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Buy Ross Stores Post-Earnings

Mar. 07, 2018 10:29 PM ETRoss Stores, Inc. (ROST)7 Comments


  • ROST reported earnings on Tuesday and the stock is selling off.
  • Q4 results were strong but guidance was a bit underwhelming.
  • I think ROST is still very reasonably priced, given its potential for further earnings and dividend growth going forward.

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Ross Stores (NASDAQ:ROST) has been a tremendous performer over the past few years. The off-price treasure hunt retail experience is a proven winner and along with TJX (TJX), ROST has made a nice living off of the concept. Execution has been key as comps and margins continue to rise and the share price has reflected those realities. The company’s Q4 report was tremendous and earnings estimates continue to rise, but shares have been unable to reclaim the highs set in January. However, even though the stock isn’t cheap, it is reasonably priced here and given that ROST is a segment leader, I think it is still worth a look on the long side.

Multiple levers for sales growth

Sales for the fourth quarter were up a whopping 16% as contributions came from a higher number of stores, an extra week and comp sales of 5%. ROST’s growth profile is one of the things that attracted me to the stock a couple of years ago and nothing has changed; we are still seeing mid-single digit unit growth and comps continue to impress as this Q4’s result stacked on top of a 4% gain last year. The same story is true for the full year as a 4% comp stacked on a 4% comp for the prior year as well. ROST’s ability to continue to build upon prior success has honestly gone on longer than it thought it would, and that really speaks to just how well the model is working.

Margin expansion continues

ROST also continued its impressive streak of margin growth as operating margins came in at 14.6%, a 95bps improvement over last year’s Q4. The extra week played a part, but strong merchandise margin and leverage on expenses helped as well. Constant comp sales increases will afford a retailer the ability

This article was written by

Josh Arnold profile picture

Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow.

Josh is the leader of the investing group Timely Trader where he focuses on limiting risk and maximizing potential reward. Features of Timely Trader include: real-time alerts, a model portfolio, technical charts, sentiment indicators, and sector analysis to find the best trading opportunities. Learn more.

Analyst’s Disclosure: I am/we are long ROST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

Also increasing operating margins by 0.95% is great especially at this stage. It means Ross is very efficient. I refuse to use the term basis points as it just makes another unit whereas a perfectly usable one already exists. It is simply there to make people think that they are speaking another language.
They guided margins down 105-125 “basis points”
ROST used to command a $5 premium over TJX, but now TJX commands a $10 premium over ROST. All else being equal, ROST is a better deal, especially with the 41% dividend increase. However, long term investors can't go wrong with either stock.
Looks like consolidating near support. I have watched & on the pullback, pulled the trigger. My wife loves the store & with the x40% dividend increase & buyback, on top of very disciplined expansion, I plan to sleep well until the mid $80's get me out.
I believe Rost has dropped in the past on “prudent” guidance.
These guys are notorious sandbaggers in my view. Though I’ve not researched this view. I just believe I’ve seen this movie before

The 19x is a FPE, yes?

So one day shot to mid 70s. Do we get ton70 on follow through? I know this a dumb question. I think it can.
Definitely agree with analysis
It'd be interesting to see how the guidance in previous quarters relates to 1-2% guidance given for Q1. This is only reason stock fell. Buy.
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