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Why Is Ross Stores (ROST) Down 3.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Ross Stores (ROST - Free Report) . Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ross Stores due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Ross Stores Wider-Than-Expected Q1 Loss, Sales Lag Estimate

Ross Stores reported drab first-quarter fiscal 2020 results, wherein both the top and bottom lines declined year over year. Results were affected by temporary store closures, including all Ross Dress for Less and dd’s DISCOUNTS stores stemming from the ongoing COVID-19 situation, along with operating loss reported for the first time in the last 30 years. Loss of sales from closed stores for almost half of the first quarter and one-time charge related to non-cash inventory hurt operating margin.

Further, management refrained from providing top and bottom line guidance for the second quarter and fiscal 2020 owing to the unprecedented impacts of COVID-19, including fluctuating consumer demand and weak store productivity.

However, the company re-opened roughly 700 stores on May 14 in a phased manner. Going forward, it plans to re-open more stores gradually in sync with health guidelines and government regulations.

Q1 Highlights

Ross Stores posted loss of 29 cents per share against earnings of $1.13 per share reported in the prior-year quarter. Further, the figure came in wider than the Zacks Consensus Estimate of a loss of a penny.

Total sales plunged 51.5% to $1,834 million and lagged the Zacks Consensus Estimate of $2,088 million.

Cost of goods sold or COGS fell 30% to $1,890 million. Selling, general and administrative (SG&A) expenses decreased 25.6% to $415.3 million. As a percentage of sales, SG&A expenses decreased 780 bps.

Store Update

During the quarter, the company opened 20 Ross and seven dd's DISCOUNTS stores, bringing the total store count to 1,832 outlets. Management noted that it doesn’t expect to open any new store in the second quarter due to the rising uncertainty in consumer demand and shopping patterns. That said, it anticipates opening 39 new stores this fall season and 66 stores in fiscal 2020.

Financials

Ross Stores ended the quarter with cash and cash equivalents of $2,669.5 million, long-term debt of $2,285.6 million, and total shareholders’ equity of $2,817.4 million. Prior to the suspension of the share repurchase program in light of the ongoing pandemic, the company bought back 1.2 million shares worth $132 million. Moving ahead, it does not intend to repurchase any shares for the rest of fiscal 2020.

COVID-19 Updates

In wake of the COVID-19 outbreak, management has undertaken some financial measures like withdrawing $800 million from its current revolving credit facility, suspending the share repurchase program, lowering costs and capital spending. Notably, capital expenditure for fiscal 2020 is now envisioned to be roughly $420 million, down from the previously guided view of $730 million. Also, the company furloughed most of its store and distribution associates along with certain other employees on Apr 5.

However, it has a liquidity of $3 billion and cash balance of $500 million which makes it well placed to overcome this hurdle. Apart from these, it has now decided to suspend its quarterly dividend and lower new store openings for fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -176.39% due to these changes.

VGM Scores

Currently, Ross Stores has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ross Stores has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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