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08/24/2018

Ross Stores accelerates store expansion plans

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Ross Stores now sees even more potential for expanding its store network.

The off-pricer has raised its long-term projected store potential to 3,000 locations, up from the previous target of 2,500. The company believes that Ross Dress for Less can grow to about 2,400 locations nationwide, up from its prior target of 2,000, and that its dd Discounts chain can ultimately grow to about 600 stores, versus its earlier projection of 500.

“This is based on our research that indicates we can now further increase penetration in both existing and new markets,” said Barbara Rentler, CEO, Ross Stores.”

The higher store potential provides Ross with a considerable amount of long-term growth opportunities. Currently, the company operates 1,453 Ross Dress for Less stores and 227 dd’s Discounts locations.

In comments, Neil Saunders, managing director of GlobalData Retail, said that Ross’ expansion targets are feasible, especially since many markets where Ross has no presence. But he added a word of caution.

“The execution of new stores needs to be on-point as the market is becoming increasingly saturated with discount and off-price players,” he said. (For more analysis, click here.)

Ross announced its new long-term expansion targets in conjunction with the release of its second quarter results, which topped forecasts.

The retailer reported net earnings of $389.4 million, or $1.04 a share, for the period ended August 4, up from $317 million, or 82 cents a share, in the prior year. The Street had forecast earnings $1.10 a share.

Sales totaled $3.43 billion. Analysts were expected sales of $3.66 billion. Same-store sales rose 5%.

“We are pleased with the above-plan growth we delivered in both sales and earnings in the second quarter,” Rentler stated. “Though better than expected, operating margin of 13.8% was down from last year as higher merchandise margin and leverage on occupancy and buying costs were more than offset by a combination of unfavorable timing of packaway-related expenses, higher freight costs, and this year’s wage investments.”

Ross’ forecast for the second half of the year did not beat expectations.

"While we hope to do better, given our robust multi-year comparisons, we continue to forecast same-store sales to grow 1% to 2% for both third and fourth quarters," Rentler stated.

She said that Ross expects earnings of 84 to 88 cents a share in the third quarter and $1.02 to $1.07 a share in the fourth quarter, while analysts on average were expecting 88 cents a share and $1.09 a share for the two quarters.