Ross Stores Q2 Earnings Beat, Comparable Sales Rise 4%

Ross Stores, Inc. ROST reported strong results for the second quarter of 2024, with both its top and bottom lines showing year-over-year growth and surpassing the Zacks Consensus Estimate. The strong results can be attributed to its focus on offering stronger value propositions to customers. Despite better-than-expected results, Ross Stores has provided cautious guidance for the second half of 2024.

Let's Delve Deeper into ROST's Q2 Performance

Ross Stores, the leading off-price apparel retailer, delivered earnings of $1.59 per share, which significantly surpassed the Zacks Consensus Estimate of $1.49 per share. Additionally, the bottom line also improved by 20.5% from $1.32 per share reported in the second quarter of fiscal 2024.

Total sales of $5,287.5 million rose 7% year over year and surpassed the consensus estimate of $5,249 million. The sales improvement mainly stemmed from strong comparable store sales (comps) performance. Comps improved by 4%, mainly driven by a combination of higher customer traffic and increased basket size, indicating that more shoppers visited Ross Stores during the quarter and purchased more items per visit. 

The cost of goods sold (COGS) was $3,791.9 million, which increased 6.2% year over year. As a percentage of sales, COGS was 71.7%, marking a year-over-year decrease of 60 basis points (bps). We had estimated a 50-bps decline in the COGS rate to 71.8%. The gross profit edged up 9.5% year over year to $1,495.6 million, whereas the gross margin expanded 60 bps to 28.3% from 27.7% in the year-ago quarter.

Selling, general and administrative (SG&A) expenses of $836.4 million increased 3.5% year over year. SG&A, as a percentage of sales, fell 60 bps year over year to 15.8%. We estimated the SG&A rate to be 16.4%, which is indicated to be in line with the previous quarter. The decrease in the SG&A rate was mainly because of lower incentive costs and higher sales. The operating margin of 12.5% grew 115 bps year over year. We had projected an operating margin expansion of 50 bps for the quarter.

A Sneak Peek Into ROST's Other Financials

Ross Stores ended second-quarter fiscal 2024 with cash and cash equivalents of $4.7 billion, long-term debt of $1.5 billion, and total shareholders' equity of $5.1 billion.

During the second quarter, the company repurchased 1.8 million shares for $262 million under its two-year $2.1 billion authorization. The company is on track to buy back a total of $1.05 billion in fiscal 2024. As of Aug 3, Ross Stores operated a total of 2,148 stores.

What ROST Says About FY2024?

Management highlighted that the company's core customer base, which typically comprises low-to-moderate-income shoppers, continues to grapple with persistently high costs for necessities. This pressure limits their discretionary spending.

For both the third and fourth quarters of 2024, Ross Stores expects comparable sales growth between 2% and 3%, building on gains of 5% and 7% achieved in the respective periods of 2023. The company foresees third-quarter EPS to be between $1.35 and $1.41, up from $1.33 last year, and fourth-quarter EPS to range from $1.60 to $1.67 compared to $1.82 in 2023.

Based on Ross Stores' performance in the first half of fiscal 2024 and its outlook for the second half, the company now anticipates EPS for the 52 weeks ending Feb 1, 2025, to range from $6.00 to $6.13, suggesting an increase from $5.56 last year.

Consequently, this Zacks Rank #3 (Hold) company's shares have risen 9.5% in the past year compared with the industry's 8.1% growth.

Image Source: Zacks Investment Research

Key Picks

We have highlighted three other top-ranked stocks, namely, Sprouts Farmers SFM, Abercrombie & Fitch Co. ANF and Deckers Outdoor DECK.

Sprouts Farmers, which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy). SFM has a trailing four-quarter earnings surprise of 12%, on average.

The Zacks Consensus Estimate for Sprouts Farmers' current financial-year sales and earnings implies growth of around 9.6% and 18.7%, respectively, from the year-ago reported numbers.

Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently sports a Zacks Rank #2 (Buy). ANF has a trailing four-quarter average earnings surprise of 210.3%.

The Zacks Consensus Estimate for Abercrombie & Fitch's current fiscal-year sales and earnings indicates growth of 11.5% and 52.6%, respectively, from the year-ago figures.

Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Deckers' current financial-year sales and earnings indicates growth of 11.5% and 8.3%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 47.2%, on average.

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