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Ross Stores (ROST) Displays Solid Run, Adds 63% in 3 Months

Zacks Equity Research
·4 min read

Ross Stores Inc. ROST has been resilient amid the current market volatility that stemmed from the renewed tension between the United States and China, and the coronavirus outbreak-led fear. It is poised to gain from the gradual reopening of the economy, as it has paced up store reopening in the current scenario. Further, this Dublin, CA-based company’s efforts to preserve financial position bode well.

We note that shares of this discount retailer have rallied 62.8% in the past three months compared with the industry’s growth of 16%. This Zacks Rank #3 (Hold) stock has also comfortably outperformed the S&P 500 Index’s rise of 27.4% and the broader sector’s growth of 34.1% in the same period. In all likelihood, Ross Stores, with a long-term earnings growth rate of 10%, indicates further growth ahead.

 


 

The stock is witnessing growth due to the phased store re-opening plan. Ross Stores re-opened roughly 700 stores on May 14 in a phased manner. Going forward, it plans to re-open more stores gradually, in sync with health guidelines and government regulations, such as ensuring proper sanitation of stores and workspaces, providing personal protective equipment to store associates, and practicing social distancing norms. Further, the company intends to re-open its distribution center network in the next few weeks. Additionally, it remains on track to re-open the corporate offices in the coming months.

Further, despite the drab first-quarter fiscal 2020 results, the company reported a decline in costs, with COGS down 30% and SG&A expenses down 25.6%.

Additionally, Ross Stores has been consistent with the execution of its store-expansion plans over the years. The company’s store-expansion efforts are focused on continually increasing penetration in the existing as well as new markets. It opened 26 stores across nine different states in February and March. During the quarter, the company opened 20 Ross and seven dd's DISCOUNTS stores, bringing the total store count to 1,832. It anticipates opening 39 stores this fall and 66 in fiscal 2020.

The company currently operates 1,566 Ross stores and 266 dd’s DISCOUNTS stores across 39 states, the District of Columbia and Guam. Earlier, it projected to expand the Ross chain of stores to 2,400 locations alongside operating about 600 dd’s DISCOUNTS stores in the long term.

Additionally, the company’s financial position looks prim to steer through the pandemic. Cash and cash equivalents at the end of first-quarter fiscal 2019 increased 97.6% sequentially, including $800 million drawn on its revolving credit facility. Notably, the company’s cash position remains sufficient to fund short-term obligations. Moreover, it had liquidity of $3 billion and cash balance of $500 million as of May 2. This makes it well-placed to overcome the pandemic.

To further preserve financial liquidity, the company took several steps, including the aforementioned drawing on its revolving credit facility, completing a $2.0-billion public bond offering, suspending share repurchases and aggressive cost-cutting. Consequently, it now expects capital expenditure of $420 million for fiscal 2020, down from the previously mentioned $730 million. Concurrent with the earnings release, the company also suspended its quarterly dividend program and reduced new store openings for fiscal 2020.

Meanwhile, its first-quarter fiscal 2020 results were affected by temporary store closures, including all Ross Dress for Less and dd’s DISCOUNTS stores, on the coronavirus pandemic. Moreover, it reported operating loss for the first time in 30 years. In response to the ongoing COVID-19 outbreak and its unpredictable impacts, the company withdrew its top and bottom-line guidance for the second quarter and fiscal 2020.

Better-Ranked Retail Stocks to Watch

Big Lots BIG has a long-term earnings growth rate of 6.6% and it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation DG has a long-term earnings growth rate of 12.4% and a Zacks Rank #2 (Buy) at present.

Office Depot ODP currently has a long-term earnings growth rate of 6.8% and a Zacks Rank #2.

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