There's A Lot For Investors To Like About Ross Stores' Q2 Print

Reviewing Ross Stores, Inc. ROST's second-quarter results, Deutsche Bank saw good news. 

The firm maintained its Buy on the shares of Ross Stores, with a $75 price target, basing its thesis on the company's strong comps, driven primarily by traffic, and an 8-percent increase in operating profit dollars year-to-date. 

At last check, shares of Ross Stores were up 9 percent to $58.17.

Solid Q2 Metrics

The 4 percent comps beat expectations of 2 percent, with the comp accelerating from 5 percent to 8 percent on a two-year basis, said analyst Mike Baker. Among other metrics, the analyst said operating margins were up a healthy 50 basis points, thanks to beats on gross margin and SG&A.

Operating profit was up 15 percent, accelerating from a 5.4-percent increase in the first quarter, and flow through improved from 12 percent to 21 percent.

Typical Guidance

For the third quarter, Deutsche Bank said the company expects comps of 1-2 percent, a typical outlook for the company, even as some were concerned that the guidance would be lower than usual due to a tough 7 percent comparison.

The firm believes the company's in-line earnings per share guidance for the third quarter is beatable, given that it guided the merchandise margin down slightly.

Additionally, the firm said the early fourth quarter outlook looks "solid if not beatable," with the comps outlook appearing conservative.

Off-Price Retailers Going Strong

The firm suggested that strong results from Ross Stores and TJX Companies Inc TJX should quell concerns that off-price retailers are likely to be the next category to be steamrolled by online competition.

"This highlights the idea that even millennials will visit physical stores when the brand/value equation is favorable," Baker said. 

The firm said the narrowing of the spread between off-price retailers and department stores is due to aggressive promotions at department stores.

Over time, Deutsche projects off-price will continue to take market share from department stores, offsetting any increases from Amazon.com, Inc. AMZN.

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