Ross Stores, Inc.ROST reported solid second-quarter fiscal 2017 results, wherein both the top and bottom lines topped estimates and improved year over year. Further, earnings were ahead of the company's projection despite the tough year-over-year comparisons and a volatile retail environment.
Consequently, shares of Ross Stores jumped 11.8% in the after-hours session yesterday. However, the stock has declined 14.2% in the last three months, underperforming the industry 's 4.9% fall.
Ross Store posted earnings of 82 cents a share that surpassed its guidance of 73-76 cents and the Zacks Consensus Estimate of 76 cents. Earnings were up 15.5% from 71 cents reported in the prior-year period.
Ross Stores, Inc. Price, Consensus and EPS Surprise
Total sales for the quarter rose 7.9% to $3,431.6 million and beat the Zacks Consensus Estimate of $3,370.2 million, driven by 4% increase in comparable-store sales (comps). Comps also surpassed the company's expected rise of 1-2%. This can primarily be attributed to rise in traffic and increased average basket size.
Cost of sales increased 7.5% to $2,420.9 million driven by 35 basis points (bps) improvement in merchandise margins, 20 bps decline in occupancy costs and 10 bps fall in distribution expenses. However, these improvements were marred by higher freight and buying costs. Further, the quarter exhibited a 25 bps decline in selling, general and administrative expenses owing to benefit from legal costs.
Operating margin expanded 50 bps to 14.9%, which was better than the company's expectation of 13.9-14.1%. This outperformance stemmed from improved merchandise margins higher-than-planned sales.
The company's expansion plan is on track with the inclusion of seven new dd's DISCOUNTS stores and 21 Ross Stores in the fiscal second quarter.
Ross Stores plans to open 40 new stores in the fiscal third quarter, including 10 dd's DISCOUNTS and 30 Ross outlets. In fiscal 2017, the company plans to open a total of 90 stores, comprising 70 Ross and 20 dd's DISCOUNTS outlets. However, these numbers exclude its plans to relocate or close 10 existing stores during fiscal 2017.
Ross Stores ended second-quarter fiscal 2017 with cash and cash equivalents of $1,150.9 million, long-term debt of $396.7 million and total shareholders' equity of $2,839.9 million.
During the reported quarter, the company bought back 3.6 million shares for $215 million. Further, it remains on track to repurchase $875 million worth shares in fiscal 2017 under its two-year $1.75 billion share repurchase program approved in February 2017. The company paid dividends worth nearly $124 million in first-half fiscal 2017.
Concurrent to the earnings release, the company declared a quarterly cash dividend of 16 cents per share, payable on Sep 26 to shareholders with record as on Sep 7.
Concluding first-half fiscal 2017 on a strong note, the company provided guidance for the second half and accordingly raised earnings view for fiscal 2017.
The company anticipates same-store revenues to increase 1-2% in both fiscal third and fourth quarters. Earnings per share are projected in the band of 64-67 cents for the fiscal third quarter, an increase from 62 cents reported last year. For the fiscal fourth quarter, the company anticipates earnings per share in the range of 88-92 cents compared with 77 cents in the prior-year quarter.
Further, the company expects sales growth of 4-5% in the fiscal third quarter. Operating margin for the quarter is projected between 12.4% and 12.6% compared with 12.6% in the year-ago quarter. Net interest expenses are forecasted at about $2.5 million, while the tax rate is projected at 37-38%.
Based on the fiscal first-half performance and second-half outlook, the company now projects earnings per share for fiscal 2017 in the range of $3.16-$3.23, reflecting a 12-14% growth year over year. This compares with an earnings per share gain of 13% to $2.83 delivered in fiscal 2016. Earlier, the company had projected earnings per share in the range of $3.07-$3.17 for fiscal 2017. This guidance includes about 8 cents benefit from the inclusion of an addition 53rd week in fiscal 2017.
Zacks Rank and Key Picks
Ross Stores currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Big Lots Inc. BIG , Dollar General Corp. DG and Target Corp. TGT . All three stocks flaunt a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Big Lots has a long-term growth rate of 13.5% and posted positive earnings surprise of nearly 83% in the trailing four quarters.
Dollar General delivered a positive earnings surprise of 1.4% in the trailing four quarters and has a long-term growth rate of 10.6%.
Target delivered a positive earnings surprise of 15.1% in the trailing four quarters and has a long-term growth rate of 4.4%.
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