Off-price retail company Ross Stores (NASDAQ:ROST) reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 7.9% year on year to $4.92 billion. Turning to EPS, Ross Stores made a GAAP profit of $1.33 per share, improving from its profit of $1.00 per share in the same quarter last year.
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Ross Stores (ROST) Q3 FY2023 Highlights:
- Revenue: $4.92 billion vs analyst estimates of $4.84 billion (1.8% beat)
- EPS: $1.33 vs analyst estimates of $1.22 (8.8% beat)
- Free Cash Flow of $272.5 million, down 23.1% from the same quarter last year
- Gross Margin (GAAP): 27.6%, up from 25% in the same quarter last year
- Same-Store Sales were up 5% year on year
- Store Locations: 2,112 at quarter end, increasing by 93 over the last 12 months
Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.
Off-Price Apparel and Home Goods RetailerOff-price retailers, which sell name-brand goods at major discounts because of their unique purchasing and procurement strategies, understand that everyone loves a good deal. Specifically, these companies buy excess inventory and overstocks from manufacturers and other retailers so they can turn around and offer these products at super competitive prices. Despite the unique draw lure of discounts, these off-price retailers must also contend with the secular headwinds of online penetration and stalling retail foot traffic in places like suburban shopping centers.
Sales GrowthRoss Stores is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.
As you can see below, the company's annualized revenue growth rate of 5.6% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre , but to its credit, it opened new stores and grew sales at existing, established stores.
This quarter, Ross Stores reported solid year-on-year revenue growth of 7.9%, and its $4.92 billion in revenue outperformed Wall Street's estimates by 1.8%. Looking ahead, analysts expect sales to grow 6.7% over the next 12 months.
Number of StoresA retailer's store count often determines on how much revenue it can generate.
When a retailer like Ross Stores is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, Ross Stores's store count increased by 93 locations, or 4.6%, to 2,112 total retail locations in the most recently reported quarter.
Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 4.4% annual growth in its physical footprint. This is decent store growth and in line with other retailers. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Same-Store SalesA company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
Ross Stores's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 1.2% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Ross Stores is reaching more customers and growing sales.
In the latest quarter, Ross Stores's same-store sales rose 5% year on year. This growth was an acceleration from the 3% year-on-year increase it posted 12 months ago, which is always an encouraging sign.
Key Takeaways from Ross Stores's Q3 Results With a market capitalization of $41.98 billion, a $4.50 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Ross Stores has the resources needed to pursue a high-growth business strategy.
We enjoyed seeing Ross Stores exceed analysts' gross margin expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates, driven by better-than-expected same-store sales growth and more new store openings. On the other hand, its earnings forecast for next quarter missed analysts' expectations with management expecting decelerating same-store sales growth thanks to the uncertain macro environment. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 4.6% after reporting and currently trades at $125.62 per share.
The author has no position in any of the stocks mentioned in this report.
