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Will Ross Stores (ROST) Strategies Revive Stock Performance?

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Off-price business model, effective merchandising strategy and store-expansion plans have been the key growth drivers for Ross Stores, Inc. (ROST - Free Report) . These initiatives have helped the company to deliver seventh straight quarter of earnings and sales surprises in the fourth quarter of fiscal 2017.

However, shares of the company have been down 5.6% since it reported fourth-quarter fiscal 2017 results on Mar 6. Year to date, the stock has declined 5.5% against the industry’s gain of 1.1%.


 

Let’s find out what’s pulling down the shares of this leading discount retailer.

Headwinds Weighing on Share Performance

Ross Stores believes challenging multi-year comparisons and a competitive retail landscape remain major concerns for fiscal 2018. Notably, the company’s guidance for the fiscal year includes impacts from plans related to competitive wage and benefit-related investments, which will increase its minimum wage to $11.00 per hour. This justifies management’s cautious approach in formulating guidance for the fiscal year. It projects operating margin between 13.3% and 13.5% for fiscal 2018 compared with 14.5% last year. The decline is likely to stem from flat merchandise margin and the impact of the aforementioned wage and benefit-related investments. For the fiscal first quarter, operating margin is envisioned in the range of 14.6-14.8% compared with 15.2% in the year-ago quarter.

Furthermore, an evolving retail landscape characterized by heightened online competition, lower footfall and changing consumer spending patterns have been largely weighing upon the company’s price performance. The company also faces stiff competition from online and brick and mortar retailers.

Can Strategic Actions Offset Hurdles?

Ross Stores’ proven off-price business model along with competitive bargains continues to make its stores an attractive destination for customers. Additionally, the company constantly upgrades its systems and processes to enhance productivity and improve its merchandise assortments to drive top line.

Meanwhile, Ross Stores remains on track to attain the target of expanding store count to 2,500, comprising 2,000 Ross and 500 dd’s DISCOUNTS stores, over the long term. In fact, the company surpassed its fiscal 2017 target of opening 90 stores, comprising 70 Ross and 20 dd’s DISCOUNTS outlets. In fiscal 2018, it plans to introduce 100 stores, including 75 Ross and 25 dd's DISCOUNTS locations. Amid a tough retail scenario where consumers prefer online shopping over offline, Ross Stores seems to be aggressively committed toward expanding its store base with all required facilities for customers.

Adding to these positives, analysts are growing optimistic on the stock as apparent from uptrend in the Zacks Consensus Estimate. In the last 30 days, the consensus estimate of $1.06 for the first quarter and $4.04 for fiscal 2018 moved north by 4 cents and 29 cents, respectively. Earnings per share are envisioned in the range of $1.03-$1.07 for the quarter and $3.86-$4.03 for the fiscal.

Although Ross Stores has been battling against a tough macro backdrop for quite some time now, we believe the company’s strategic endeavors will definitely reflect in its share price performance in future.

Rightly, Ross Stores carries a Zacks Rank #3 (Hold).

Interested in Solid Retail Stocks, Count on These

Macy's, Inc. (M - Free Report) has a long-term earnings growth rate of 8.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (BURL - Free Report) pulled off an average positive earnings surprise of nearly 15% in the last four quarters. The company carries a Zacks Rank #2 (Buy).

Dollar General Corporation (DG - Free Report) has an impressive long-term earnings growth rate of 14.6% and a Zacks Rank of 2.

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