The nation's third-largest off-price apparel retailer, Ross Stores (ROST, Financial), released impressive results for the second quarter of fiscal 2014. The retailer saw good improvement in the revenue. Further, management is thinking that the moves from its rivals will give an added advantage to Ross Stores and will help it create more traction for its products. Ross is expecting strong sales as its customers are showing positive signs, responding well to its wide assortment of competitive name brand products. There are a few strategies as well which Ross Stores is undertaking to improve its offerings.
On the right path
In the recently reported quarter, Ross Stores reported 7.1% growth in the revenue, amounting to $2.73 billion. This was better than last year’s revenue, and it also outpaced analysts’ estimates of $2.71 billion. It also posted EPS of $1.14, beating consensus estimates. Analysts had been modeling $1.08 per share. Seeing good growth in its sales, the company has also raised its guidance.
Ross Stores improved on the back of good sales that it is seeing in its stores. This can be seen by a significant 6% increase in sales in the last quarter. This is a good sign for the company, and it is showing no signs of fading away soon. Indeed, Ross Stores is seeking new opportunities to improve its sales further.
Many analysts are expecting better results from Ross Stores in the future. But, on the other hand, there are differences in analysts’ opinions – for example, according to analyst Michael Exstein, the increasing popularity of fast fashion.
Smart strategies
Ross Stores is also focused on improving its shareholders’ wealth. In the past, the company has repurchased about 4.1 million shares. Now, Ross Stores is well on track to buy back $550 million in common stock during this fiscal 2014, which will improve its earnings further.
Moving ahead, Ross Stores is also planning to expand as it wants to stretch its footprint to other potential markets to improve its sales and improve its revenue.It is on track with its expansion program of opening 53 new Ross and 14 dd's DISCOUNTS stores. In addition, for the full year, Ross Stores is targeting to open about 95 new locations, including 75 Ross Stores and 20 dd's DISCOUNTS.
Despite a challenging market environment in the retail segment, Ross Stores is expecting a better performance.
In order to attract more customers, Ross Stores will continue to offer competitive discounts on a wide assortment of desirable merchandise. Ross Stores is seeing plenty of opportunities in the market place, and, to be profitable, it is focusing on staying liquid with lots of open-to-buy schemes. In addition, Ross has aggressive investment plans under which it is investing significantly in important infrastructures assets such as new distribution centres and the purchase of its New York buying office. The company believes that these investments will further strengthen its ability to deliver the value that its customers expect.
Conclusion
With a trailing P/E of 19.42, Ross Stores is reasonable, while its forward P/E of 16.25 indicates that the earnings are growing at a good pace. Also, for the next five years, the company is expected to move its earnings higher at a CAGR of 11.50%. There are many strong points on the back of which Ross Stores can be a good investment such as good revenue growth, growth in earnings per share, good cash flow from operations, increase in the net income, and reasonable outstanding debt. Considering all these points, Ross Stores stands as a good investment option that investors can include to strengthen their portfolio.
