Ross Stores Earnings Preview: Double-Digit EPS Growth Expected

Ross Stores ROST is scheduled to report fiscal third-quarter 2011 results Thursday, November 17, before the markets open. The stock was a Jim Cramer pick last week; he called the company a “great regional to national story.” Ross Stores has posted double-digit percentage earnings growth in the past three quarters. This time, consensus forecast calls for Ross Stores to report earnings of $1.25 per share, which would be a 18.4% increase from the same quarter of last year. That EPS estimate is up from $1.07 just 60 days ago. Note that analysts' consensus estimates have been in line with actual results in the past 10 quarters. Analysts also expect the company to report that revenues increased 8.2% from a year ago to $2.0 billion. Looking ahead to the current quarter, revenues are anticipated to be 8.4% higher year over year. And for the full year, the forecast so far calls for revenues to be up 8.4%, with per-share earnings 17.3% higher than a year ago. The Company Based in Pleasanton, Calif., Ross Stores operates more than 1,000 off-price retail apparel and home accessories stores primarily in the U.S. Its Ross Dress for Less brand stores sell brand and designer apparel. Its dd's DISCOUNTS brand stores sell apparel and accessories for consumers with modest budgets. This S&P 500 component was founded in 1957 and now has a market cap of $10.4 billion. During the three months that ended in October, strong sales in September prompted Ross Stores to raise its third-quarter EPS guidance. The company also saw strong same-store sales in August. And it said that its two-year $900 million stock repurchase plan was on track. Performance The company has a long-term earnings per share growth forecast of 11.3% and a dividend yield of 0.9%. The return on equity is 45.0%. The P/E and PEG ratios are higher than the industry average, but so is the operating margin. The company keeps more than enough cash on hand to cover its long-term debt. But 13 out of 23 analysts who follow the stock rate it a Hold; none rate it a Sell, though. The share price reached a 52-week high of $90.69 yesterday. It has risen more than 25% in the past three months and remains well above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed competitor Stein Mart SMRT and the broader markets, but narrowly underperformed TJX Companies TJX. Action Items: Bullish: Investors interested in exchange traded funds invested in Ross Stores might want to consider the following trades:

• SPDR S&P Retail XRT is more than 20% higher than a year ago.
• PowerShares Dynamic Retail PMR is more than 17% higher than a year ago.
• Rydex S&P Equal Weight Consumer Discretionary RCD is more than 11% higher than a year ago.

Bearish: Traders may want to consider these alternative positions:

• TJX Companies TJX is about 37% higher than a year ago.
• Walmart WMT is about 9% higher than a year ago.

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