Ross Stores (ROST) Strategies Promise Growth: Time to Hold?

Discount retail chain, Ross Stores Inc. ROST has been gaining on the back of strong earnings trends, robust outlook, store expansion strategies, ongoing merchandise initiatives and financial strength. Further, the company is also benefiting from the favorable response of value-focused customers to its extensive collection of brand bargains and solid cost controls. These factors have helped the stock retain the Zacks Rank #3 (Hold), with a VGM Style Score of "A".

Further, Ross Stores' shares have substantially outpaced the broader industry in the past one year. While the stock gained a solid 15.2%, the Zacks categorized Retail – Discount Stores industry rose 0.8%.

Ross Stores, Inc. Price, Consensus and EPS Surprise

 

Ross Stores, Inc. Price, Consensus and EPS Surprise | Ross Stores, Inc. Quote

Ross Stores reported strong first-quarter fiscal 2017 results, wherein both the top line and bottom line beat our expectations as well as the company's earnings projection. Moreover, both earnings and sales improved year over year, irrespective of the volatile environment. Results gained from dd's DISCOUNTS growth in same-store revenue and operating profits. Further, the company provided outlook for second quarter and raised earnings view for fiscal 2017. This led to an uptrend in estimates in the last 30 days.

The Zacks Consensus Estimate for fiscal 2017 increased by 3 cents to $3.15 per share while estimate for fiscal 2018 jumped by 1 cent to $3.39 per share. Further, the current Zacks Consensus Estimate of 76 cents per share for second-quarter fiscal 2017 reflects 7.5% growth from the prior-year quarter. Analysts polled by Zacks anticipate revenues of $3.4 billion, up nearly 6% from the year-ago quarter.

Further, Ross Stores' proven off-price business model makes its stores attractive destinations for customers in all economic scenarios. We applaud the company's strategy to keep itself on growth trajectory with consistent focus on merchandising organization through investments in workforce, processes and technology. Moreover, the company's ability to run the business with leaner inventory levels and faster inventory turnover has aided it boost sales and gross margins. The company has managed to reduce in-store inventories by over 40% in the last several years.

The company also remains on track with store expansion program as evident from the 28 new stores opened in first-quarter fiscal 2017, including 23 Ross Dress for Less and five dd's DISCOUNTS stores. Taking its store expansion plans further, the company expects to open 28 new stores in the fiscal second quarter, including seven dd's DISCOUNTS and 21 Ross outlets. With this, the company will be over half way through its target of opening about 90 stores in fiscal 2017, which includes 70 Ross and 20 dd's DISCOUNTS outlets.

These actions make us confident of its growth potential and ability to successfully attain the target of expanding store count to 2,500, comprising 2,000 Ross and 500 dd's DISCOUNTS stores, over the longer term. This indicates that there is still immense store growth potential for the company, going forward.

What Can Hold Back this Growth?

However, the company expects to face challenges related to strong year-over-year earnings and sales comparisons amid macroeconomic uncertainty and a volatile retail landscape. Further, threats of stiff competition and cannibalization remain.

Bottom Line

The company's growth initiatives and surprise trend definitely outweigh the macroeconomic and other threats. The company is poised to continue this momentum it is doing extremely well in the niche position it has created in the market.

Stocks to Consider

Meanwhile, investors may consider better-ranked stocks in the same industry like Burlington Stores Inc. BURL, Dollar General Corp. DG and Target Corp. TGT  All these three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores has gained nearly 17.1% year to date. Also, the company's estimate for the current fiscal have witnessed positive estimate revisions in the last seven days and has a long-term growth rate of 15.9%.

Dollar General has a long-term EPS growth rate of 10.6%. Further, the company has jumped 4.4% in the last three months.

Target has witnessed an increase of 5.9% in the last three months. Further, the stock has a long-term growth rate of 8.2% and recorded an average beat of 16.5% in the trailing four quarters.

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