Bernstein Raises Ross Stores PT To $62, Continues To Like Its Fundamentals

Bernstein's Anne-Charlotte Windal maintained a Market Perform rating on Ross Stores, Inc. ROST, while raising the price target from $60 to $62.

The company reported its 4Q15 results on Tuesday, with the EPS $0.02 above the consensus, driven by strong comparable store sales.

"Comp strength at both Ross and dd's discounts, driven by a trifecta of increased traffic, increased units per transaction and higher AUR, underscores the consumer's appetite for the ROST value proposition," Windal mentioned.

In addition, Ross Stores provided its usual conservative guidance for FY16, with EPS guided to $2.59-$2.71 on comps of 1-2 percent. Management also announced that the company's entry wages had been increased from the earlier announced $9/hour to $10/hour, starting in 2Q16.

The company also guided to operating margins of 13.5-13.7 percent, which reflects Ross Stores' ability to mitigate the increased wage pressure via expense management across its business.

The analyst stated that the company's comp performance during 4Q15 "in a heavily promotional environment confirms continued share gains for the Off-Price segment," adding, "This quarter reinforces our overall positive outlook on the Off-Price segment, which we view as a secular share gainer."

In addition, the strong merchandise margin trends have continued, although the gains were more than offset by increased distribution costs due to the timing of packaway associated expenses.

"Encouragingly, management indicated its guidance does assume some merchandise margin gains throughout FY16, though packaway-related expenses will likely remain a drag in 1Q16," Windal added.