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Ross Stores (ROST) Down 3.9% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Ross Stores (ROST - Free Report) . Shares have lost about 3.9% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ross Stores due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ross Stores Q3 Earnings Beat, Margins Remain Soft
Ross Stores reported better-than-expected earnings in third-quarter fiscal 2018, marking the 10th consecutive beat. Both earnings and sales improved year over year. However, top line lagged estimates. Moreover, the company’s operating profit margin continued to be impacted by higher freight costs and wage-related investments.
Notably, higher freight costs have been a headwind for the company for over a year now. The increase mainly stemmed from significant rise in market rates due to a tight capacity, resulting from driver shortages, impacts of increased regulation and the stronger economy. Moreover, Ross Stores expects headwinds related to higher freight costs to persist throughout fiscal 2018.
Ross Store posted earnings of 91 cents per share, which considerably surpassed the company’s guidance of 84-88 cents and beat the Zacks Consensus Estimate by a penny. Earnings also improved 26.4% from 72 cents reported in the prior-year period.
Total sales rose 6.6% to $3,549.6 million but missed the Zacks Consensus Estimate of $3,563 million. The year over year growth was driven by 3% increase in comparable-store sales (comps). Notably, sales and comps growth surpassed the company’s projected rise of 5-6% and 1-2%, respectively.
The cost of sales increased 7.5% to $2,547.3 million and 60 basis points (bps) as a percentage of sales. Selling, general and administrative expenses increased 8.6% to $561.6 million and 30 bps as a percentage of sales.
Operating margin of 12.4% in the reported quarter reflected a decline of about 90 bps from 13.3% in the prior-year quarter due to increased freight costs and wage-related investments for the year, which more than offset gains from higher merchandise margins. However, operating margin outperformed the company’s expectation of 11.9-12.1%.
Store Update
As of Nov 3, 2018, Ross Stores operated 1,720 outlets — including 1,483 Ross Dress for Less stores and 237 dd's DISCOUNTS stores.
Financials
Ross Stores ended third-quarter fiscal 2018 with cash and cash equivalents of $1,349.2 million, long-term debt of $312.3 million, and total shareholders’ equity of $3,187.2 million.
During the reported quarter, the company bought back 2.9 million shares for $278 million. For the first nine months of fiscal 2018, it repurchased 9.4 million shares for nearly $807 million. It remains on track to repurchase shares worth $1.075 billion in fiscal 2018.
Guidance
Going into the holiday season, Ross Stores expects to witness the toughest sales comparisons from fiscal 2017. Additionally, it expects the retail environment to be extremely competitive. Though the company anticipates a strong fiscal fourth quarter, it continues to anticipate comps growth of 1-2%. This will compare with comps growth of 5% witnessed in the prior-year quarter. However, the company raised its earnings per share view for the fourth quarter and fiscal 2018.
Ross Stores now expects earnings per share of about $1.09 to $1.14 for the fiscal fourth quarter versus $1.02-$1.07 mentioned earlier. The revised guidance includes one-time, non-cash gain of 7 cents from the favorable resolution of a tax issue. It also compares with $1.19 per share earned in the year-ago quarter, which includes benefits of 14 cents and 10 cents, respectively, from one-time revaluation of deferred taxes and the 53rd week.
For fiscal 2018, the company now projects earnings per share of $4.15-$4.20, marking an increase from $4.01-$4.10 projected earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Ross Stores has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Ross Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Ross Stores (ROST) Down 3.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Ross Stores (ROST - Free Report) . Shares have lost about 3.9% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ross Stores due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ross Stores Q3 Earnings Beat, Margins Remain Soft
Ross Stores reported better-than-expected earnings in third-quarter fiscal 2018, marking the 10th consecutive beat. Both earnings and sales improved year over year. However, top line lagged estimates. Moreover, the company’s operating profit margin continued to be impacted by higher freight costs and wage-related investments.
Notably, higher freight costs have been a headwind for the company for over a year now. The increase mainly stemmed from significant rise in market rates due to a tight capacity, resulting from driver shortages, impacts of increased regulation and the stronger economy. Moreover, Ross Stores expects headwinds related to higher freight costs to persist throughout fiscal 2018.
Ross Store posted earnings of 91 cents per share, which considerably surpassed the company’s guidance of 84-88 cents and beat the Zacks Consensus Estimate by a penny. Earnings also improved 26.4% from 72 cents reported in the prior-year period.
Total sales rose 6.6% to $3,549.6 million but missed the Zacks Consensus Estimate of $3,563 million. The year over year growth was driven by 3% increase in comparable-store sales (comps). Notably, sales and comps growth surpassed the company’s projected rise of 5-6% and 1-2%, respectively.
The cost of sales increased 7.5% to $2,547.3 million and 60 basis points (bps) as a percentage of sales. Selling, general and administrative expenses increased 8.6% to $561.6 million and 30 bps as a percentage of sales.
Operating margin of 12.4% in the reported quarter reflected a decline of about 90 bps from 13.3% in the prior-year quarter due to increased freight costs and wage-related investments for the year, which more than offset gains from higher merchandise margins. However, operating margin outperformed the company’s expectation of 11.9-12.1%.
Store Update
As of Nov 3, 2018, Ross Stores operated 1,720 outlets — including 1,483 Ross Dress for Less stores and 237 dd's DISCOUNTS stores.
Financials
Ross Stores ended third-quarter fiscal 2018 with cash and cash equivalents of $1,349.2 million, long-term debt of $312.3 million, and total shareholders’ equity of $3,187.2 million.
During the reported quarter, the company bought back 2.9 million shares for $278 million. For the first nine months of fiscal 2018, it repurchased 9.4 million shares for nearly $807 million. It remains on track to repurchase shares worth $1.075 billion in fiscal 2018.
Guidance
Going into the holiday season, Ross Stores expects to witness the toughest sales comparisons from fiscal 2017. Additionally, it expects the retail environment to be extremely competitive. Though the company anticipates a strong fiscal fourth quarter, it continues to anticipate comps growth of 1-2%. This will compare with comps growth of 5% witnessed in the prior-year quarter. However, the company raised its earnings per share view for the fourth quarter and fiscal 2018.
Ross Stores now expects earnings per share of about $1.09 to $1.14 for the fiscal fourth quarter versus $1.02-$1.07 mentioned earlier. The revised guidance includes one-time, non-cash gain of 7 cents from the favorable resolution of a tax issue. It also compares with $1.19 per share earned in the year-ago quarter, which includes benefits of 14 cents and 10 cents, respectively, from one-time revaluation of deferred taxes and the 53rd week.
For fiscal 2018, the company now projects earnings per share of $4.15-$4.20, marking an increase from $4.01-$4.10 projected earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Ross Stores has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Ross Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.