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Ross Stores' (ROST) Q2 Loss Narrower Than Expected, Sales Beat

Zacks Equity Research
·4 min read

Ross Stores, Inc. ROST reported better-than-expected second-quarter fiscal 2020 results. However, both top and bottom lines declined year over year. Results were affected by temporary COVID-19-related store closures, including all Ross Dress for Less and dd’s DISCOUNTS stores. Further, loss of sales, as only 75% of stores were open, weighed on operating margin. Moreover, costs related to COVID-19 and negative timing of packaway remained concerns.

Also, management noted that business trends were drab during the fiscal second quarter with comparable store sales down mid-teens year over year for the first two and a half weeks.

However, the company started reopening its stores in a phased manner from May 14th and by the end of June, most of its stores were operational. Comparable store sales have fallen 12% between the date of the reopening of these stores and the end of the fiscal second quarter. Although, it witnessed improved sales driven by pent-up demand and higher markdowns, the metric was hurt by depleted store inventory levels. That said, it continues to remain uncertain about the COVID-19 impacts on demand and economy. As a result, management refrained from providing top and bottom-line guidance for fiscal 2020.

In the past three months, shares of the Zacks Rank #3 (Hold) company have declined 9.7% against the industry’s growth of 11.6%.

Q2 Highlights

Ross Stores posted a loss of 13 cents per share against earnings of $1.14 per share reported in the prior-year quarter. However, the figure was narrower than the Zacks Consensus Estimate of a loss of 31 cents.

Total sales plunged 32.5% to $2,684.7 million but surpassed the Zacks Consensus Estimate of $2,617 million. Further, sales were hurt by adverse COVID-19 impacts such as shifting consumer demand, mostly in California, Florida, Texas and Arizona, which accounts for 50% of its store base.

Cost of goods sold or COGS declined 26.9% to $2,080.1 million. Selling, general and administrative (SG&A) expenses decreased 12.2% to $519.5 million while the metric as a percentage of sales expanded 450 basis points (bps).

Store Update

During the quarter, the company did not open any new stores. It continues to anticipate opening 39 stores this fall season and 66 in fiscal 2020.

Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. Price, Consensus and EPS Surprise
Ross Stores, Inc. Price, Consensus and EPS Surprise

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

Financials

Ross Stores ended the quarter with cash and cash equivalents of $3,793 million, long-term debt of $2,285.6 million and total shareholders’ equity of $2,286.3 million. Earlier, the company had already suspended the share repurchase program in light of the ongoing pandemic. Moving ahead, it does not intend to repurchase any shares for the rest of fiscal 2020.

Apart from these, it has a liquidity of $4.3 billion and a revolving credit facility of $500 million, which is likely to keep it afloat amid the pandemic.

Better-Ranked Retail Stocks to Watch

Big Lots BIG has an expected long-term earnings growth rate of 7.1% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation TGT has an expected long-term earnings growth rate of 6.1% and a Zacks Rank #1.

Dollar General DG, a Zacks Rank #2 (Buy) stock, has a long-term earnings growth rate of 12.5%.

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