Ross Stores Inc. (ROST) announced that second-quarter fiscal 2010 earnings jumped 25.0% to $129.3 million or $1.07 per share, compared to $103.4 million or 82 cents in the year-ago period. Quarterly earnings matched the Zacks Consensus Estimate.

However, Ross Stores stated that it is maintaining a “somewhat cautious” outlook for the second half of fiscal 2010 amid tepid economic conditions and tough year-over-year comparisons. The company expects earnings of $4.18 to $4.27 per share in fiscal 2010, which is in line with the Zacks Consensus Estimate of $4.21; this guidance has declined 5 cents over the past 2 months.

Ross Stores net sales for the quarter increased 8.1% year-over-year to $1,911.8 million, narrowly missing the Zacks Consensus Estimate of $1,913.0 million. The growth was mainly due to a 4% increase in same-store sales coupled with the launch of 46 new stores in the last year. During the quarter, the company witnessed strong performance in Home, Dresses and Shoes.

Quarterly gross profit grew 12.8% year-over-year to $516.0 million, while gross margin expanded 110 basis points (bps) to 27.0%. The growth was mainly due to improved merchandise margins.

Selling, general and administrative expenses (SG&A), as a percentage of sales, dipped 30 basis points to 15.9% due to a timing shift in distribution expenses, reduced shortage costs and leveraging impact of operating expenses on higher same-store sales. Accordingly, Ross Stores’ operating profit margin (gross margin less SG&A) expanded 140 bps year-over-year to 11.1%.

Ross Stores ended the quarter with cash and cash equivalents of $772.7 million, compared to $520.4 million in the year-ago period. Quarter-end long-term debt was $150.0 million, reflecting a capitalization ratio of 10.7%. During the first half of fiscal 2010, the company generated $304.8 million of cash from operations and utilized $193.0 million towards share buybacks, $88.1 million towards capital expenditure and $39.1 million towards dividend payments.

We currently have a short-term Zacks #3 Rank (‘Hold’) on Ross Stores.

 
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