Ross Stores, Inc. ROST stock appears as a solid investment option, thanks to its commitment toward merchandising initiatives, off-price model and store expansion. The company also boasts a positive surprise trend, marking 12th consecutive earnings beat in first-quarter fiscal 2019.
Backed by such positives, shares of this Zacks Rank #2 (Buy) company have gained 21.2% year to date, outperforming the broader Retail-Wholesale sector’s 19.3% rally.
Let’s Delve Deeper
Ross Stores operates as a chain of off-price retail apparel and home accessories stores. In fact, the company has a proven business model as the competitive bargains it offers continues to make its stores attractive for customers. Moreover, the off-price model offers a strong value proposition and micro-merchandising that drive better product allocation and margins. This helped the company to retain solid top- and bottom-line trends.
Meanwhile, Ross Stores has been on track with its store expansion plans. Evidently, the company opened 28 stores in February and March, which includes 22 Ross and six dd’s DISCOUNTS stores. This marked the completion of the company’s planned store expansion for first-quarter fiscal 2019. In the fiscal second quarter, it expects to open 28 stores including 22 Ross and six dd’s DISCOUNTS stores.
Ross Stores also plans to achieve the target of inaugurating 100 stores in fiscal 2019, which will comprise 75 Ross and 25 dd’s DISCOUNTS outlets. Notably, its store expansion efforts are focused on increasing penetration in the existing as well as new markets. Over the long term, the company expects to operate about 3,000 stores, expanding the Ross chain of stores to 2,400 locations, and manage about 600 dd’s DISCOUNTS stores.
On the bottom-line front, Ross Stores’ ongoing success in delivering broad assortments of compelling bargains to value-focused customers led to the solid performance in first-quarter fiscal 2019. However, sales missed the Zacks Consensus Estimate in the quarter but improved year over year on robust comparable store sales (comps) backed by increased average basket size. Comps also gained from strength in the men’s category, offset by softness in ladies apparel. Midwest was the best performing region. Furthermore, sales topped estimates in 10 of the last 12 quarters.
Despite the afore-mentioned tailwinds, Ross Stores has been witnessing higher freight costs for quite a while now. The company continues to expect headwinds related to higher freight costs and wages to persist in fiscal 2019. Further, it anticipates occupancy deleverage in the fiscal second quarter. At its Ladies business, Ross Stores is witnessing soft performance for the past few quarters.
Nevertheless, we believe there is still momentum left in the stock, evident from the company’s impressive long-term earnings growth rate of 10.4% and a VGM Score of B.
3 Other Key Picks
Zumiez Inc. ZUMZ has an expected long-term earnings growth rate of 13.5%. The company 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 currently carries a Zacks Rank of 2. Further, the company has a long-term earnings growth rate of 10.9%.
Costco Wholesale Corporation COST, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.9%.
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