Ross Stores, Inc. (ROST) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon and welcome to the Ross Stores Second Quarter 2021 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question-and-answer session. Before we get started on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecast, new store openings, COVID related costs, and other matters that are based on the Company's current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the Company's fiscal 2020 10-K and fiscal 2021 Form-10-Q and 8-Ks on file with the SEC. Now, I would like to turn the call over to Barbara Rentler, Chief Executive Officer. Barbara Rentler: Good afternoon. joining me on our call today are Michael Hartshorn Group President, Chief Operating Officer, and Connie Kao, Group Vice President, Investor Relations. We'll begin our call today with a review of our second-quarter performance followed by our outlook for the third quarter and fiscal year. Afterward. we'll be happy to respond to any questions you may have. As noted in today's press release, we are pleased that both second-quarter sales and earnings substantially exceeded our expectations. Sales benefited from customers' positive response to our broad assortment of great bargains. In addition, our results were bolstered by a number of external factors, including ongoing government stimulus, increasing vaccination rates, and diminishing COVID restrictions. Earnings per share for the 30 weeks ended July 31, 2021, grew 22% to a $1.39 Net Income of $494 million. This compares to a $1.14 per share on net Earnings of 413 million for the 13 weeks ended August 3, 2019. Total sales for the quarter rose 21% to $4.8 billion with comparable-store sales up a robust 15%. For the first 6 months, earnings per share were $2.73 on net earnings of $971 million up from 229 -- up from $2.29 per share on net income of 834 million for the same period in 2019. Sales for the first half of 2021 rose 20% to 9.3 billion with comparable-store sales up 14% for the second quarter, Ross's sales trends across merchandise areas and regions were fairly broad-based with children's and the Midwest performing the best. Additionally, dd's DISCOUNT trends remained robust during the period as both sales and operating profit gains significantly exceeded our expectations. At quarter-end, total consolidated inventories were down 5% while average selling store inventories were up 3% versus 2019. Packaway levels ended at 30% of the total, compared to 43% for the same period in 2019, as we used a substantial amount of pack-away merchandise to support ahead-of-plan pales. In addition, there were receipt delays due to supply chain congestions. Turning to store growth, we now expect to open approximately 65 total locations this year comprised of about 45 Ross and 20 dd's DISCOUNT. As usual, these numbers do not reflect our plans to close or relocate about 10 stores. As mentioned in last quarter's call in 2022, we expect to return to our normal annual opening program of approximately 100 new stores. Now, Michael Hartshorn will provide further details on our second-quarter results, third-quarter guidance, and updated outlook for the year. Michael Hartshorn: Thank you, Barbara, as we previously stated, comparable store sales increased 15% in the quarter, mainly driven by a larger average basket with traffic up slightly versus 2019. The operating margin was well above plan and up versus 2019 at 14.1% Cost of goods sold decreased by 45 basis points in the quarter. Merchandise margins and occupancy improved by 80 basis points each while buying cost declined by 10 Basis points. Partially offsetting these items were higher distribution expenses, which grew 40 Basis points primarily from wage increases, while worsening industry-wide supply chain congestion drove higher freight costs of 85 basis points. SG&A for the period rose 5 basis points as leverage from strong sales gains was offset by COVID expenses and higher incentives given our better-than-expected second-quarter results. Total net COVID-related expenses for the period were approximately 45 basis points. The vast majority of which impacted SG&A. During the quarter, we repurchased 1.4 million shares of common stock for a total purchase price of $176 million. We remain on track to buy back a total of $650 million in stock for the year. Now, let's discuss our third-quarter guidance. As a reminder, our projections compared to the same period in 2019. Looking ahead, there remains much uncertainty on the sustainability of the positive external factors that benefited our first-half results, as well as the potential risks we could face from the spread of COVID variance and worsening industry-wide supply chain congestion. As a result, we are forecasting comparable store sales to be up 5% to 7% for the third quarter, with earnings per share projected to be in the range of $0.61 to $0.69. The operating statement assumptions that support our third-quarter guidance include the following. Total sales are projected to grow 9% to 12%. We expect operating margins to be 7.3% to 7.9%. This forecast reflects a significant escalation of freight costs, as well as higher distribution expenses. In addition, ongoing COVID-related costs are projected to negatively impact EBITDA margins by approximately 45 basis points in the period. We plan to open 28 stores during the third quarter consisting of 18 Ross and ten dd's DISCOUNT. Net interest expense is estimated to be about $19 million. Our tax rate is expected to be approximately 24% to 25% and weighted average diluted shares outstanding are projected to be about 354 million. Based on our first-half results in third-quarter guidance, we now project full-year comparable-store sales gains of 10% to 11% and earnings per share to be in the range of $4.20 to $4.38 compared to $4.60 in 2019. Now, I will turn the call back to Barbara for closing comments. Barbara Rentler: Thank you, Michael. While we're pleased by the better-than-expected results we reported today, as Michael noted, there's a high level of uncertainty on a number of external factors and how they may affect our business over the balance of the year. That said, we believe we are well-positioned as a value retailer and remain confident in our ability to continue to deliver great branded bargains. Moving forward, we remained optimistic about our prospects for continued growth in both sales and profitability over the longer term. Especially giving consumers increased focus on value and convenience. Moreover, the significant number of retail closures and bankruptcies in recent years further enhances our ability to gain additional market share in the future. At this point, we like to open up the call and respond to any questions you might have. Operator: As a reminder, . In order to allow everyone time for questions, we ask that you please limit yourselves to 1 question. Please stand by while we compile the Q&A roster. Your first question is from the line of Lorraine Hutchinson from Bank of America. Your line is open. Lorraine Hutchinson: Thanks. Good afternoon. It's quite a different tone with the 2QB versus the 3Q guidance. I was just curious -- how much of these sales and margin pressures are you seeing today versus how much you are baking in just in case things get worse? Michael Hartshorn: Kimber ly, is Michael. On the sales front, the guidance is really based on the high level of uncertainties and risks that could happen in the third and fourth quarters. And it's really based on the risks that the external factors that benefited the first half, how sustainable those are. And then also with the Delta variant and supply chain congestion, what other risks exist? That said, we hope to do better than the guidance as we have year-to-date thus far. Operator: Your next question is from Mark Altschwager from Baird. Your line is open. Mark Altschwager: Good afternoon. Thanks for taking my question. So, a lot of focus is out there on kind of the cost side of the current supply chain backdrop. I was hoping you could speak to some of the opportunities this is creating or expected to create in the months and quarters ahead, just with canceled orders, late deliveries, inventory trapped in notes throughout the system. Just how do you see this really playing out from an inventory availability standpoint in the coming quarters? Thank you. Barbara Rentler: So, listen, obviously, the supply chain congestion is causing all kinds of receipt delays right now. And we expect those actually to worsen as the year goes on. So, at some point in time, those goods will back up and we will see those as potentially an opportunity either for pack-away or flow depending upon the business and what's the types of products are. So, at this moment, you would think that that would happen probably either late in the year or the beginning of next year if I had to pick a timeframe. Operator: Your next question is from the line of Paul Lewis from Citigroup. Your line is open. Paul Lewis: Hey, thanks, guys. Can you maybe talk about performance by the state? Curious about your 3 big states. How different the performance was in the second quarter and also curious if there are any states in particular where you might be seeing some sort of the change in the trend in the third quarter today that's guiding how you are thinking about comps and 3Q. And was also curious if you could just talk about home versus apparel performance in the quarter. Thanks. Michael Hartshorn: On the regional performance of Texas, Florida, and California, they make up about 50% of our sales. From what we saw during the quarter, Texas and California were relatively in line with the chain. Florida, which trailed in the first quarter saw a significant improvement as tourism increased, though still a bit below the chain in the second quarter and we wouldn't comment on current quarter trends at this point. Barbara Rentler: And Home versus Apparel. The home continues to be one of our top-performing merchandise areas. Similar to trends that we've seen through the entire pandemic. Apparel, however, continues to accelerate from Q1 to Q2. So, I think what we're seeing in Apparel is pre -COVID there was already a shift towards casual wear and then activewear. And what's happening now is that more traditional sportswear classifications have also improved. So that's starting to make -- to build the -- to build the Sales from one quarter to the other. Paul Lewis: Barbara, are you seeing the supply chain disruption impact certain categories more than others? Anything you could share there? Barbara Rentler: Look, overall, there's plenty of supply. It's not consistent with your point of cross merchandise departments, but in reality, what's happening is that merchandise deliveries are sliding. So, it could slide 2 weeks, 30 days they are sliding and so what the merchants are really doing is they are constantly flexing based off on what they're seeing in the market, the availability and they are chasing into classifications that they need. So, it's a little bit of a moving target, but overall, there's plenty of supply. Paul Lewis: Okay. Thank you. Good luck. Operator: Again, in order to allow everyone time for questions, we ask that you please limit yourselves to 1 question. Your next question is from the line of Kimberly Greenberger from Morgan Stanley, your line is open. Kimberly Greenberger: Okay. Great. Thank you. I wanted to hear if you've given any further thought to potentially some price -- some price actions just to help absorb some of the higher costs, even if it's just a little bit here or is there or sort of surgically done based on what comparison prices you're seeing in the marketplace. I just wanted to see if you had thought about that any different as compared to your comments back in May. And then could I just get a clarification on the full-year 10% to 11% comp guidance and what does that embed for the fourth quarter? Thank you so much. Barbara Rentler: In terms of pricing, Kimberly, we still strongly believe that price value is critical to our customers. So, as you know, we've over the years talked about how the merchants come to shop regularly. And really -- they really understand that our target shopper is really pricing savvy. So, if she's not getting the best deal out there, she knows it. The higher price is that traditional retailers could increase the pricing gap that we offer and strengthen the values that we provide to our shoppers. And quite frankly, the merchants are constantly making those price value assessments of their assortments all the time. They're prioritizing, as we'll always prioritize, really having sharply priced assortments for our entire store. So, at this point, I wouldn't talk anything more about it for competitive reasons. But the one comment that I would say is we won't be the leader in terms of raising prices s. The merchants will do their job, and they'll assess it, and they will price it the way they see it. Michael Hartshorn: Kimberly, on comp guidance for the fourth quarter looks very similar to the Q3, as the sight settles. Kimberly Greenberger: Thank you. Operator: Your next question is from Chuck Grom from Gordon Haskett. Your line is open. Chuck Grom: Thank you very much. Good quarter. If just one of you guys could speak to the magnitude of the DC and freight costs that you're anticipating in the third quarter. It looks like over the past couple of quarters it's been about 100 to 225 basis points drag. Just wondering if you could speak to how big of a drag you're expecting here in this quarter? Thank you. Michael Hartshorn: We didn't give specific guidance in the second quarter, obviously, DCs were 40 basis points of drag and freight was 85 basis points. We would expect both the DCs and the freight costs to worsen in the back half. Some of that's driven by the leverage on comp, but we would expect we've raised wages further in the DCS and we're seeing specifically ocean freight costs significantly escalates in the back half. So those expectations are worsening our built-in to the guidance that we get. Operator: Your next question is from the line of Matthew Boss from JP Morgan, your line is open. Matthew Boss: Great, thanks, and congrats on a nice quarter. So, Barbara any early thoughts on overall back-to-school trends, maybe what you have seen so far in August, and some of the states that have gone back earlier. And then Michael, on Gross margin, have you embedded any change in the external promotional or pricing backdrop for the third quarter relative to what we saw in the front half of the year just in your merchandise margin outlook? Barbara Rentler: So Matt, the back-to-school trends, look, we've been pleased with our younger businesses' performance for a while. And so that obviously bodes well for back-to-school. In terms of classifications, I would say, the customer's still buying wear now, but has started to make that conversion to go forward in a more traditional back-to-school fashion that we might have seen from a product perspective in -- let's say 2019. But we feel good about those businesses because obviously, our younger businesses are doing well, therefore, back-to-school, we feel pretty good about. Michael Hartshorn: And Matt, on margin, obviously, we had built in what we can see today with current on order. I think our big opportunity as it was in the second quarter is if we can exceed the sales plans. There should be a benefit as we turn faster and take lower markdowns. Operator: Your next question is from Janine Stichter from Jefferies. Your line is open. Janine Stichter: Hi, thanks for taking my question. I wanted to ask about the COVID costs, if you had any thoughts about the timeline for potentially starting to moderate the expense you are putting into the cleaning and sanitation aspects in the stores? Thank you. Michael Hartshorn: Sure. I think that's changed over time. Obviously, if you would have asked me that 2 months ago, it would have been sooner than later. But right, now we have the cleaning aspects built-in throughout the rest of the year, which we think is appropriate given the variant spread. Janine Stichter: Got it. Thank you. Operator: Your next question is from Michael Binetti from Credit Suisse. Your line is open. Michael Binetti: Hey guys, thanks for taking our questions here. Michael, I'm curious what you think are the biggest opportunities to get the business, if we try to look beyond a lot of noise in the margin right now, to get the business back to that kind of 14% plus an operating margin that you guys saw a few years back? It sounds like you -- I guess when you look at the pricing commentary in the soft lines group, you seem to think that there's no real urgency here to move towards us. So maybe that implies you're thinking that some of these costs we're seeing are quite transitory. Do you -- within that, if that's right, what do you think are the best ways for this business to get back to that 14 plus operating margin in the past from here? Michael Hartshorn: Sure Michael. as you mentioned, obviously we have transitory thoughts of the business right now, whether it's COVID -- at some point, there will be some equilibrium in the freight world, especially with ocean freight that we expect to be an opportunity going forward. And then I would say, the return to 2019 margin levels will be highly dependent on strong Sales performance over time. And given we're in a very vibrant sector of retail, there's market share up for grabs with store closures and some bankruptcies, and the customer who is focused on value and convenience, we feel good about our opportunities. Now, that is not to say that we don't have a lot of work going on in the business to find places to be more efficient to offset some of these costs. But I think it's dependent on how long some of this inflation lasts and then certainly on top-line growth. Michael Binetti: Thank you. Operator: Your next question is from John Kernan from Cowen. Your line is open. John Kernan: : Excellent. Thanks for taking my questions. Just curious about the quantification of freight and distribution headwinds into next year. Is this -- does the impact of your guiding cue in the back half of the year, is that ballpark, how we should think about it for the first half of next year? Michael Hartshorn: I wouldn't comment on next year at this point. In the DCS, the wages that we made are permanent. And that said, we do have productivity and initiatives that will build into our budgets and plans for next year. On the freight costs, I'd say it's hard to say at this point. If I gave you my view at this point, I think some of the ocean and congestion will bleed into the first part of next year. John Kernan: : Got it. One quick follow-up just as we stay on the theme of supply chain here, are you concerned at all about deliveries into a holiday and early part of next year, given some of the things we are seeing at ports, etc.? Barbara Rentler: Well, I think we all know there are supply chain problems and it's backed up and all the issues with COVID overseas, which made all of them, not all of the -- a large majority of goods coming out of China slide. I think the issues are real and I think they'll continue for a while. And so, what we have to do is really make sure that we're paying attention to what it is, and that's the merchants are adjusting and flexing base up of what they are seeing and what's happening around them. The majority of their -- our businesses closeouts. So, a lot of these things are a timing issue of how goods will slide. What good's might be late, that might be available for us to buy in season. There's -- it's kind of like a moving target. I think that the challenge as you go into Q1 is that Chinese New Year is a couple of weeks earlier. So those two things are going to collide, I think, a little bit in terms of deliveries and the kind of goods that have to get out of China, in particular. So, I think the answer is we are going to watch it, we are going to adjust as we go, and we are in a flexible business model so as long as we can offer a treasure hunt and a broad assortment, that's what we are going to do. John Kernan: : Excellent. Thank you. Operator: Again, in order to allow everyone time for questions, we ask that you please limit yourself to one question. Your next question is from Adrienne Yih from Barclays. Your line is open. Adrienne Yih: Thank you very much. Barbara, I was wondering if you had seen any changes in basket or ATV this quarter versus the first quarter. And then towards the end of the quarter where do you think any impact in particular Texas and Florida or maybe the Delta variant on late July trends? I know that per quarter they seem to be fine, but any trailing off at the end of the quarter? Thank you very much. Michael Hartshorn: Adrienne, on the components of comp, it was mainly driven by the size of the basket. Traffic was up slightly and the basket was driven. AUR was up slightly, but it's -- it was basically driven by units per transaction and that was a consistent trend with comps throughout the quarter. We wouldn't say specifically the sequential trend other than to say, it was fairly robust throughout the quarter, may was slightly higher than the other months in terms of absolute comps. Adrienne Yih: Thanks very much. And best of luck, congrats. Operator: Your next question is from the line of Marni Shapiro from Retail Tracker, your line is open. Marni Shapiro: Thanks, guys. Congrats on a great quarter. Could you -- I just want to clarify one thing, Michael, that you said. You said Texas, California, and Florida made up what percent of your sales? You guys used to talk about this in the past. I just want to clarify the number that I heard. Michael Hartshorn: It's about 50% of ours Marni Shapiro: That's what I thought. Can we talk just a little bit about marketing? I know it's not a big, ambitious push for you guys like it is for other retailers. I'm curious, just through COVID coming into this year, where was your marketing spend? Has it ticked up through this year as the stores have all now, for the most part, being opened? And have you been spending instead, or has demand been so strong that you haven't ticked up the marketing and how should we think about it in the back half of the year if you could just talk a little bit about that? Michael Hartshorn: In terms of marketing for competitive reasons, we wouldn't provide the details there, Marni, but we have made strategic investments. We made channel shifts, and we have used -- put more money into places like digital versus broadcast. So, we have made some shifts during COVID and we'll continue to find what works best for us going forward. Marni Shapiro: Has it picked up now that the stores are open compared to a year ago when, say the first half of the year for sure, stores were -- Michael Hartshorn: No doubt. Yeah, Marni, no doubt about it. We -- when the stores are closed, we obviously took it as an opportunity to not spend when the stores were closed so it's certainly has picked up versus last year. Marni Shapiro: So that's all rolls back in here. Okay. And it should be about your usual levels and from here out without stores open? Michael Hartshorn: Correct. Marni Shapiro: Okay. Fantastic. Thank you. Best of luck with the rest of the fall season. Michael Hartshorn: Thank you. Operator: Your next question is from Laura Champine from Loop Capital. Your line is open. Laura Champine: Thanks for taking my question. Still trying to get my head around the significant decline, almost 50% sequentially in EBITDA margin that you are sort of looking to in Q3. I certainly heard the 45-basis point of COVID costs. But are you expecting a big reversal in merchandise margin or what are some of the assumptions embedded within that EBITDA margin assumption? Michael Hartshorn: On the -- on EBITDA margin between Q2 and Q3, for instance, obviously the 5 to 7 comp is lower than our year-to-date performance. That 15% -- of 15% in the Second Quarter. So that drives a significant portion of it. And then as I mentioned, ocean freight costs, where -- we've embedded the assumption that that will significantly escalate over Q2 and then we expect higher wages in the DC to drive a bit more delivers than we had year-to-date. Laura Champine: Got it. Do you have -- can you give me total logistics costs as a percentage of sales normally and where it's tracking now? Michael Hartshorn: That's not something we provide for. Laura Champine: Got it. Thank you. Michael Hartshorn: The best guidance I can give you at this point is, again, freight was 85 basis points from the second quarter and we've embedded significant escalation from that. And then on DCs, as I mentioned, it was 40 basis points and we expect additional deleverage because of higher wages. Laura Champine: Got it. Operator: Your next question is from Dana Telsey from Telsey Advisory. Your line is open. Dana Telsey: Good afternoon. It seems like for a couple of quarters in a row now, dd's has had a terrific performance. Anything to note there, and any changes to their plans in terms of what's driving that, or is it the child tax credits and stimulus? And then Secondly, just on pack away, I think it's 30% this quarter, I think it was 34% in the first quarter. How are you thinking about pack away for the balance of the year and the rate it would be at? Thank you. Michael Hartshorn: Sure, Dana. On dd's, as we mentioned, dd's continue to have a robust sales trend and like Ross EBIT margin improvement. I'd say relative to Ross, it's been fairly consistent throughout the pandemic. Obviously, the external stimulus has impacted the dd's customer but also helped the Ross customer as well. The one thing they have in common though is that, that customer is very focused on value and they've been attracted to what we've had in the store. So, no changes that I would note in the second quarter. On inventory levels, as you mentioned, pack away was at 30% of our total inventory. With the head of plan Sales, we obviously use some of that inventory to fuel some of the Sales growth. It was also. impacted by receipts, delayed receipts. So, within the Inventory number, we have a higher level of in-transit than we have had historically. And then the return -- we would expect to return to historical levels over time, but that's going to be somewhat dependent on how we perform on the top line and whether we beat the plan, and then also what supply chain congestion looks like at the end of the year. Operator: Your next question is from Simeon Siegel from BMO Capital Markets. Your line is open. Simeon Siegel: Hi this is Dick, the question for Simeon. I'm just wondering if we could get some color potentially on where you're seeing the most opportunities to kind of capture that share? That's with new customers or with expanding the current customer while within the current EDs and our most customers and what you're thinking about that going forward? Michael Hartshorn: Yeah, I would say what we've seen during the pandemic is we've seen a younger customer, now part of that early on in the pandemic was driven by the older customer with restrictions and hesitancy to shop. As we moved along, we've seen in the customers that that older shopper is actually turning back to the store. So, I think we have an opportunity across our customer base to the extent that we can provide them the bargains that they've come to expect. Simeon Siegel: Great. Thank you. Operator: Your next question is from Jay Sole from UBS. Your line is open. Jay Sole: Great. Thank you. Michael, is it possible to quantify for us the magnitude of the worsening of the inflationary pressures that you called out between Q2 and Q3? Michael Hartshorn: Yeah, I would only just point to the overall EBITDA margin. It is a significant de-escalation right now, the 7.3 to 7.9 is 450 to 510 versus 2019 of deleverage. So, the main drivers out of that are obviously the comp difference between Q2 and Q3. The higher ocean freight is a significant portion of that. And then as I mentioned, the higher -- higher distribution . I'd say the high -- the largest single deleverage is coming from ocean freight. Operator: Our last question is from Roxanne Meyer from MKM Patners. Your line is open. Roxanne Meyer: Great. Thanks, and congratulations on a solid 2Q. My question is on the merchandise margin, you delivered a very robust gain there on top of the -- a sizable gain in the first quarter. And really on top of a significant increase in merch margin last year. Where is that coming from? Is that being helped by just utilizing pack away, and how should we think about merchandise margin going forward? Michael Hartshorn: In the Quarter, the really -- the upside versus our original expectations. And again, versus last year is that we've been able to operate with inventory very close to the need, we've operated with lower inventories and stores, we've been able to chase the business and that has driven faster turns and lower markdowns. What we've done throughout the pandemic is try to operate very close knead. And we think that we can do that not only during the pandemic but post-pandemic, which will benefit margins in the future. But that's the lower markdowns invested terms was the main driver of the margin improvement in the second quarter. Operator: There are no further questions at this time. I would now like to turn the call over to Barbara Rentler for her closing remarks. Barbara Rentler: Thank you for joining us today and for your interest in Ross Stores. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.| Quant |
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Ross Stores Reports Q4 Earnings Beat, But Outlook Disappoints
Ross Stores (NASDAQ:ROST) delivered stronger-than-expected fourth-quarter earnings, but issued a disappointing outlook for the current quarter and fiscal year. Currently, the company’s shares are up more than 1% intra-day today.
The retail giant reported earnings per share of $1.79, outpacing Wall Street expectations of $1.65. However, revenue for the quarter totaled $5.91 billion, falling just short of the consensus estimate of $5.94 billion.
Despite the earnings beat, investor sentiment soured due to the company’s cautious forward guidance. For the first quarter of 2026, Ross Stores projected EPS between $1.33 and $1.47, lagging behind analysts’ estimates of $1.54.
For the full fiscal year, the company expects earnings per share in the range of $5.95 to $6.55, below the consensus forecast of $6.72.
Ross Stores Shares Jump 7% on Q3 Earnings Beat Despite Missed Sales Results
Ross Stores (NASDAQ:ROST) saw its stock climb over 7% in pre-market today after reporting third-quarter earnings that exceeded analyst expectations, even as sales fell short.
For the quarter, the off-price retailer delivered earnings per share of $1.48, surpassing the Street consensus estimate of $1.40. Revenue, however, came in at $5.07 billion, below the anticipated $5.16 billion. Comparable store sales increased 1% year-over-year, reflecting slower growth compared to the first half of the year.
Despite the sales shortfall, Ross Stores demonstrated strong profitability. Gross margin expanded to 28.3%, a 71-basis-point increase year-over-year and above the consensus estimate of 27.5%. Operating margin also improved to 11.9%, up from 11.2%, and exceeded the projected 11.1%, as lower operating costs helped offset planned reductions in merchandise margins.
Looking ahead, Ross Stores provided cautious fourth-quarter guidance. The company expects comparable store sales to grow by 2% to 3% and forecasts EPS between $1.57 and $1.64, below the consensus estimate of $1.67. Full-year EPS guidance of $6.10 to $6.17 aligned closely with analyst expectations of $6.13.
Ross Stores, Inc. (NASDAQ:ROST) Surpasses Earnings Expectations
- Ross Stores, Inc. (NASDAQ:ROST) reported a third-quarter earnings per share (EPS) of $1.48, beating the estimated $1.41.
- The company's revenue for the quarter was $5.07 billion, slightly below the estimated $5.15 billion, yet showed growth from the previous year.
- Ross Stores has adjusted its annual profit forecast upwards, reflecting reduced freight and supply-chain costs, despite facing challenges in the fourth quarter.
Ross Stores, Inc. (NASDAQ:ROST) is a prominent player in the retail sector, known for its off-price retail apparel and home fashion offerings. The company operates under the Ross Dress for Less and dd's DISCOUNTS brands, providing customers with a wide range of products at competitive prices. Ross Stores competes with other discount retailers like TJX Companies and Walmart, which also focus on offering value to budget-conscious consumers.
On November 21, 2024, Ross Stores reported its third-quarter earnings, revealing an earnings per share (EPS) of $1.48, which exceeded the estimated $1.41. This performance highlights the company's ability to deliver better-than-expected results, as it has consistently outperformed consensus EPS estimates over the past four quarters. The earnings surprise for this quarter was 6.47%, showcasing the company's strong financial management.
Despite the positive earnings, Ross Stores' revenue for the quarter was $5.07 billion, slightly below the estimated $5.15 billion. This shortfall represents a 1.56% miss from the Zacks Consensus Estimate. However, the revenue still marks an increase from the $4.92 billion reported in the same period last year, indicating growth in the company's sales performance.
Ross Stores has adjusted its annual profit forecast upward, attributing this to reduced freight and supply-chain costs. This positive outlook led to a 7% rise in the company's shares after the announcement. However, the company has also adjusted its fourth-quarter profit expectations due to challenges faced by its low-to-moderate income customers, who are dealing with high costs on necessities that limit their discretionary spending.
Financially, Ross Stores has a price-to-earnings (P/E) ratio of approximately 22.28, indicating the price investors are willing to pay for each dollar of earnings. The company's price-to-sales ratio is about 2.23, reflecting the market's valuation of its revenue. Additionally, the debt-to-equity ratio is approximately 1.04, suggesting a balanced approach to financing its assets. The current ratio of 1.57 indicates that Ross Stores has a comfortable level of liquidity to cover its short-term liabilities.
Ross Stores Price Target Raised by Barclays
- Barclays has increased the price target for Ross Stores to $165 from its previous target, indicating a bullish outlook.
- Ross Stores reported a revenue of $4.86 billion and an EPS of $1.46 for the first quarter, surpassing analyst expectations.
- The company's strategic focus on offering value through discounted branded and designer apparel has been key to its success, especially in a market sensitive to inflation.
Adrienne Yih of Barclays has recently adjusted the price target for Ross Stores (NASDAQ:ROST) to $165, up from its previous level, based on the company's strong performance and future market potential. This new target suggests a significant upside from the current trading price of $131.86, indicating a bullish outlook on the company's stock. Ross Stores, a prominent player in the off-price retail sector, has consistently demonstrated its ability to navigate the retail landscape effectively, outperforming many of its competitors.
The optimism from Barclays comes on the heels of Ross Stores' impressive first-quarter earnings report for the period ending in April 2024. The company reported revenue of $4.86 billion, an 8.1% increase from the previous year, slightly beating the Zacks Consensus Estimate. This performance underscores Ross Stores' solid growth trajectory and its ability to exceed analyst expectations. Furthermore, the company's earnings per share (EPS) of $1.46, significantly higher than the $1.09 reported in the year-ago quarter, beat the consensus estimate by 8.96%. Such strong financial results highlight Ross Stores' operational efficiency and robust financial health.
The company's success can be attributed to its strategic focus on offering value to customers through branded and designer apparel and footwear at discounted prices. This approach has resonated well with its core demographic, especially in a market environment where consumers are increasingly looking for value due to persistent inflation. Ross Stores' ability to attract and retain customers seeking discounts on quality products has been a key factor in its performance.
Moreover, Ross Stores' management has expressed a cautious yet optimistic outlook for the future, emphasizing the importance of tight inventory and expense control to sustain sales and earnings growth. This prudent approach, combined with a favorable consumer response to its value offerings, positions Ross Stores well for continued success. The company's recent performance and strategic initiatives have clearly resonated with analysts, as evidenced by the revised price target from Barclays.
Ross Stores' stock has seen fluctuations within the trading day but maintains a strong position in the market with a market capitalization of around $44.21 billion. The company's ability to outperform Wall Street expectations and its positive adjustment in annual profit forecasts further solidify its standing as a leading off-price retailer. With shares surging nearly 7% to $141 in extended trading following the earnings announcement, Ross Stores demonstrates a compelling investment opportunity, backed by solid financial performance and a strategic focus on delivering value to its customers.
Ross Stores Shares Surge 8% Following Q1 Beat
Ross Stores (NASDAQ:ROST) shares rose more than 8% pre-market today after the company reported first-quarter earnings per share (EPS) of $1.46, surpassing the analyst consensus of $1.35. The discount retailer's revenue climbed to $4.86 billion, slightly above the $4.83 billion estimate and marking an 8% increase from $4.5 billion in the same quarter last year. Comparable store sales rose by a healthy 3%.
CEO Barbara Rentler attributed the strong earnings to lower expenses and effective navigation of macroeconomic challenges affecting customer spending.
Looking ahead, Ross Stores expects a 2% to 3% increase in comparable store sales for the second quarter. The company projects second-quarter EPS to range between $1.43 and $1.49, aligning closely with the Street estimate of $1.45.
For the full fiscal year 2025, Ross Stores forecasts EPS between $5.79 and $5.98, with the midpoint of $5.885 slightly below the Street consensus of $5.92.
Ross Stores Stock Gains 5% After Q2 Beat
Ross Stores (NASDAQ:ROST) shares rose more than 5% pre-market today after the company’s announcement of a second-quarter performance that exceeded expectations, coupled with its guidance that surpasses consensus forecasts.
The retailer posted earnings of $1.32 per share, accompanied by revenue of $4.93 billion, reflecting a 7.7% increase compared to the same period last year. This performance exceeded the Street predictions, which had anticipated earnings of $1.16 per share on revenue amounting to $4.75 billion.
Looking ahead, Ross Stores anticipates EPS in the range of $1.16 to $1.21 for the third quarter. For the full year, the company sees EPS at $5.15-$5.26, above the Street estimate of $4.97.
