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Ross Stores Inc. (ROST - Analyst Report), one of the major off-price retailers of apparel and home accessories, came up with second-quarter fiscal 2013 earnings of 98 cents per share, surging 21.0% from 81 cents earned in the year-ago quarter. Further, quarterly earnings surpassed the Zacks Consensus Estimate of 93 cents.

Behind the Headline Numbers

Net sales increased 9.0% year over year to $2,551.3 million. This surpassed the Zacks Consensus Estimate of $2,514.0 million. Comparable store sales increased 4% versus 7% growth registered in the prior-year period.

During the quarter, Juniors and Accessories emerged as the best performing merchandise categories. By region, Texas and Florida were the most productive.  

Gross profit, in dollar terms, increased 11.7% to $727.5 million from the year-ago quarter, while gross margin improved 70 basis points (bps) to 28.5%. The year-over-year expansion in gross margin was primarily due to higher sales.

Operating income for the quarter surged 15.8% to $346.3 million from the prior-year quarter. Operating margin expanded 80 bps to 13.6%, benefiting from higher merchandise gross margin and lower selling, general and administrative expenses.

Other Financial Aspects

Ross Stores exited the second quarter with cash and cash equivalents of $550.6 million compared with $721.1 million at the end of the prior-year quarter. As of Aug 3, 2013, the company possessed long-term debt of $150.0 million and shareholders' equity of $1,931.0 million.

During the first half of 2013, Ross Stores generated $532.3 million of cash from its operational activities as against $504.2 million in the comparable prior-year period.

During the first half of fiscal 2013, Ross Stores bought back 4.4 million shares for $277 million. Looking ahead, the company plans to repurchase stock worth $550 million in fiscal 2013, under its 2-year $1.1 billion authorization approved in Jan 2013.


An intensely competitive retail backdrop and uncertain macroeconomic issues prompted Ross Stores to provide a conservative guidance for the third quarter as well as fiscal 2013. For the third quarter, the company projects earnings to be 75-78 cents. Comps are expected to grow at the rate of 2-3% as against a 6% increase in the prior-year period.

The Zacks Consensus Estimate stands at 80 cents. Total sales are anticipated to grow at the rate of 5-6%. Further, Ross Stores plans to open 33 new outlets, including 24 Ross Dress for Less and 9 dd's DISCOUNTS. Tax rate is expected to be 36%.

For the fourth quarter, the company projects earnings to be 99 cents $1.03. Comps are expected to grow at the rate of 2-3% as against a 5% increase in the prior-year period.

For fiscal 2013, the company expects earnings per share to be $3.80–$3.87. The Zacks Consensus Estimate stands at $3.89 cents.

Other Stocks to Consider

Currently, Ross Stores carries a Zacks Rank #2 (Buy). Other stocks worth considering in the retail space include The Gap, Inc. (GPS - Analyst Report), L Brands, Inc. and DSW Inc. (DSW - Snapshot Report). All of them have the same Zacks rank as Ross Stores.

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