Earnings Scorecard: Ross Stores

On March 17, 2011, specialty retailer Ross Stores Inc. (ROST) announced its financial results for the fourth-quarter and year-end 2010.

Street analysts had more than a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Review

Ross reported earnings of $1.37 per share for fourth-quarter 2010, in line with the Zacks Consensus Estimate. Earnings grew 18.1% from the prior-year figure of $1.16 primarily because of strong top-line growth and reduced cost of goods sold and operating expenses.

Net sales for the quarter increased 8.4% to $2,145.2 million compared with $1,979.8 million in the prior-year quarter, beating the Zacks Consensus Estimate of $2,138.0 million.

(Read our full coverage on this earnings report: Ross Profit Surges)

Agreement of Estimate Revisions

The fourth-quarter 2010 outperformance has left the analyst community unmoved, over the past one week, with static estimate revisions for the first quarter of fiscal 2011. For the second quarter of fiscal 2011 and fiscal 2011, two analysts have revised their estimates in the upward direction with no downward movement in the last 7 days.

For fiscal 2012, one analyst has revised the estimate in the downward direction with no upward movement.

Magnitude of Estimate Revisions

As a result of no movement in estimates seen over the past one week, the Zacks Consensus Estimates, for the first quarter of fiscal 2011 has remained at $1.30. For the second quarter of fiscal 2011 and fiscal 2011 as well, the estimates have remained stagnant at corresponding earnings of $1.20 and $5.05 per share. For fiscal 2012, the estimate has moved down by 1 cent to $5.64 per share.

Our Recommendation

Ross is well positioned in the current economic scenario to take advantage of consumers’ need for value. And its good execution and strong impetus poise Ross for overall growth going forward. The company is also favored for its strong financials and solid management team. However, peak margins and tough comparisons could put a hindrance on share outperformance.

The company faces intense competition from other well-established players in the industry, such as Kohl’s Corporation (KSS) and Wal-Mart Stores Inc. (WMT), which may dent its margins.

Currently, Ross Stores maintains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, we retain a long-term ‘Neutral’ recommendation on the stock.

ROSS STORES (ROST): Free Stock Analysis Report

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