Ross Stores Inc. (ROST) had a splendid second-quarter fiscal 2014, wherein its top and bottom lines beat estimates and grew year over year. Earnings benefited from better-than-anticipated merchandise, gross margins and aggressive cost-control measures.
The company’s earnings per share rose 16% year over year to $1.14 and surpassed the Zacks Consensus Estimate of $1.09. Net sales advanced 7% to $2,729.6 million, backed by positive response from value-focused customers to the company’s extensive collection of competitive brand bargains. Sales too were above the Zacks Consensus Estimate of $2,716 million.
Ross’ comparable-store sales (comps) climbed 2% as against a 4% rise last year, meeting the higher end of the company’s guidance range of 1%–2% improvement.
Moreover, we are impressed with Ross Stores’ off-price business model that creates a strong value proposition for its target customers. We believe the company’s ongoing merchandise improvement and inventory management initiatives bode well for future growth. Its focus on store expansion, along with consistent share buybacks and attractive dividend payouts also highlight its financial strength.
Looking at the second half of fiscal 2014, the company came up with favorable guidance for the third and fourth quarters as well as for fiscal 2014. For the two upcoming quarters, the company envisions comps growth of 1%–2% each.
For fiscal 2014, Ross forecasts earnings to lie in the $4.18–$4.26 per share range, while earnings per share for the third and fourth quarter are expected to be in the range of 83–87 cents and $1.05–$1.09, respectively.
Although management has an optimistic view for the second half of fiscal 2014, they are still concern about the anticipated pressures on margins due to the highly promotional retail environment along with infrastructure investments for establishing a buying office in New York and a new distribution center in Rock Hill, SC. This is expected to lead to a contraction in operating margins for the third and fourth quarters of fiscal 2014.
Moreover, the company remains prone to intense competition in the retail apparel space as well as soft economic recovery. Thus, the stock currently holds a Zacks Rank #3 (Hold).
Other Stocks to Consider
A better-ranked stock in the retail-discount space is Burlington Stores Inc. (BURL) with a Zacks Rank #1 (Strong Buy). Other stocks performing well in the broader retail sector include Foot Locker Inc. (FL) and Express Inc. (EXPR), both carrying a Zacks Rank #2 (Buy).
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