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Why Is Ross Stores (ROST) Up 5.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Ross Stores (ROST - Free Report) . Shares have added about 5.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ross Stores due for a pullback? 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' Q2 Loss Narrower Than Expected, Sales Beat

Ross Stores reported better-than-expected second-quarter fiscal 2020 results. However, both top and bottom lines declined year over year. Results were affected by temporary COVID-19-related store closures, including all Ross Dress for Less and dd’s DISCOUNTS stores. Further, loss of sales, as only 75% of stores were open, weighed on operating margin. Moreover, costs related to COVID-19 and negative timing of packaway remained concerns.

Going ahead, management noted that business trends are likely to remain drab during the fiscal third quarter with comparable store sales down mid-teens year over year for the first two and a half weeks.

However, the company started reopening its stores in a phased manner from May 14th and by the end of June, most of its stores were operational. Comparable store sales have fallen 12% between the date of the reopening of these stores and the end of the fiscal second quarter. Although, it witnessed improved sales driven by pent-up demand and higher markdowns, the metric was hurt by depleted store inventory levels. That said, it continues to remain uncertain about the COVID-19 impacts on demand and economy. As a result, management refrained from providing top and bottom-line guidance for fiscal 2020.

Q2 Highlights

Ross Stores posted a loss of 13 cents per share against earnings of $1.14 per share reported in the prior-year quarter. However, the figure was narrower than the Zacks Consensus Estimate of a loss of 31 cents.

Total sales plunged 32.5% to $2,684.7 million but surpassed the Zacks Consensus Estimate of $2,617 million. Further, sales were hurt by adverse COVID-19 impacts such as shifting consumer demand, mostly in California, Florida, Texas and Arizona, which accounts for 50% of its store base.

Cost of goods sold or COGS declined 26.9% to $2,080.1 million. Selling, general and administrative (SG&A) expenses decreased 12.2% to $519.5 million while the metric as a percentage of sales expanded 450 basis points (bps).

Store Update

During the quarter, the company did not open any new stores. It continues to anticipate opening 39 stores this fall season and 66 in fiscal 2020.

Financials

Ross Stores ended the quarter with cash and cash equivalents of $3,793 million, long-term debt of $2,285.6 million and total shareholders’ equity of $2,286.3 million. Earlier, the company had already suspended the share repurchase program in light of the ongoing pandemic. Moving ahead, it does not intend to repurchase any shares for the rest of fiscal 2020.

Apart from these, it has a liquidity of $4.3 billion and a revolving credit facility of $500 million, which is likely to keep it afloat amid the pandemic.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25.72% due to these changes.

VGM Scores

At this time, Ross Stores has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. 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 indicates a downward shift. 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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