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Healthy Demand to Aid Ross Stores (ROST) Amid Cost Woes
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Ross Stores (ROST - Free Report) has been gaining from positive customer responses to its improved merchandise. This led to the robust first-quarter fiscal 2023 results, wherein the bottom line beat the Zacks Consensus Estimate, while sales met.
Earnings of $1.09 per share improved 12.4% from 97 cents per share reported in the first quarter of fiscal 2022. Total sales of $4,494.7 million rose 3.7% year over year. In first-quarter fiscal 2023, comps improved 1%, driven by an increase in transactions. Strength in cosmetics and accessories aided the top line, with Midwest being the top-performing region.
The company’s off-price model offers a strong value proposition and micro-merchandising that drive better product allocation and margins. Overall, gains at the core business demonstrated consumers' continued focus on value and ROST’s ability to deliver value bargains to customers.
Ross Stores is on track with its store expansion plans. The company’s store expansion efforts are focused on continually increasing penetration in existing and new markets. In first-quarter fiscal 2023, it opened 19 stores, comprising 11 Ross and eight dd's DISCOUNTS stores. In fiscal 2023, ROST expects to open 100 stores, including 75 Ross and 25 dd’s DISCOUNTS. These openings do not include the plans to close 10 existing stores in fiscal 2023.
Driven by these factors, management expects comps to remain flat, whereas we predict the metric to grow 0.1%. The bottom line is anticipated to be $4.77-$4.99 per share, whereas $4.38 per share was reported in the prior year and our estimate is pegged at $4.81. This includes an estimated benefit of 15 cents from the 53rd week.
For second-quarter fiscal 2023, the company expects comps to remain flat year over year, in line with our estimate. Also, the bottom line is envisioned to be $1.07-$1.14 per share compared with our estimate of $1.12, whereas it reported $1.11 per share last year. Total sales are forecast to grow 1-4% year over year compared with our estimate of 2.5%.
Consequently, shares of this Zacks Rank #3 (Hold) company have gained 33.8% compared with the industry’s growth of 4.7%.
Image Source: Zacks Investment Research
However, higher incentive compensation and elevated distribution expenses hurt Ross Stores’ fiscal first-quarter margins. The company’s operating margin of 10.1% contracted 70 bps year over year. For fiscal 2023, the metric is estimated to be 9.8-10.1%, down from the 11.3% reported in 2022 due to increased expenses related to incentive compensation and store wages.
Rising costs are concerning. The cost of goods sold of $3,292.6 million increased 3% year over year. Higher distribution expenses rose 65 bps, owing to the unfavorable timing of pack-away-related expenses and deleverage from the company’s new Houston distribution center. Also, SG&A, as a percentage of sales, expanded 110 bps year over year to 16.6%.
Conclusion
Although the above-mentioned inflationary pressures are concerning for the near term, we believe that ROST will sustain its momentum on the back of strong value offerings, store-expansion efforts and reduced freight expenses. A VGM Score of B and a long-term earnings growth rate of 10.5% raise optimism in the stock.
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.1% and 23.8%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year’s earnings per share suggests growth of 6.6% from the year-ago reported figure. KR has an expected earnings per share growth rate of 6% for three to five years.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2 at present. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5%, respectively, from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.
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Healthy Demand to Aid Ross Stores (ROST) Amid Cost Woes
Ross Stores (ROST - Free Report) has been gaining from positive customer responses to its improved merchandise. This led to the robust first-quarter fiscal 2023 results, wherein the bottom line beat the Zacks Consensus Estimate, while sales met.
Earnings of $1.09 per share improved 12.4% from 97 cents per share reported in the first quarter of fiscal 2022. Total sales of $4,494.7 million rose 3.7% year over year. In first-quarter fiscal 2023, comps improved 1%, driven by an increase in transactions. Strength in cosmetics and accessories aided the top line, with Midwest being the top-performing region.
The company’s off-price model offers a strong value proposition and micro-merchandising that drive better product allocation and margins. Overall, gains at the core business demonstrated consumers' continued focus on value and ROST’s ability to deliver value bargains to customers.
Ross Stores is on track with its store expansion plans. The company’s store expansion efforts are focused on continually increasing penetration in existing and new markets. In first-quarter fiscal 2023, it opened 19 stores, comprising 11 Ross and eight dd's DISCOUNTS stores. In fiscal 2023, ROST expects to open 100 stores, including 75 Ross and 25 dd’s DISCOUNTS. These openings do not include the plans to close 10 existing stores in fiscal 2023.
Driven by these factors, management expects comps to remain flat, whereas we predict the metric to grow 0.1%. The bottom line is anticipated to be $4.77-$4.99 per share, whereas $4.38 per share was reported in the prior year and our estimate is pegged at $4.81. This includes an estimated benefit of 15 cents from the 53rd week.
For second-quarter fiscal 2023, the company expects comps to remain flat year over year, in line with our estimate. Also, the bottom line is envisioned to be $1.07-$1.14 per share compared with our estimate of $1.12, whereas it reported $1.11 per share last year. Total sales are forecast to grow 1-4% year over year compared with our estimate of 2.5%.
Consequently, shares of this Zacks Rank #3 (Hold) company have gained 33.8% compared with the industry’s growth of 4.7%.
Image Source: Zacks Investment Research
However, higher incentive compensation and elevated distribution expenses hurt Ross Stores’ fiscal first-quarter margins. The company’s operating margin of 10.1% contracted 70 bps year over year. For fiscal 2023, the metric is estimated to be 9.8-10.1%, down from the 11.3% reported in 2022 due to increased expenses related to incentive compensation and store wages.
Rising costs are concerning. The cost of goods sold of $3,292.6 million increased 3% year over year. Higher distribution expenses rose 65 bps, owing to the unfavorable timing of pack-away-related expenses and deleverage from the company’s new Houston distribution center. Also, SG&A, as a percentage of sales, expanded 110 bps year over year to 16.6%.
Conclusion
Although the above-mentioned inflationary pressures are concerning for the near term, we believe that ROST will sustain its momentum on the back of strong value offerings, store-expansion efforts and reduced freight expenses. A VGM Score of B and a long-term earnings growth rate of 10.5% raise optimism in the stock.
Stocks to Consider
Some better-ranked stocks that investors may consider are Tecnoglass (TGLS - Free Report) , Kroger (KR - Free Report) and TJX Companies (TJX - Free Report) .
Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.1% and 23.8%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.
Kroger, a renowned grocery retailer, currently carries a Zacks Rank of 2 (Buy). KR has a trailing four-quarter earnings surprise of 9.8%, on average.
The Zacks Consensus Estimate for Kroger’s current financial year’s earnings per share suggests growth of 6.6% from the year-ago reported figure. KR has an expected earnings per share growth rate of 6% for three to five years.
TJX Companies, which operates as an off-price apparel and home fashion retailer, carries a Zacks Rank #2 at present. The expected EPS growth rate for three to five years is 10.5%.
The Zacks Consensus Estimate for TJX Companies’ current financial-year sales and earnings suggests growth of 6.4% and 14.5%, respectively, from the year-ago period. TJX has a trailing four-quarter earnings surprise of 4.4%, on average.