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Is Ross Stores (ROST) Poised to Beat Q2 Earnings Estimates?

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Ross Stores, Inc. (ROST - Free Report) is slated to report second-quarter fiscal 2018 results on Aug 23, after the market closes. In the last-reported quarter, the company reported a positive earnings surprise of 4.7%.

In the trailing four quarters, Ross Stores outperformed the Zacks Consensus Estimate by an average of 6.4%, with a positive surprise in each quarter. Let’s see how things are shaping up before this announcement.

What to Expect?

Investors are keen to know whether this California-based company will be able to continue its streak of positive earnings and revenue surprises. The Zacks Consensus Estimate for the fiscal second-quarter earnings is pegged at $1.00, reflecting year-over-year growth of nearly 22%. Notably, earnings estimates for the second quarter have been stable over the last 30 days. Analysts polled by Zacks expect revenues of $3.65 billion, reflecting growth of approximately 6.4% from the year-ago quarter.

Ross Stores, Inc. Price, Consensus and EPS Surprise

 

Ross Stores, Inc. Price, Consensus and EPS Surprise | Ross Stores, Inc. Quote

Ross Stores has rallied 71% in the past year compared with the industry’s growth of 44.8%. Further, the stock has improved 5.6% in the past month, reflecting a positive sentiment ahead of earnings.



Factors at Play

Ross Stores has been continuing with its upbeat performance, recording positive earnings and sales surprises for the last eight quarters. The company is gaining from continually delivering broad assortments of compelling bargains to value-focused customers.

Further, the company’s solid endeavors, including better price management, merchandising initiatives, cost containment and store-expansion plans, position it for growth. Ross Stores’ off-price model renders strong value proposition and micro-merchandising that drive better product allocation and margins. This, in turn, will help the company to sustain top-line growth trends.

We observed that the company's total sales increased 8.5% in first-quarter fiscal 2018, with comparable store sales (comps) growth of 3%. Historically, sales have increased 7%, 7.9%, 7.8% and 16% in the first, second, third and fourth quarters of fiscal 2017, respectively, while comps increased 3%, 4%, 4% and 5% in the respective quarters.

Additionally, Ross Stores remains focused on its merchandising efforts through investments in workforce, processes and technology. The company is committed to improving its merchandise assortments in the ladies’ apparel business. These initiatives strengthen Ross Stores’ buying operation, facilitating the purchase of in-trend merchandise at attractive prices.

However, the company provided a softer-than-expected view for the fiscal second quarter due to higher pack away costs, and the impact of competitive wage and benefit-related investments. Moreover, higher freight costs, due to significant rise in market rates — stemming from tight capacity, driver shortages, increased regulation and stronger economy, have been hurting Ross Stores for over a year now.

For the fiscal second quarter, the company expects comps to increase 1-2% while earnings per share are projected to be 95-99 cents, which is below analysts’ expectations. Earnings are anticipated to be negatively impacted by the shift in pack away related expenses. Further, the company’s operating margin guidance disappointed. The company projects operating margin of 13.3-13.5%, reflecting a decline from 14.9% in the year-ago quarter. This decline is mainly attributed to the unfavorable timing of pack away related costs, and its already announced wage and benefit investments.

Nonetheless, the company raised its earnings outlook for fiscal 2018 based on the solid fiscal first-quarter results and the second-quarter view. It projects earnings per share of $3.92-$4.05 for fiscal 2018 compared with the previous guidance of $3.86-$4.03 and $3.55 reported in fiscal 2017. Earnings guidance includes the benefit from lower taxes. The company continues to project comps growth of 1-2% for fiscal 2018 compared with 4% growth registered in each of the last three years. It also projected sales growth of 3-4% in fiscal 2018.

What the Zacks Model Unveils

Our proven model shows that Ross Stores is likely to beat estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ross Stores currently has an Earnings ESP of +2.91% and a Zacks Rank #3.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dollar Tree Inc. (DLTR - Free Report) has an Earnings ESP of +1.55% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation (TGT - Free Report) has an Earnings ESP of +0.11% and a Zacks Rank of 2.

Dollar General Corp. (DG - Free Report) has an Earnings ESP of +1.83% and a Zacks Rank #2.

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