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Ross Stores Inc. (ROST - Analyst Report) – one of the largest off-price apparel and home fashion chain retailers in the U.S. – reported stronger sales and same-store sales (comps) numbers for the four weeks ended October 27, 2012.

Driven by strong consumer demand for its wide array of brands, Ross Stores’ comps for October increased 4% compared with 5% in the prior-year period ended October 29, 2011, meeting its own upper-end guidance range of 2%–4%. Consequently, the company’s total sales for the four-week period climbed 8% to $715 million compared with $661 million in the year-ago period.

Category-wise, the company’s juniors and accessories sections outperformed during the month, while region-wise, Texas and Southwest areas were the best performers.

Moreover, Ross Stores provided its sales and comps result for the third quarter of fiscal 2012. During the quarter, the company generated total sales of $2.263 billion, up by 11% from the year-ago quarter’s sales of $2.046 billion. During the period, comps grew 6% compared with a 5% increase during the similar period last year.

Further, Ross Stores reported nine months comps gain of 7% versus a 5% increase registered in the year-ago period. Net sales for the period jumped 12% to $6.960 billion from $6.210 billion in the year-ago period.

Robust sales mainly reflect the company’s relentless focus on offering an exciting collection in its name-brand fashion for the family and home, which appeals to its value-oriented customers.

Bolstered by solid top-line performance along with expectation of achieving higher merchandise margin, management raised its earnings guidance range for the third quarter of fiscal 2012. The company now expects earnings in the range of 71–72 cents per share, up from 70–71 cents projected earlier.

Peer Performance

One of Ross Stores’ peers, Gap Inc. (GPS - Analyst Report) registered a 4% increase in its October 2012 comps. Another peer, Zumiez Inc. (ZUMZ - Analyst Report) also reported positive comps of 0.6% for the same month.

Our Recommendation

Ross Stores has implemented a micro-merchandising strategy, through which it expects to enhance total sales and profitability by expanding in its existing markets. Moreover, Ross remains focused on new store growth, share buybacks and attractive dividend payouts amidst a situation in which other retailers are implementing cutbacks. Moreover, the company has the financial strength to continue on its course and build shareholders’ value.

Ross Stores' shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. However, we remain slightly cautious about the stock due to sluggish economic recovery and intense competition from other players, and therefore maintain a long-term Neutral recommendation on the stock.

Ross Stores and its subsidiaries operate two chains of off-price retail apparel and home accessory stores in the U.S. These stores offer branded apparel, shoes and accessories for the entire family, as well as gift items, linens and other home-related merchandise.

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