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Ross Stores (ROST) Q1 Earnings Beat Estimates, Sales Match

Ross Stores, Inc. ROST reported robust first-quarter fiscal 2023 results, wherein the bottom line beat the Zacks Consensus Estimate while sales came in line. Both metrics grew year over year.

Ross Stores’ earnings of $1.09 per share beat the Zacks Consensus Estimate of earnings of $1.06 per share and our estimate of $1.03 per share. Earnings also improved 12.4% from 97 cents per share reported in the first quarter of fiscal 2022.

Total sales of $4,494.7 million rose 3.7% year over year and matched the consensus estimate of $4,495 million. The figure came ahead of our estimate of $4,464.6 million. In first-quarter fiscal 2023, comps improved 1% driven by an increase in transactions.

Strength in cosmetics and accessories aided the top line with Midwest being the top-performing region. dd’s DISCOUNTS performance remained drab due to inflationary pressures.

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Shares of ROST have lost 8.9% in the past three months, compared with the industry’s decline of 3.7%.

Q1 Insights

The cost of goods sold (COGS) of $3,292.6 million increased 3% year over year. As a percentage of sales, COGS was 73.3%, marking a year-over-year contraction of 50 basis points (bps). This was mainly driven by higher merchandise margin, lower ocean freight costs and a 60-bps decline in domestic freight which more than offset higher distribution expenses. Higher distribution expenses rose 65 bps, owing to the unfavorable timing of pack-away-related expenses and deleverage from the company’s new Houston distribution center.

Selling, general and administrative (SG&A) expenses of $746.2 million advanced 11.5% year over year. SG&A, as a percentage of sales, expanded 110 bps year over year to 16.6%. The decrease resulted from lower incentive costs.

The operating margin of 10.1% contracted 70 bps from 10.8% in first-quarter fiscal 2022 due to higher incentive compensation.

Store Update

As of Apr 29, 2023, Ross Stores operated 2,034 outlets, including 1,704 Ross stores across 40 states, the District of Columbia and Guam, and 330 dd’s DISCOUNTS stores in 22 states.

In first-quarter 2023, the company opened 19 stores, comprising 11 Ross and eight dd's DISCOUNTS stores. In fiscal 2023, it expects to open 100 stores, including 75 Ross and 25 dd’s DISCOUNTS. These openings do not include the plans to close 10 existing stores in fiscal 2023.

Financials

Ross Stores ended the quarter with cash and cash equivalents of $4,416.5 million, long-term debt of $2,457.6 million and total shareholders’ equity of $4,310.4 million.

This Zacks Rank #3 (Hold) company bought back 2.2 million shares of common stock for $234 million in the fiscal first quarter. ROST is on track to repurchase the remaining $950 million under the existing plan in fiscal 2023. For the fiscal second quarter, it intends to open 27 locations, including 18 Ross and nine dd’s DISCOUNTS locations.

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Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote

Outlook

Management noted that the ongoing high level of uncertainty in macroeconomic and geopolitical environments is likely to persist. Also, continued inflationary pressures continue to affect customers’ discretionary spending.

For second-quarter fiscal 2023, the company expects comps to remain flat year over year. Also, the bottom line is envisioned to be $1.07-$1.14 per share, compared with last year’s reported figure of $1.11 per share. Total sales are forecasted to grow 1-4% year over year.

The operating margin is estimated to be in the 9.8-10.1% range, down from 11.3% reported in 2022, driven by higher merchandise margin and lower ocean freight costs offset by increased expenses related to incentive compensation and store wages. Interest income is likely to be approximately $31 million. The tax rate is projected to be about 25% and diluted shares outstanding are expected to be $339 million.

For fiscal 2023, the bottom line is predicted to be $4.77-$4.99 per share, compared to the prior year’s reported figure of $4.38 per share. This includes an estimated benefit of approximately 15 cents from the 53rd week.

Stocks to Consider

Here are some better-ranked stocks — Urban Outfitters URBN, Kroger KR and DICK’S Sporting Goods DKS.

Urban Outfitters, a leading lifestyle product and services company, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s expected earnings per share growth rate for three to five years is 18%. The Zacks Consensus Estimate for Urban Outfitters’ current fiscal year’s revenues suggests growth of 5% from the year-ago reported figure.

Kroger, a renowned grocery retailer, currently sports a Zacks Rank of 1. KR has a trailing four-quarter earnings surprise of 9.8%, on average.

The Zacks Consensus Estimate for Kroger’s current financial year’s earnings per share suggests growth of 6.6% from the year-ago reported figure. KR has an expected earnings per share growth rate of 6% for three to five years.

DICK’S Sporting, which operates as a major omnichannel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment, carries a Zacks Rank #2 (Buy) at present. The company’s expected earnings per share growth rate for three to five years is 5.4%.

The Zacks Consensus Estimate for DICK’S Sporting’s current fiscal year’s revenues and earnings per share suggests growth of 2.2% and 10%, respectively, from the year-ago reported figures. DKS has a trailing four-quarter earnings surprise of 10%, on average.

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DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report

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