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Here's How Ross Stores (ROST) Looks Ahead of Q3 Earnings

Zacks Equity Research

Ross Stores, Inc. ROST is scheduled to release third-quarter fiscal 2019 results on Nov 21. This off-price retailer of apparel and home accessories delivered a positive earnings surprise of 1.8% in the last reported quarter. Also, its earnings outperformed the Zacks Consensus Estimate by 2.5% on average in the trailing four quarters.

The Zacks Consensus Estimate for third-quarter fiscal 2019 earnings has been stable over the past 30 days at 97 cents per share. This suggests an increase of 6.6% from the year-ago period’s reported figure. Moreover, the consensus mark for revenues is pegged at $3.8 billion, indicating growth of 6.2% from the figure reported in the year-ago quarter.

Ross Stores, Inc. Price and EPS Surprise

Ross Stores, Inc. Price and EPS Surprise

Ross Stores, Inc. price-eps-surprise | Ross Stores, Inc. Quote

Key Factors to Note

Ross Stores’ commitment to pricing, merchandise initiatives, cost containment and store expansions have been aiding growth. The company’s store expansion efforts are focused on continually increasing penetration in the existing as well as new markets. Additionally, store additions are likely to have aided the company’s top line in the to-be-reported quarter. On the last earnings call, management had guided top-line growth of 5- 6% for the fiscal third quarter.

Additionally, Ross Stores’ continued merchandising efforts through investments in workforce, processes and technology bode well.  The company has been witnessing robust comparable store sales (comps) trend driven by higher traffic and increased average basket size, as well as strength in the men’s category. We expect the robust comps performance to get reflected in third-quarter fiscal 2019 results as well. The Zacks Consensus Estimate for comps for the quarter under review is pegged at 2.3%. Management had projected comps growth of 1-2% for the fiscal third quarter.

However, the company expects results for the fiscal third quarter to reflect impacts of higher tariffs for goods sourced from China. Consequently, it projected earnings per share of 92-96 cents for third-quarter fiscal 2019. It had earned 91 cents in the year-ago quarter.

Further, Ross Stores is grappling with softness in the ladies category over the past few quarters. Also, the company is witnessing soft margins owing to higher freight and SG&A expenses, along with occupancy cost deleverage.

On the last earnings call, management had expected headwinds related to higher tariffs as well as deleverage on occupancy and other expenses to hurt gross and operating margins in the fiscal third quarter. It projected operating margin of 11.8-12%. In the year-ago quarter, operating margin was 12.4%.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Ross Stores this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ross Stores has a Zacks Rank #2 and an Earnings ESP of +4.03%.

Other Stocks With the Favorable Combination

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post earnings beat:

Dollar General DG has an Earnings ESP of +2.34% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies LOW has an Earnings ESP of +1.62% and a Zacks Rank #2.

Foot Locker FL has an Earnings ESP of +0.64% and a Zacks Rank #3.

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