Earnings Scorecard: Ross - Analyst Blog

On November 18, 2010, Ross Stores Inc. ( ">ROST )  reported third-quarter fiscal 2010 earnings of $1.02 per share, which met the Zacks Consensus Estimate. The company expects earnings of $1.15 to $1.20 for the fourth quarter of fiscal 2010 and, for the fiscal 2010, the company expects to earn in the range of $4.41 to $4.46, up 25% to 26% from 2009.

Quarterly Review

Ross Stores posted third-quarter 2010 earnings of $1.02 per share, in line with the Zacks Consensus Estimate. Results were 21% higher than 84 cents reported in the year-ago period. Net income was $121.1 million, up 16% from $105.1 million in the prior-year quarter.

Total revenue in the quarter under review was $1.87 billion, up 7% from $1.74 billion in the prior-year quarter. Reported revenue was marginally higher than the Zacks Consensus Estimate of $1.86 billion. Comparable store sales in the quarter under review grew 3% compared with an 8% growth in the year-ago period.

For a full coverage on third quarter earnings, read:  Ross Stores In Line, Reaffirms

Agreement of Analysts

Estimate revision trends give a picture of a varied and optimistic sentiment among analysts for the imminent fourth quarter of fiscal 2010 and fiscal year 2010, respectively. Over the past month, 2 of 12 analysts covering the stock positively adjusted their estimates upward while 1 moved in the opposite direction, for the fourth quarter of fiscal 2010. For fiscal 2010, 11 of the 13 analysts covering the stock have lifted their estimates with no downside movement by any analyst in the last 30 days.

Analysts believe that the company has been doing well in managing inventories, growing gross margin, and has consistently been able to deliver positive same store sales for seven consecutive quarters. Merchandise margins continue to benefit from faster inventory turns and reduced markdowns. However, Ross faces several headwinds over the coming quarters including increasingly difficult sales/margin compares, higher transportation costs, less access to high-quality inventory and traffic trends expected to decline.

Analysts believe that modest margin improvement and share repurchase should drive earnings of the company.

Over the past 30 days, 1 analyst out of 6 has revised its estimate upward while 2 moved in the opposite direction for the first quarter of fiscal 2011. For fiscal year 2011, 12 analysts out of 15 moved their estimates upward and 1 analyst reduced his estimate. 

Magnitude of Estimate Revisions

The magnitude of estimate revisions depicts an optimistic analyst outlook for the first quarters of 2010 and 2011, and fiscal years 2010 and 2011. Over the last 30 days, estimate for the upcoming quarter and first quarter of fiscal 2011 has increased by a cent each. For fiscal 2010 and 2011, estimates rose by 9 cents and 10 cents, respectively. 

Our Recommendation

Ross is well positioned to capitalize on customers' need for value particularly during the current economic scenario. Ross appears well poised for future growth from its positive sales momentum and good execution. Analysts also appreciate the company's strong financials and solid management team. However, peak margins and a tough comparison could hinder the valuation of the stock.

Ross operates in a highly fragmented market and competes with well-established rivals such Kohl's Corp. (KSS), Wal-Mart Stores Inc. (WMT) and The TJX Companies Inc. (TJX).

Ross' shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation for the stock remains Outperform.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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