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Ross Stores Hits New 52-Week High: What's Driving the Rally?

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Ross Stores, Inc. (ROST - Free Report) touched a 52-week high of $118.88, before closing the session a tad lower at $118.80 on Jan 7. Notably, the company is benefiting from constant store-expansion plans, strength in its business model and impressive comparable-store sales (comps) trend.

In the past three months, shares of this Zacks Rank #2 (Buy) company have increased 16.5%, outperforming the industry’s growth of 13.5%.

Factors Narrating Ross Stores’ Growth Story

Ross Stores is on track with its store-growth efforts. The company’s store expansion efforts are focused on continually increasing penetration in the existing as well as new markets. It has successfully reached its target of opening 42 stores in the fiscal third quarter, which included 30 Ross and 12 dd’s DISCOUNTS stores. Notably, this also marked the completion of its store opening target for fiscal 2019, with the addition of 98 outlets.

Currently, the company operates nearly 1,810 Ross stores and dd’s DISCOUNTS stores across 39 states, the District of Columbia and Guam. Over the long term, it expects to expand the Ross chain of stores to 2,400 locations alongside operating about 600 dd’s DISCOUNTS stores.

Further, Ross Stores’ off-price business model that targets value-conscious men and women, in middle to upper-middle class households, bodes well. The proven business model enables it to offer competitive bargains that attract customers to stores in all economic scenarios. The company offers strong value proposition and micro-merchandising that drive better product allocation and margins. In fact, the solid execution of the off-price strategy should continue to boost its top and bottom lines.

Apart from these, the company has been witnessing a robust comps trend over the past few quarters mainly on improved performance across categories and geographic regions. Notably, comps improved 5% in third-quarter fiscal 2019, driven by higher traffic and increased average basket size. The higher basket size included benefits of increased units per transaction, offset by slightly lower average unit retail (AUR). Comps also outpaced the company’s guidance of 1-2%. Notably, comps benefited from strength in the children's category, and in the Midwest region. For fourth-quarter fiscal 2019, it anticipates 1-2% comps growth.

For fiscal 2019, management now expects earnings per share of $4.52-$4.57. The view indicates growth from the range of $4.41-$4.50 projected earlier and $4.26 earned in fiscal 2018. For the fiscal fourth quarter, the company expects earnings per share of $1.20-$1.25 compared with $1.20 reported in the year-ago period. Total sales is expected to increase 5-6% in the fiscal fourth quarter.

We believe that such efforts will continue driving the company’s performance and help it remain investors’ favorite.

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Dollar General Corporation (DG - Free Report) has a long-term earnings growth rate of 11.4% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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