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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 better-than-expected same-store sales (comps) numbers for the five weeks ended December 29, 2012.

Ross Stores’ comps for December increased 6% compared with 9% in the prior-year period ended December 31, 2011, ahead of the company’s guidance of a 2% – 3% increase. The company’s December comps were also well ahead of analyst estimates. The company’s total sales for the five-week period climbed 11% to $1,276 million compared with $1,149 million in the year-ago period.

Further, Ross Stores reported eleven months comps gain of 7% versus a 5% increase registered in the year-ago period. Net sales for the period jumped 11% to $9,049 million from $8,125 million 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.

The company reiterated its comps expectation for January, forecasting an increase of about 1% to 2%. Bolstered by solid top-line performance in December, robust margin trends so far in the quarter as well as strong comps expectations for January, the company raised its fourth quarter earnings per share guidance to range between $1.05 and $1.06, versus the previously forecasted range of 99 cents – $1.04.

Peer Performance

One of Ross Stores’ peers, Gap Inc. (GPS - Analyst Report) registered a 5% increase in its December 2012 comps. The company’s net sales came in at $2.08 billion, up 5.0% compared with the prior-year period.

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 #3 Rank, which translates into a short-term Hold rating. We remain slightly cautious regarding the stock due to the sluggish economic recovery and intense competition from other players, and therefore maintain a long-term Neutral recommendation on the stock.

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