Back to top

Image: Bigstock

Ross Stores' Initiatives Appear Promising: Should You Add?

Read MoreHide Full Article

Ross Stores, Inc. (ROST - Free Report) seems to be gaining from its effective merchandising initiatives, store growth potential and strong earnings trend. The stock, which carries a Zacks Rank #2 (Buy), has an expected earnings per share growth rate for three–five years of 10.5%.

Moreover, the company’s shares have notably outperformed the Zacks categorized Retail-Discount and Variety industry, which occupies space in the top 50% of the Zacks classified industries. In the past six months, its shares have increased 13.5% against the Zacks categorized industry’s drop of 5.1%.



Ross Stores’ key strategy to keep itself on the growth trajectory is its consistent focus on merchandising organization through investments in workforce, processes and technology. Also, management continually fine tunes and upgrades its processes to boost productivity. Moreover, the company constantly organizes its merchant group, which enables it to steadily expand market coverage in the vendor community, while improving relationships with a broad network of existing and new resources. These initiatives will strengthen Ross Stores’ buying operations, facilitating customers to purchase on-trend merchandise at attractive prices.

Alongside, the company has a proven off-price business model as the competitive bargains it offers continue to make its stores attractive destinations for customers in all economic scenarios. Moreover, this model offers strong value proposition and micro-merchandising that drive better product allocation and margins. We believe this will help sustain the company’s top- and- bottom-line growth trends.

In addition, we also applaud Ross Store’s ability to run the business with leaner inventory levels and faster inventory turnover. The company also remains on track with respect to its store expansion program. Such actions make us confident of the company’s growth potential and its ability to successfully attain the target of expanding its store count to 2,500 over the longer term.

Now throwing light upon the company’s earnings performance, Ross Stores has delivered positive earnings surprise in nine of the past 10 quarters. Further, the company’s raised earnings forecast for fiscal 2016 following robust third-quarter fiscal 2016 results bodes well. The company expects fiscal 2016 earnings per share in the range of $2.78–$2.81 per share versus $2.69–$2.75 expected previously.

However, Ross Stores anticipates to face challenges related to solid year-over-year comparisons amid macroeconomic uncertainty as well as a volatile retail landscape, which are likely to hurt fourth-quarter fiscal 2016 results. Consequently, the company slightly lowered its earnings forecast for the fiscal fourth quarter, which is estimated in the range of 72–75 cents a share, versus 73–76 cents, guided earlier. Also, estimates have been going down lately ahead of the company's fiscal fourth-quarter earnings release.

Though these challenges seem to be a short-term hurdle, the company remains poised to continue its outperformance driven by its long-term strategies. Also, its Growth Style Score of ‘B’ indicate ample growth potential for the stock.

Stocks You May Consider

Other favorably-placed stocks include Burlington Stores Inc. (BURL - Free Report) , The Children's Place Inc. (PLCE - Free Report) and Target Corporation (TGT - Free Report) .

Burlington Stores, with a long-term earnings growth rate of 19.9%, has surged a whopping 75.4% in the past one year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place, a Zacks Rank #1 stock, has jumped 61.5% in the past one year. Also, it has a long-term earnings growth rate of 10.3%.

Target, which carries a Zacks Rank #2, has a long-term earnings growth rate of 9.4%.

"Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>"

Published in