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Ross Stores (ROST) Q4 Earnings & Sales Beat, Improve Y/Y
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Ross Stores, Inc.’s (ROST - Free Report) top and bottom lines beat estimates in the fourth quarter of fiscal 2023. Both metrics improved year over year. The strong results can be attributed to customers' favorable response to quality, branded bargains, leading to significant earnings growth. The year witnessed a strategic increase in merchandise offerings and efficient operational adjustments, positioning Ross well for fiscal 2024 despite potential economic uncertainties.
Consequently, this Zacks Rank #2 (Buy) company’s shares have rallied 35.8% in the past year compared with the industry's growth of 29.6%.
Ross Stores, Inc. Price, Consensus and EPS Surprise
Ross Stores’ earnings of $1.82 per share beat the Zacks Consensus Estimate of $1.63. Earnings also improved 38.9% from $1.31 per share reported in the fourth quarter of fiscal 2022.
Total sales of $6,022.5 million rose 15.5% year over year and surpassed the Zacks Consensus Estimate of $5,778 million. The sales improvement mainly stemmed from strong comparable store sales (comps) performance. In the fourth quarter of fiscal 2023, comps improved 7%, mostly attributed to higher customer traffic and a favorable reaction from shoppers toward the enhanced assortments across its stores. Our model had predicted comps growth of 1.5% for the fourth quarter of fiscal 2023.
The cost of goods sold (COGS) of $4,375.4 million increased 11.4% year over year and exceeded our estimate of $4,220.5 million. As a percentage of sales, COGS was 72.7%, marking a year-over-year expansion of 265 basis points (bps). Our model had estimated a 160 bps decline in the COGS rate to 73.7%.
The increase in the COGS rate was mainly driven by a 110 bps rise in the merchandise gross margin on reduced ocean freight costs and a 75 bps decline in distribution costs, partly resulting from the favorable timing of packaway-related costs. Domestic freight and occupancy costs declined 75 bps and 45 bps, respectively, in the reported quarter. These positives were partially negated by a 40 bps increase in buying costs, largely due to higher incentives.
Selling, general and administrative (SG&A) expenses of $903.1 million increased 23.8% year over year and were higher than our estimate of $853.1 million. SG&A, as a percentage of sales, expanded 100 bps year over year to 15%. We had estimated the SG&A rate to be 14.9% for the fiscal fourth quarter, indicating a 90 bps increase year over year. The increase in the SG&A rate was mainly because of higher incentive costs and store wages.
The operating margin of 12.4% improved 170 bps year over year in the fourth quarter of fiscal 2023 from 10.7% reported in the prior-year quarter. The growth was driven by improved same-store sales and lower freight costs, partially offset by higher incentives. The additional 53rd week in fiscal 2023 provided an 80 bps benefit to the operating margin.
Our model predicted an operating margin of 11.4% for the fiscal fourth quarter, suggesting 70 bps growth from last year.
Image Source: Zacks Investment Research
Store Update
At the end of fiscal 2023, Ross Stores operated a total of 2,109 stores, comprising 1,764 Ross Dress for Less stores and 345 dd's DISCOUNTS locations. This reflects the company's continued expansion strategy, having added 94 net new stores in fiscal 2023, including 71 Ross and 23 dd's DISCOUNTS stores.
For fiscal 2024, the company anticipates opening 90 new locations. This expansion includes about 75 Ross stores and 15 dd's DISCOUNTS. The plan does not incorporate the closure or relocation of 10 to 15 older stores as part of the company's ongoing efforts to optimize its store portfolio. In the first quarter of fiscal 2024, the company expects to open 18 stores, including 11 Ross and seven dd's DISCOUNTS stores.
Financials
Ross Stores ended fiscal 2023 with cash and cash equivalents of $4,872.4 million, long-term debt of $2,211 million and total shareholders’ equity of $4,871.3 million.
At the end of the fiscal fourth quarter, total consolidated inventories rose 8% year over year, while average store inventories improved 9%. Packaway merchandise was 40% of total inventories, in line with the year-ago quarter.
The company bought back 1.9 million shares for $247 million in the fiscal fourth quarter. In fiscal 2023, it bought back 8.2 million shares for $950 million. This marked the successful completion of its two-year $1.9 billion share repurchase authorization announced in March 2022.
Additionally, the company approved a new two-year share repurchase plan to buy back shares worth $2.1 billion. Under the plan, it expects to repurchase shares worth $1.05 billion each in fiscal 2024 and 2025. The new repurchase program reflects an 11% increase from the previous buyback authorization of $1.9 billion.
Outlook
Backed by the ongoing sales momentum, Ross Stores remains optimistic about the upcoming year. However, the company remains cautious owing to current macroeconomic and geopolitical uncertainties as well as persistent inflation, which is affecting consumer spending on housing, food and gasoline. Consequently, ROST has provided a conservative view for fiscal 2024.
For the first quarter of fiscal 2024, comps are expected to rise 2% to 3%, with total sales growth of 6% to 8%. The company expects EPS between $1.29 and $1.35, up from $1.09 reported in the first quarter of fiscal 2023. ROST anticipates an operating margin of 11.1-11.4%, reflecting lower incentives and freight costs, partially offset by lower merchandise margins and higher wages.
For fiscal 2024, ROST expects comps growth of 2-3% over a 5% gain reported in fiscal 2023. The company estimates sales growth of 2-4%. The company projects EPS of $5.64-$5.89, up from $5.56 reported in fiscal 2023. Ross Stores notes that fiscal 2023 recorded a benefit from an additional week.
Operating margins for fiscal 2024 are expected to be 11.2-11.5%, with expectations of pressures on merchandise margins due to plans to offer more sharply priced brands. Net interest income is expected to be $143 million. The company expects depreciation and amortization expenses of $610 million, including stock-based amortization. ROST estimates a tax rate of 24-25% for fiscal 2024. It expects capital expenditure of $840 million, including investments to support long-term growth and improve efficiencies across its business.
3 Other Red-Hot Stocks
Some other top-ranked stocks are The Gap, Inc. (GPS - Free Report) , Casey's General Stores, Inc. (CASY - Free Report) and Grocery Outlet Holding Corp. (GO - Free Report) .
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. The company 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 Gap’s fiscal 2023 sales indicates growth of 385% from fiscal 2022’s reported figures. GPS has delivered a trailing four-quarter earnings surprise of 138%, on average.
Casey's operates convenience stores. The company carries a Zacks Rank #2 at present. CASY delivered an earnings surprise of 13.4% in the last reported quarter.
The Zacks Consensus Estimate for Casey's current fiscal year earnings implies growth of 11.1% from fiscal 2023’s reported number. CASY has delivered a trailing four-quarter earnings surprise of 17.8%, on average.
Grocery Outlet is a high-growth, extreme-value retailer of quality, name-brand consumables and fresh products. It currently holds a Zacks Rank #2.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year earnings and sales indicates growth of 9.4% and 9.3%, respectively, from the prior year’s reported figures. GO has delivered a trailing four-quarter earnings surprise of 17%, on average.
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Ross Stores (ROST) Q4 Earnings & Sales Beat, Improve Y/Y
Ross Stores, Inc.’s (ROST - Free Report) top and bottom lines beat estimates in the fourth quarter of fiscal 2023. Both metrics improved year over year. The strong results can be attributed to customers' favorable response to quality, branded bargains, leading to significant earnings growth. The year witnessed a strategic increase in merchandise offerings and efficient operational adjustments, positioning Ross well for fiscal 2024 despite potential economic uncertainties.
Consequently, this Zacks Rank #2 (Buy) company’s shares have rallied 35.8% in the past year compared with the industry's growth of 29.6%.
Ross Stores, Inc. Price, Consensus and EPS Surprise
Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote
Q4 Insights
Ross Stores’ earnings of $1.82 per share beat the Zacks Consensus Estimate of $1.63. Earnings also improved 38.9% from $1.31 per share reported in the fourth quarter of fiscal 2022.
Total sales of $6,022.5 million rose 15.5% year over year and surpassed the Zacks Consensus Estimate of $5,778 million. The sales improvement mainly stemmed from strong comparable store sales (comps) performance. In the fourth quarter of fiscal 2023, comps improved 7%, mostly attributed to higher customer traffic and a favorable reaction from shoppers toward the enhanced assortments across its stores. Our model had predicted comps growth of 1.5% for the fourth quarter of fiscal 2023.
The cost of goods sold (COGS) of $4,375.4 million increased 11.4% year over year and exceeded our estimate of $4,220.5 million. As a percentage of sales, COGS was 72.7%, marking a year-over-year expansion of 265 basis points (bps). Our model had estimated a 160 bps decline in the COGS rate to 73.7%.
The increase in the COGS rate was mainly driven by a 110 bps rise in the merchandise gross margin on reduced ocean freight costs and a 75 bps decline in distribution costs, partly resulting from the favorable timing of packaway-related costs. Domestic freight and occupancy costs declined 75 bps and 45 bps, respectively, in the reported quarter. These positives were partially negated by a 40 bps increase in buying costs, largely due to higher incentives.
Selling, general and administrative (SG&A) expenses of $903.1 million increased 23.8% year over year and were higher than our estimate of $853.1 million. SG&A, as a percentage of sales, expanded 100 bps year over year to 15%. We had estimated the SG&A rate to be 14.9% for the fiscal fourth quarter, indicating a 90 bps increase year over year. The increase in the SG&A rate was mainly because of higher incentive costs and store wages.
The operating margin of 12.4% improved 170 bps year over year in the fourth quarter of fiscal 2023 from 10.7% reported in the prior-year quarter. The growth was driven by improved same-store sales and lower freight costs, partially offset by higher incentives. The additional 53rd week in fiscal 2023 provided an 80 bps benefit to the operating margin.
Our model predicted an operating margin of 11.4% for the fiscal fourth quarter, suggesting 70 bps growth from last year.
Image Source: Zacks Investment Research
Store Update
At the end of fiscal 2023, Ross Stores operated a total of 2,109 stores, comprising 1,764 Ross Dress for Less stores and 345 dd's DISCOUNTS locations. This reflects the company's continued expansion strategy, having added 94 net new stores in fiscal 2023, including 71 Ross and 23 dd's DISCOUNTS stores.
For fiscal 2024, the company anticipates opening 90 new locations. This expansion includes about 75 Ross stores and 15 dd's DISCOUNTS. The plan does not incorporate the closure or relocation of 10 to 15 older stores as part of the company's ongoing efforts to optimize its store portfolio. In the first quarter of fiscal 2024, the company expects to open 18 stores, including 11 Ross and seven dd's DISCOUNTS stores.
Financials
Ross Stores ended fiscal 2023 with cash and cash equivalents of $4,872.4 million, long-term debt of $2,211 million and total shareholders’ equity of $4,871.3 million.
At the end of the fiscal fourth quarter, total consolidated inventories rose 8% year over year, while average store inventories improved 9%. Packaway merchandise was 40% of total inventories, in line with the year-ago quarter.
The company bought back 1.9 million shares for $247 million in the fiscal fourth quarter. In fiscal 2023, it bought back 8.2 million shares for $950 million. This marked the successful completion of its two-year $1.9 billion share repurchase authorization announced in March 2022.
Additionally, the company approved a new two-year share repurchase plan to buy back shares worth $2.1 billion. Under the plan, it expects to repurchase shares worth $1.05 billion each in fiscal 2024 and 2025. The new repurchase program reflects an 11% increase from the previous buyback authorization of $1.9 billion.
Outlook
Backed by the ongoing sales momentum, Ross Stores remains optimistic about the upcoming year. However, the company remains cautious owing to current macroeconomic and geopolitical uncertainties as well as persistent inflation, which is affecting consumer spending on housing, food and gasoline. Consequently, ROST has provided a conservative view for fiscal 2024.
For the first quarter of fiscal 2024, comps are expected to rise 2% to 3%, with total sales growth of 6% to 8%. The company expects EPS between $1.29 and $1.35, up from $1.09 reported in the first quarter of fiscal 2023. ROST anticipates an operating margin of 11.1-11.4%, reflecting lower incentives and freight costs, partially offset by lower merchandise margins and higher wages.
For fiscal 2024, ROST expects comps growth of 2-3% over a 5% gain reported in fiscal 2023. The company estimates sales growth of 2-4%. The company projects EPS of $5.64-$5.89, up from $5.56 reported in fiscal 2023. Ross Stores notes that fiscal 2023 recorded a benefit from an additional week.
Operating margins for fiscal 2024 are expected to be 11.2-11.5%, with expectations of pressures on merchandise margins due to plans to offer more sharply priced brands. Net interest income is expected to be $143 million. The company expects depreciation and amortization expenses of $610 million, including stock-based amortization. ROST estimates a tax rate of 24-25% for fiscal 2024. It expects capital expenditure of $840 million, including investments to support long-term growth and improve efficiencies across its business.
3 Other Red-Hot Stocks
Some other top-ranked stocks are The Gap, Inc. (GPS - Free Report) , Casey's General Stores, Inc. (CASY - Free Report) and Grocery Outlet Holding Corp. (GO - Free Report) .
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. The company 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 Gap’s fiscal 2023 sales indicates growth of 385% from fiscal 2022’s reported figures. GPS has delivered a trailing four-quarter earnings surprise of 138%, on average.
Casey's operates convenience stores. The company carries a Zacks Rank #2 at present. CASY delivered an earnings surprise of 13.4% in the last reported quarter.
The Zacks Consensus Estimate for Casey's current fiscal year earnings implies growth of 11.1% from fiscal 2023’s reported number. CASY has delivered a trailing four-quarter earnings surprise of 17.8%, on average.
Grocery Outlet is a high-growth, extreme-value retailer of quality, name-brand consumables and fresh products. It currently holds a Zacks Rank #2.
The Zacks Consensus Estimate for Grocery Outlet’s current financial-year earnings and sales indicates growth of 9.4% and 9.3%, respectively, from the prior year’s reported figures. GO has delivered a trailing four-quarter earnings surprise of 17%, on average.