Ross Stores Inc. (ROST) reported earnings of $1.48 per share for first-quarter 2011, in line with the Zacks Consensus Estimate. Earnings grew 28.0% from the prior-year figure of $1.16 primarily due to the company's aptitude in providing attractive brand name bargains to customers who value both quality and price.
Financial Details
Net sales for the quarter increased 7.0% to $2,075.0 million from $1,934.8 million in the prior-year quarter, beating the Zacks Consensus Estimate of $2,020.0 million. This robust increase in net sales was primarily because of initiatives taken by the company to keep merchandise fresh by reducing the stock in stores. Comparable store sales increased 3% compared with a 10% growth in the prior-year period.
Operating margin for the quarter improved by 160 basis points to 13.7%. The improvement in operating margin was primarily attributable to 130 basis points expansion in gross margin and reduction of 30 basis points in selling, general and administrative expenses.
Ross Stores ended the quarter with cash and cash equivalents of $671.0 million compared with $823.7 million in the prior-year period. During first-quarter 2011, Ross generated $41.1 million of operating cash flows. This will enable the company to make capital investments, pay dividends and repurchase shares. At the end of the quarter, the company had a long-term debt of $150.0 million and shareholders' equity of $1,406.1 million.
Dividend and Share Repurchase
The company's board of directors declared a quarterly cash dividend of 22 cents payable on June 30, 2011 to stockholders of record as of June 7, 2011. Also, during the first quarter of fiscal 2011, Ross repurchased 1.6 million common shares for $112.0 million under its previous $900.0 million share repurchase program.
Under its $900.0 million share repurchase program, valid for the next two years through fiscal 2012, the company intends to repurchase $450 million worth of shares by the of fiscal 2011.
Guidance
In the second quarter of fiscal 2011, the company expects to earn in the range of $1.15 to $1.20 per share on the back of same store sales growth of 2% to 3%. The earnings guidance represents a growth of 7% to 12% from the prior-year level.
For fiscal 2011, the company now expects earnings to be in the range of $5.16 to $5.31 per share, which represents a growth of 11% to 15% over the prior year. The company had earlier expected to earn in the range of $4.90 to $5.10 per share in fiscal 2011.
Store Update
At first quarter end, the company ran a total of 1,068 stores compared with 1,021 stores at the end of the prior year comparable period.
Ross is the leading off-price retailer of apparels and home accessories in the United States and faces intense competition from other well-established players in the industry, such as Kohl's Corporation (KSS) and Wal-Mart Stores Inc. (WMT).
Currently, Ross Stores maintains a Zacks #2 Rank, which translates into a short-term Buy rating. Moreover, we retain a long-term Neutral recommendation on the stock.
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