Ross Stores In Line, Reaffirms - Analyst Blog

Ross Stores Inc. (ROST) 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.

The company reported a strong quarter on the back of better performance in all merchandise categories, particularly in Dresses and Home, as well as lower inventories.

Operational Performance

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 slightly 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.

Though cost of goods sold increased 6% year over year to $1.4 billion in the quarter, gross profit improved 10% year over year to total $0.5 billion. Gross margin was 27%, expanding 80 basis points over the prior-year quarter, largely driven by higher merchandise gross margin, lower distribution costs and leverage on occupancy expenses. However, higher incentive and freight costs were a partial offset.

Selling, general and administrative expense increased 9% year over year to total $312 million in the quarter attributable to higher incentive plan costs. Operating Income was $0.2 billion, up 14% year over year.

Interest expense increased 15% year over year to $2.2 million in the quarter.

Financial Condition

The company ended the quarter with cash and cash equivalents of $732.8 million, higher than $576.2 million at the end of third quarter 2009.

Long-term debt totaled $150 million, flat compared with the year-ago level.

Cash from operations in the first nine months of 2010 totaled $426.8 million; lower than $583.9 million in the comparable year-ago period.

Capital expenditures were lower at $149.7 million in the first nine months of 2010, compared with $124.2 million in the year-ago period

Dividend and Share Repurchase

During the quarter under review, the board of directors of the company approved a quarterly dividend of 16 cents. The dividend represents an increase of 45% over 11 cents in the year-ago quarter.

Ross Stores spent $287 million to buy back 5.4 million shares during the first nine months of fiscal 2010. The company expects to complete $375 million of current two-year, $750 million stock repurchase authorization by the fiscal 2010 end.

Store Update

As of October 31, 2010, Ross Stores operated 990 Ross Dress for Less ("Ross") stores and 67 dd's DISCOUNTS locations, compared with 955 Ross and 53 dd's DISCOUNTS locations as of October 31, 2010.

Guidance

For the fiscal fourth quarter 2010, Ross Stores expectssame store sales to be flat to down 1%. Earnings are projected to be in range of $1.15 to $1.20 per share.

For fiscal year 2010, the company expects earnings in a range of $4.41 to $4.46 per share, up 25% to 26% from 2009.

Peer Comparison

The TJX Companies Inc.'s (TJX) fiscal third-quarter earnings grew 13.6% to 92 cents a share from 81 cents a share in the year-ago period. The quarterly earnings were a penny above the Zacks Consensus Estimate of 91 cents. Profits were primarily driven by prudent inventory management and increased store traffic.

Another retail giant Wal-Mart Stores Inc. (WMT) also reported third quarter earnings of 90 cents a share, in line with the Zacks Consensus Estimate. Results also compare favorably with 82 cents reported in the year-ago quarter.

The quantitative Zacks #2 Rank (short term Buy rating) for the company indicates upward pressure on the stock over the near term.

 
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