Ross Stores, Inc. (ROST), Thursday said its third quarter profit rose sharply from a year ago, helped by higher margins and a 12% increase in quarterly sales reflecting strong comparable store sales. Quarterly earnings were in line, while sales beats estimates. The off-price retailer, however,said it is maintaining its fourth quarter earnings forecast at its prior level, which is also below current Street expectation.
For the third quarter, net earnings surged 83% to $105.08 million from $57.27 million in the same quarter a year ago. On a per share basis, earnings rose 91% to $0.84 from $0.44 for the 13 weeks ended November 1, 2008.
On average, thirteen analysts polled by Thomson Reuters expected earnings of $0.84 per share for the quarter. Analysts' estimate typically excludes one-time items.
Sales increased 12% to $1.74 billion from $1.56 billion in the prior-year quarter, beating Street estimates of $1.73 billion. Comparable store sales were up 8% over last year.
Michael Balmuth, president and chief executive officer, commented, "Shoes and Dresses continued to be the top merchandise categories while the Southeast and Mid-Atlantic remained the strongest regions."
This is the third straight quarter for which the off-price retailer have been recording a profit, which also happened to occur at a time when most others were struggling to medicate their bruises credited to global economic recession. If weak consumer spending were one major cause for the losses, it however, left low-price retailers like Ross Stores untouched, as consumers filled those shops in an attempt to save money. Declining consumer spending that intensified in September 2008 were one of the highlights of global economic meltdown. The crisis, however, is now expected to be nearing its end, as most of the badly bruised industries were started paying back their debts, which can also be viewed as a slow return to normalcy.
In the second quarter, Ross Stores recorded a 45% increase in profit at $103.41 million or $0.82 per share, while in the first quarter increase in profit was 15%. First quarter profit were $91.39 million or $0.60 per share and sales were $1.69 billion. Sales for the second quarter increased 8% to $1.77 billion.
Amongst others in the industry, TJX Companies, Inc. (TJX), in the third quarter, reported a a sharp rise in profit to $347.80 million or $0.81 per share from $235.85 million or $0.54 per share in the year-ago quarter. Total sales for the quarter increased 10% to $5.24 billion.
Another player, Kohl's Corp. (KSS), reported an increase in third quarter profit to $193 million or $0.63 per share from $160 million or $0.52 per share, driven by inventory management and expansion of exclusive brands. Quarterly net sales totaled $4.05 billion, 6.5% higher than the previous year's $3.80 billion.
For the quarter under review, total costs and expenses of Ross Stores increased to $1.57 billion from $1.46 billion recorded in the year-earlier quarter.
Operating margin grew 385 basis points to 9.9%, due to 340 basis points of higher gross margin and a 45 basis point decline in selling, general and administrative costs.
Ross Stores attributed the increase in gross margin to a combination of healthy merchandise gross margin gains, much lower than expected shortage results, a decline in freight and distribution expenses as a percent of sales, and leverage on occupancy costs.
For the nine months period, net earnings jumped to $299.87 million or $2.39 per share from $208.05 million or $1.57 per share in the year-earlier period. Sales for the period rose10% to $5.20 billion, with comparable store sales up 5% on top of a 3% gain in the prior year period.
Looking ahead to the fourth quarter, Balmuth said, "As we enter the important holiday season, we remain well positioned as a value retailer, and our stores are stocked with fresh and exciting assortments of terrific name-brand bargains. That said, with a still uncertain economic climate, we believe it is prudent to maintain our prior forecast for both sales and earnings."
Ross stores said it continues to see same store sales gains in the range of 5% to 6% and earnings in the range of $0.88 to $0.94 per share. Analysts currently expect earnings of $0.99 per share for the fourth-quarter.
For the fiscal year ending January 30, 2010, Ross Stores said it now projects earnings to increase 40% to 43% to $3.27 to $3.33 per share, up from $2.33 in fiscal 2008. Previously, the company expected earnings in the range of $3.18 to $3.26 per share. Analysts currently expect earnings of $3.37 per share for fiscal 2009.
"During the first nine months of fiscal 2009, we repurchased 5.8 million shares of common stock for an aggregate purchase price of $230 million. We are on track to complete the remaining $70 million stock repurchase authorization by the end of fiscal 2009," Balmuth added.
On April 3, 2009, brokerage RBC Capital Mkts initiated a 'sector perform' rating on Ross Store shares, with a mean target of $51.00.
ROST is currently trading at $44.85, down $1.22 or 2.65%, on a volume of 1.49 million shares. In the last 52-week period, the stock traded in the range of $21.70 to $50.50, with a three-month average volume of 1.80 million shares.
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