores’ margins.

Continue to Next Part

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