Ross Stores (ROST) Up on Q3 Earnings Beat, Q4 View Intact

Shares of Ross Stores Inc. ROST jumped 8.25% during after-hours trading session yesterday as the company reported better-than-anticipated top and bottom line results for the third quarter of fiscal 2015 and retained its outlook for the fourth quarter.

Third-quarter earnings surged 15% year over year to 53 cents per share, ahead of the company’s guidance of 48–50 cents per share as well as the Zacks Consensus Estimate of 50 cents.
 

Ross Stores Inc. (ROST) - Quarterly EPS | FindTheCompany

Total sales advanced nearly 7.1% to $2,782.9 million, backed by positive response from value-focused customers to the company’s extensive collection of brand bargains. Sales also surpassed the Zacks Consensus Estimate of $2,765 million.

Ross Stores’ comparable-store sales (comps) jumped 3% year over year, surpassing the company’s projection of a 1%–2% increase. The upside was driven by an increase in the size of average basket along with higher traffic.

Operating margin improved 30 basis points (bps) year over year to 12.1% and was ahead of expectations, gaining from higher merchandise margins.

Store Update

During the quarter, Ross Stores completed its planned store openings for fiscal 2015. The company opened 19 namesake and 7 dd’s DISCOUNT stores in the quarter, bringing the total store count, net of closures, for the year to 84. The company expects to end fiscal 2015 with a total of 1,274 Ross and 172 dd’s Discount stores.

Financials

Ross Stores ended the quarter with cash and cash equivalents of $485.7 million, long-term debt of $395.9 million and total shareholders’ equity of $2,394.1 million.

Further, the company bought back 3.6 million shares for about $179 million during the third quarter of fiscal 2015.

Ross Stores plans to buy back shares worth $700 million in fiscal 2015, as part of the previously announced program, which authorized the repurchase of nearly $1.4 million shares by fiscal 2016.  

Guidance

Though Ross Stores expects to face challenges relating to strong comparisons, uncertain macro-environment and increased promotions for the holiday season in the fourth quarter, it retained its forecast for the period.

Fourth-quarter earnings are expected in the range of 60–63 cents per share compared with 60 cents reported in the prior-year period, with comps expected to be flat to up 1%.

Additionally, the company expects sales to increase 4%–5%, while operating margin will come in the range of 12.6%–12.8% compared with 13.1% in the year-ago quarter. Interest expense is expected to be $5 million, while tax rate is projected to be 37%–38%.

Based on the fourth-quarter guidance, the company now envisions earnings per share in the range of $2.45–$2.48 for fiscal 2015, up from $2.40–$2.45 projected earlier. This reflects an improvement of 11%–12% from earnings of $2.21 per share recorded in fiscal 2014.

Zacks Rank

Ross Stores currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the retail-discount industry is Burlington Stores Inc. BURL with a Zacks Rank #2 (Buy). Other favorably ranked stocks in the broader retail sector include American Eagle Outfitters Inc. AEO, with a Zacks Rank #1 (Strong Buy) and L Brands Inc. LB, holding a Zacks Rank #2.

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