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Ross Stores Q3 profit tops expectations but outlook disappoints

Off-price retailer Ross Stores has lowered its outlook for holiday sales gains in anticipation of a “fiercely competitive” retail market.

Net earnings grew to $338 million for the quarter ended Nov.3, up from $274 million in the prior year. Earning per share for the quarter came in at $.91 cents, easily topping analysts’ estimates of $.71 per share.

Third quarter sales rose 7% to $3.5 billion, just short of expectations. Same-store sales rose 3%.

“Both sales and earnings for the quarter were ahead of our forecast, despite being up against very strong multi-year comparisons,” said Barbara Rentler, CEO. “Though above plan, operating margin of 12.4% was down from last year as higher merchandise margin was more than offset by increases in freight costs and this year’s wage investments.”

Analyst Neil Saunders, managing director of GlobalData Retail, noted that Ross’ continued expansion — the chain opened 93 stores during the past 12 months — has helped boost revenue.

“This enlargement of the fleet continues the expansion program that has been ongoing for some time,” he said. “Ross' recent increase in its store growth targets to 3,000 outlets across the U.S. ensures that overall growth will be supported for some time to come.

Looking to the holidays, Ross said it is expecting another fiercely competitive retail environment.

“As a result, while we hope to do better, we continue to project fourth quarter comparable store sales gains of 1% to 2% versus a strong 5% increase last year,” Rentler said. Analysts has expected an increase of 2.2%.

Ross is now forecasting earnings per share for the quarter to be in the range of $1.09 to $1.14, which includes a one-time, non-cash benefit of approximately $.07 per share related to the favorable resolution of a tax matter. This updated guidance compares to earnings per share for the 14 weeks ended February 3, 2018 of $1.19, which included a per share benefit of $.14 from a one-time revaluation of deferred taxes and $.10 from the 53rd week.”

Based on its year-to-date results and updated fourth quarter guidance, Ross is planning earnings per share for fiscal 2018 to be in the range of $4.15 to $4.20.
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