Shares of Ross Stores Inc. (ROST) jumped 4.6% in the after-hours trading session yesterday, as the company ended fiscal 2014 on a spectacular note, with better-than-expected top and bottom-line results for the fourth quarter and fiscal 2014.
Backed by robust sales and merchandise margins, quarterly earnings surged 17.6% year over year to $1.20 per share. The bottom line came in much ahead of the guided range of $1.05–$1.09 and the Zacks Consensus Estimate of $1.11 per share.
Total sales advanced 10.6% to $3,032.7 million, backed by positive response from value-focused customers toward the company’s extensive collection of brand bargains. Sales also cruised ahead of the Zacks Consensus Estimate of $2,933 million.
Ross’ comparable-store sales (comps) jumped 6% year over year, surpassing the company’s guidance of a 1%–2% increase. Comps growth was driven by a rise in transactions as well as higher average basket size.
Operating margin improved 35 basis points (bps) year over year to 13.5%, marking a stark contrast from management’s projection of a 30–50 bps decline. The improvement was primarily driven by enhanced merchandise gross margin and lower selling, general and administrative expenses as a percentage of sales, which reflected leverage from comps growth.
Fiscal 2014: At a Glance
Ross’s earnings for fiscal 2014 escalated 13.9% year over year to $4.42 per share, also surpassing the Zacks Consensus Estimate of $4.32. Further, the top line of this Zacks Rank #2 (Buy) company ascended 7.9% year over year to $11,041.7 million, beating the Zacks Consensus Estimate of $10,933 million.
Stores Update
The company plans to introduce 70 Ross and 20 dd’s DISCOUNT stores in fiscal 2015. Further, it plans to shut down or relocate about 10 old stores.
Financials
Ross Stores ended fiscal 2014 with cash and cash equivalents of $696.6 million, long-term debt of $398.4 million and total shareholders’ equity of $2,279.2 million.
Further, the company bought back 7.4 million shares for about $550 million during fiscal 2014. Going forward, Ross announced a new program authorizing the repurchase of nearly $1.4 million shares by fiscal 2016.
Moreover, the company hiked its quarterly cash dividend by 18% to 23.5 cents a share, payable on Mar 31, 2015, to shareholders of record as on Mar 9. Both these shareholder-friendly moves not only underscore Ross’s solid financial status but also reflect management’s confidence in its future prospects.
Also, the company expects to incur $450 million as capital expenditure in fiscal 2015.
Guidance
Despite delivering a solid fourth quarter, Ross provided a conservative guidance for fiscal 2015 as it prefers to remain cautious of the volatile macroeconomic and retail environment.
For fiscal 2015, the company envisions comps growth of 1%–2%, while operating margin is projected to range from 13.3%–13.5%. Earnings per share for the fiscal are expected in the range of $4.60–$4.80. The current Zacks Consensus Estimate for fiscal 2015 is pegged at $4.79 per share, falling within the company’s guidance range.
Operating margin guidance is based on expectations of a marginal improvement in merchandise gross margin, offset by slightly deleveraged expenses.
Coming to the first quarter of fiscal 2015, sales are anticipated to rise in a 6%–7% range, while comps are expected to grow by 2%–3%. Further, management expects operating margin for the quarter to come around 14.6%–14.8%. Earnings are anticipated to lie in a band of $1.21–$1.26 per share, compared with $1.15 posted in the comparable year-ago period. The current Zacks Consensus Estimate stands at $1.30 per share, which may witness a downward revision following the company’s guidance.
With its strategy of providing customers with attractive bargains and an off-price business model, Ross is confident about utilizing opportunities amid all climates and also about driving top and bottom lines.
Other Stocks to Consider
Other well-performing stocks in the broader retail industry include Target Corp. (TGT), Burlington Stores, Inc. (BURL) and Fred's, Inc. (FRED), all carrying the same Zacks Rank as Ross.
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