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Can Ross Stores (ROST) Retain Positive Earnings Trend in Q2?

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Ross Stores, Inc. (ROST - Free Report) is slated to report second-quarter fiscal 2019 results on Aug 22.

Notably, the company has an impressive earnings surprise history, having surpassed estimates for 12 straight quarters now. Also, it posted a trailing four-quarter average beat of 2.8%.

The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings is pegged at $1.12, indicating 7.8% rise from the year-ago quarter’s reported figure. Notably, estimates have remained unchanged in the past 30 days. For revenues, the consensus mark stands at $3.97 billion, implying 6.2% growth from the prior-year quarter number.

Ross Stores, Inc. Price and EPS Surprise


Ross Stores, Inc. Price and EPS Surprise

Ross Stores, Inc. price-eps-surprise | Ross Stores, Inc. Quote

Factors at Play

Ross Stores has been consistently gaining from its store-expansion plans, which is likely to continue in the quarter to be reported. Impressively, the company completed its planned store openings for first-quarter fiscal 2019 by introducing 28 stores in February and early March. This includes 22 Ross and six dd’s DISCOUNTS stores. In the fiscal second quarter, it expects to open 28 stores, including 22 Ross and 6 dd’s DISCOUNTS stores. Its store expansion efforts are focused on continually increasing penetration in the existing as well as new markets.

In addition, Ross Stores continues to focus on merchandising organization through investments in workforce, processes and technology to keep itself on the growth trajectory. Moreover, the company’s off-price business model offers strong value proposition and micro-merchandising that boost better product allocation and margins.

In fact, the company’s bottom line is fueled by ongoing success in delivering broad assortments of compelling bargains to value-focused customers. Broad-based strength across major merchandise categories and robust comparable store sales (comps) growth are aiding its top line. We expect its solid growth endeavors — including better price management, merchandise initiatives, cost containment and store expansion plans — to boost the company’s performance in the quarter to be reported.

However, Ross Stores’ is witnessing soft performance at the Ladies business for the past few quarters. While the company is working to improve merchandise offerings at this important category, execution remains below standard, which is hurting consumer experience. This has also been hurting the otherwise strong comps performance of the company. We believe that its efforts to correct issues in this category will take some time to be fixed, given the size of this chain.

Furthermore, higher cost of goods sold (COGS) and freight costs have been hurting Ross Stores' margins for a while now. Higher freight costs mainly stemmed from significant rise in market rates due to very tight capacity, owing to driver shortages, impacts of increased regulation and stronger economy. This along with higher distribution expenses and buying and occupancy costs has led to an increase in COGS. Further, the company is witnessing rise in SG&A expenses due to higher wages.

Management expects headwinds related to higher freight costs and wage to persist throughout fiscal 2019. Further, it expects occupancy deleverage in the fiscal second quarter. Consequently, it projects operating margin of 13.2-13.4% in second-quarter fiscal 2019, whereas it reported 13.8% in the prior-year quarter.

What the Zacks Model Unveils

Our proven model conclusively shows that Ross Stores is likely to beat estimates in second-quarter fiscal 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ross Stores has Earnings ESP of +1.79% and Zacks Rank #3 at present, which make us confident of earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat.

Caseys General Stores, Inc. (CASY - Free Report) has an Earnings ESP of +4.67% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation (TGT - Free Report) has an Earnings ESP of +1.04% and a Zacks Rank #2.

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +0.35% and a Zacks Rank #2.

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