Ross (ROST) Q1 Earnings In Line, Stock Down On Sales Miss

Ross Stores Inc. (NASDAQ:ROST) reported first-quarter fiscal 2016 earnings of 73 cents per share, slightly ahead of the company’s guidance of 69–72 cents and in line with the Zacks Consensus Estimate. Additionally, earnings for the quarter surged nearly 6% from 69 cents earned in the year-ago quarter.

Total sales increased about 5% to $3,089 million, backed by positive response from value-focused customers to the company’s extensive collection of brand bargains. Sales growth in the quarter was on the higher end of the company’s forecast. However, sales missed the Zacks Consensus Estimate of $3,109 million owing to some merchandise execution issues in ladies apparel. This was probably the reason for the stock’s 6.2% fall in yesterday’s after-hours trading session.

Ross Stores’ comparable-store sales (comps) rose 2% compared with 5% growth in the prior-year quarter. The upside was driven by an increase in the size of average basket.

Operating margin contracted 30 basis points (bps) year over year to 15.4%, but came in slightly above the company’s guidance of 15–15.2%. During the quarter, the benefits of higher merchandise margins were nullified by the timing of costs related to packaway.

Store Update

During the fiscal first quarter, the company opened 22 new Ross and 6 dd’s DISCOUNTS stores. As of Apr 30, 2016, Ross Stores operated 1,295 Ross Dress for Less stores across 34 states, the District of Columbia and Guam as well as 178 dd’s DISCOUNTS outlets in 15 states.

In fiscal 2016, the company plans to open 90 new locations including about 70 Ross and 20 dd’s DISCOUNTS stores. Additionally, the company expects to close or relocate nearly 10 older stores. The company targets to open 31 new stores in the fiscal second quarter, comprising 24 Ross and 7 dd’s DISCOUNTS stores.

Financials

Ross Stores ended the reported quarter with cash and cash equivalents of $910 million, long-term debt of $396.1 million and total shareholders’ equity of $2,539.4 million.

During the fiscal first quarter, the company bought back 3.1 million shares for about $176 million. With this, the company remains on track to buy back about $700 million worth of shares in fiscal 2016. This will mark the completion of the company’s two-year $1.4 billion share repurchase authorization that was approved in Feb 2015.

Guidance

Though Ross Stores expects to face challenges related to strong comparisons, amid macroeconomic uncertainty and a volatile retail landscape, it remains confident of performing well in the year ahead.

For fiscal second quarter, the company expects earnings in the range of 64–67 cents per share compared with 63 cents earned in the prior-year quarter. However, the company’s forecast is below the Zacks Consensus Estimate of 70 cents per share.

Total sales for the fiscal second quarter are expected to grow 4–5%, with comps expected to be up 1–2%. Operating margin is expected to be relatively flat with the year-ago quarter, coming in the range of 13.8–14%. Interest expense is expected at $4 million, while the tax rate is projected at 38–39%.

On the back of fiscal first-quarter results and second-quarter projections, the company now anticipates earnings per share for fiscal 2016 in the range of $2.63–$2.72, up from earnings of $2.51 per share recorded in fiscal 2015. The company’s previous earnings guidance was in the range of $2.59–$2.71 per share.

Zacks Rank

Ross Stores currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader retail sector include The Children’s Place Inc. (NASDAQ:PLCE) , with a Zacks Rank #1 (Strong Buy), along with Abercrombie & Fitch Company (NYSE:ANF) and New York & Company Inc. (NYSE:NWY) , each carrying a Zacks Rank #2.


ABERCROMBIE (ANF): Free Stock Analysis Report

NEW YORK & CO (NWY): Free Stock Analysis Report

CHILDRENS PLACE (PLCE): Free Stock Analysis Report

ROSS STORES (ROST): Free Stock Analysis Report

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