Ross Stores Inc. (ROST), one of the leading off-price retailers of apparels and home accessories, recently posted earnings of $1.26 per share for third-quarter 2011, which came in line with the Zacks Consensus Estimate.
Earnings grew 23.5% from the prior-year figure of $1.02 primarily due to the company’s aptitude in providing attractive brand name bargains to customers who value both quality and price.
Let’s Dig Deep
Net sales for the quarter increased 9.2% to $2,046.4 million from $1,874.3 million in the prior-year quarter, beating the Zacks Consensus Estimate of $2,041.0 million. This robust increase in net sales was primarily because of initiatives taken by the company to keep merchandise fresh by reducing the stock in stores and providing a wide range of fashion brands. Comparable store sales increased 5% during the period.
Higher merchandise gross margin and leverage on buying and occupancy expenses, partially offset by increased packaway-related distribution costs, led to a decline of 5 basis points in the cost of goods sold compared with the prior-year period.
Operating margin for the quarter expanded 45 basis points to 10.9%. The improvement in operating margin was primarily attributable to a 40 basis point reduction in selling, general and administrative expenses.
Other Financial Aspects
Ross Stores, which faces stiff competition from Kohl’s Corporation (KSS) and Wal-Mart Stores Inc. (WMT), ended the quarter with cash and cash equivalents of $552.9 million, compared with $732.8 million in the prior-year period. During the first nine months of fiscal 2011, Ross generated $413.7 million of operating cash flows. This will enable the company to make capital investments, pay dividends and repurchase shares. At the end of the quarter, the company had a long-term debt of $354.1 million and shareholders’ equity of $1,447.3 million.
The company has announced a 100% stock dividend by approving a two-for-one stock split to be payable on December 15, 2011 to shareholders of record as of November 29, 2011. In addition, Ross’ board of directors declared a regular quarterly cash dividend of 22 cents per share or 11 cents per share post-split.
During the first nine months of fiscal 2011, Ross repurchased 4.5 million common shares for $343.0 million under its previous $900.0 million share repurchase program. Under its $900.0 million share repurchase program, valid through fiscal 2012, the company intends to repurchase $450.0 million worth of shares by 2011 end.
Guidance
For the fourth quarter of fiscal 2011, the company expects to generate earnings in the range of $1.53 to $1.59 per share with same-store sales rising 2% to 3%.
In its third-quarter 2011 earnings release, Ross Stores issued its fiscal 2011 earnings guidance between $5.54 and $5.61 per share.
Currently, we have a long-term ‘Outperform’ recommendation on the stock. Moreover, Ross Stores holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
