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Ross Stores (ROST) Down 1.6% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Ross Stores, Inc. (ROST - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ross Stores Tops Q1 Earnings, Issues Q2 Guidance
Ross Stores reported strong first-quarter fiscal 2017 results, wherein both the top line and bottom line beat our expectations as well as the company’s earnings projection. Moreover, both earnings and sales improved year over year, irrespective of the volatile environment. Results also gained from dd's DISCOUNTS growth in same-store revenue and operating profits.
Ross Store posted earnings of $0.82 a share that outperformed its guidance of $0.76–$0.79 and the Zacks Consensus Estimate of $0.79. Earnings were up 12.3% from $0.73 reported in the prior-year period.
Total sales for the quarter rose 7% to $3,306 million and beat the Zacks Consensus Estimate of $3,269 million, driven by 3% increase in comparable-store sales (comps). Comps also surpassed the company’s expected rise of 1–2%. This can be attributable to rise in traffic and increased average basket size.
Cost of sales for the quarter remained flat, while merchandise margins went up 15 basis points (bps). Additionally, distribution and occupancy costs declined during the quarter. However, these improvements were marred by a slight increase in freight costs. The quarter also depicted an increase of 20 bps in selling, general and administrative expenses due to higher wages.
Nevertheless, operating margin for the reported quarter contracted 20 bps to 15.2%. However, management asserts that operating margin exceeded their expectations on the back of higher-than-planned sales and stock margins.
Store Update
The company’s expansion plan is on track with the inclusion of five new dd's DISCOUNTS stores and 23 Ross Stores in the fiscal first quarter.
Ross Stores plans to open 28 new stores in the fiscal second quarter, including seven dd's DISCOUNTS and 21 Ross outlets. In fiscal 2017, the company plans to open a total of 90 stores, comprising 70 Ross and 20 dd’s DISCOUNTS outlets. However, these numbers exclude its plans to relocate or close 10 existing stores during fiscal 2017.
Financials
Ross Stores ended first-quarter fiscal 2017 with cash and cash equivalents of $1,244.2 million, long-term debt of $396.6 million and total shareholders’ equity of $2,777.7 million.
During the reported quarter, the company bought back 3.3 million shares for $215 million. Further, it remains on track to repurchase $875 million worth shares through fiscal 2017 under its two-year $1.75 billion share repurchase program approved in Feb 2017. The company paid dividends worth $62 million during the quarter.
Guidance
In second-quarter fiscal 2017, the company anticipates same-store revenues to increase 1–2%. Earnings per share are projected in the band of $0.73–$0.76, an increase from $0.71 reported last year. Sales for the second quarter are anticipated to improve 4–5%.
Operating margin for the second quarter is projected between 13.9% and 14.1% reflecting a decline from 14.4% in the year-ago quarter. The decline in operating margin is attributed to higher wages and freight costs anticipated in the second quarter. Further, net interest expenses are forecasted at $387 million, while the tax rate is projected at 37–38%.
Based on the fiscal first-quarter performance and second-quarter outlook, the company now expects earnings per share for fiscal 2017 in the range of $3.07–$3.17 compared with $2.83 earned in fiscal 2016. This guidance includes about $0.08 benefit from the inclusion of an addition 53rd week in fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.
At this time, Ross Stores' stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than value and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Ross Stores (ROST) Down 1.6% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Ross Stores, Inc. (ROST - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ross Stores Tops Q1 Earnings, Issues Q2 Guidance
Ross Stores reported strong first-quarter fiscal 2017 results, wherein both the top line and bottom line beat our expectations as well as the company’s earnings projection. Moreover, both earnings and sales improved year over year, irrespective of the volatile environment. Results also gained from dd's DISCOUNTS growth in same-store revenue and operating profits.
Ross Store posted earnings of $0.82 a share that outperformed its guidance of $0.76–$0.79 and the Zacks Consensus Estimate of $0.79. Earnings were up 12.3% from $0.73 reported in the prior-year period.
Total sales for the quarter rose 7% to $3,306 million and beat the Zacks Consensus Estimate of $3,269 million, driven by 3% increase in comparable-store sales (comps). Comps also surpassed the company’s expected rise of 1–2%. This can be attributable to rise in traffic and increased average basket size.
Cost of sales for the quarter remained flat, while merchandise margins went up 15 basis points (bps). Additionally, distribution and occupancy costs declined during the quarter. However, these improvements were marred by a slight increase in freight costs. The quarter also depicted an increase of 20 bps in selling, general and administrative expenses due to higher wages.
Nevertheless, operating margin for the reported quarter contracted 20 bps to 15.2%. However, management asserts that operating margin exceeded their expectations on the back of higher-than-planned sales and stock margins.
Store Update
The company’s expansion plan is on track with the inclusion of five new dd's DISCOUNTS stores and 23 Ross Stores in the fiscal first quarter.
Ross Stores plans to open 28 new stores in the fiscal second quarter, including seven dd's DISCOUNTS and 21 Ross outlets. In fiscal 2017, the company plans to open a total of 90 stores, comprising 70 Ross and 20 dd’s DISCOUNTS outlets. However, these numbers exclude its plans to relocate or close 10 existing stores during fiscal 2017.
Financials
Ross Stores ended first-quarter fiscal 2017 with cash and cash equivalents of $1,244.2 million, long-term debt of $396.6 million and total shareholders’ equity of $2,777.7 million.
During the reported quarter, the company bought back 3.3 million shares for $215 million. Further, it remains on track to repurchase $875 million worth shares through fiscal 2017 under its two-year $1.75 billion share repurchase program approved in Feb 2017. The company paid dividends worth $62 million during the quarter.
Guidance
In second-quarter fiscal 2017, the company anticipates same-store revenues to increase 1–2%. Earnings per share are projected in the band of $0.73–$0.76, an increase from $0.71 reported last year. Sales for the second quarter are anticipated to improve 4–5%.
Operating margin for the second quarter is projected between 13.9% and 14.1% reflecting a decline from 14.4% in the year-ago quarter. The decline in operating margin is attributed to higher wages and freight costs anticipated in the second quarter. Further, net interest expenses are forecasted at $387 million, while the tax rate is projected at 37–38%.
Based on the fiscal first-quarter performance and second-quarter outlook, the company now expects earnings per share for fiscal 2017 in the range of $3.07–$3.17 compared with $2.83 earned in fiscal 2016. This guidance includes about $0.08 benefit from the inclusion of an addition 53rd week in fiscal 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.
Ross Stores, Inc. Price and Consensus
Ross Stores, Inc. Price and Consensus | Ross Stores, Inc. Quote
VGM Scores
At this time, Ross Stores' stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than value and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.