Does Ross Stores Have The Antidote To What Ails Retail?

Powered by 3-percent comps growth and 7-percent sales growth, Ross Stores, Inc. ROST posted a 2.5-percent earnings-per-share beat in Thursday’s first-quarter earnings report.

BMO Capital Markets considered the feat “impressive given the larger retail industry malaise.”

Retail companies generally report at least one underperforming category or location, but Ross performed well across the board, including its women’s apparel line that anchored financials in 2016.

The company’s momentum is expected to continue into the near future.

“Liquid inventory level, strong buying market, and strong pack-away position could create near-term tailwinds,” analyst John Morris wrote Friday, noting that pack-away represented 46 percent of quarter-end inventory. “With abundant opportunities for branded goods in the buying market, we believe ROST's position and flexibility could be a near-term tailwind.”

In spite of Ross’ immediate prospects, BMO Capital maintains a Market Perform rating on the stock with a lowered price target of $65, justified largely by a lack of long-term earnings power.

Future Performance Factors

Morris specifically predict a drought of stimuli for the gross margin, as the inventory reductions, shortage control and sales strength previously driving improvement have been wrung of all potential. Immediate growth will depend on comps expansion, which is not expected to materialize.

As a positive, BMO Capital expects Ross to remain largely unaffected by the consumer trends disrupting the greater retail industry, including e-commerce, brick-and-mortar balance that remains irrelevant to off-price businesses.

“The off-price industry could perform somewhat better than the broader retail industry, which is suffering more from traffic headwinds and changes in buying behaviors,” Morris wrote.

Notably, BMO considers the Ross performance a strong read-through for off-price peer Burlington Stores Inc BURL as it, too, supports “strong consumer preferences for the ‘treasure hunt’ model.”

At time of publication, Ross was trading at $62.94, up 3 percent on the day.

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TJX, Ross And Burlington Will Open The Same Number Of Stores Macy’s, Sears And JC Penney Are Closing Nordstrom Rack a Demonstration Of Retail’s Perseverance Amid Department Store Chaos ________ Image Credit: By Nandaro - Own work, CC BY-SA 3.0, via Wikimedia Commons