Ross Stores Inc. ROST reported fourth-quarter fiscal 2015 earnings of 66 cents per share, ahead of the company’s guidance of 60–63 cents and the Zacks Consensus Estimate of 64 cents. Additionally, earnings for the quarter surged 10% year over year.
Total sales increased nearly 7% to $3,250.7 million, backed by positive response from value-focused customers to the company’s extensive collection of brand bargains. Sales also surpassed the Zacks Consensus Estimate of $3,211 million.
On the back of a top- and a bottom-line beat, shares of this off-price retailer of apparel and home accessories rose 1.3% in yesterday’s after-hours trading session.
Ross Stores’ comparable-store sales (comps) jumped 4% year over year, surpassing its projection of flat to 1% increase. The upside was driven by an increase in the size of average basket along with higher traffic.
Operating margin contracted 45 basis points (bps) year over year to 12.7%, which was in line with expectations. During the quarter, the benefits of higher merchandise margins and stringent expense management were nullified by the timing of costs related to packaway.
Fiscal 2015 Highlights
For fiscal 2015, the company’s earnings came at $2.51 per share, up 14% from the year-ago earnings of $2.21 and a penny ahead of the Zacks Consensus Estimate. Net sales rose 8% to $11,940 million and surpassed the Zacks Consensus Estimate of $11,901 million.
Store Update
As of Jan 30, 2016, Ross Stores operated 1,274 Ross Dress for Less stores across 34 states, the District of Columbia and Guam as well as 172 dd’s DISCOUNTS outlets in 15 states.
In fiscal 2016, the company plans to open about 70 Ross and 20 dd’s DISCOUNTS locations. Additionally, the company expects to close or relocate nearly 10 older stores. Of these, the company targets to open about 22 new Ross and 6 dd’s DISCOUNTS stores in the first quarter of fiscal 2016.
Financials
Ross Stores ended fiscal 2015 with cash and cash equivalents of $761.6 million, long-term debt of $396 million and total shareholders’ equity of $2,472 million.
During the fourth quarter, the company bought back 3.2 million shares for about $170 million, bringing the total share repurchase in fiscal 2015 to 13.7 million worth about $700 million.
Further, Ross Stores plans to complete the remaining $700 million worth of share repurchases under its existing two-year $1.4 billion program by the end of fiscal 2015.
Also, as part of its commitment to enhance shareholder value, the company recently raised its quarterly cash dividend by 15% to 13.5 cents per share. This raised dividend is payable on Mar 31, 2016 to shareholders with record as of Mar 14.
Guidance
Though Ross Stores expects to face challenges relating to strong comparisons, amid macroeconomic uncertainty and a volatile retail landscape, it remains confident of performing well in the year ahead. However, the company stated that it has maintained slight caution in forecasting its sales and earnings for fiscal 2016.
For the full fiscal, the company projected earnings per share in the range of $2.59–$2.71, reflecting an improvement of 3–8% from earnings of $2.51 per share recorded in fiscal 2015. This projection is based on a sales growth target of 4–5% and comps growth of 1–2%. Consequently, operating margin for fiscal 2016 is expected in the range of 13.5–13.7%, along with net interest expense of $70 million and a tax rate of 37–38%.
Further, capital expenditure for fiscal 2016 is expected at $428 million, with depreciation and amortization expense projected at nearly $385 million.
Fiscal first-quarter earnings are expected in the range of 69–72 cents per share, reflecting flat to 4% growth year over year. Total sales are expected to grow 4–5%, with comps expected to be up 1–2%. Operating margin is expected in the range of 15–15.2% compared with 15.7% in the year-ago quarter. Interest expense is expected at $4.5 million, while the tax rate is projected at 38–39%.
Zacks Rank
Ross Stores currently carries a Zacks Rank #2 (Buy). Another well-placed stock in the retail-discount industry is Target Corp. TGT holding the same rank as Ross Stores. Favorably ranked stocks in the broader retail sector include Foot Locker Inc. FL and Zumiez Inc. ZUMZ, both carrying a Zacks Rank #2.
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