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Will Strong Demand Aid Ross Stores' (ROST) Earnings in Q4?

Ross Stores, Inc. ROST is scheduled to release its fourth-quarter fiscal 2023 results on Mar 5. The off-price apparel and home accessories retailer is likely to have witnessed revenue and earnings growth in the to-be-reported quarter.

The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $5.8 billion, indicating growth of 10.3% from the figure reported in the year-ago quarter. For fiscal fourth-quarter earnings, the consensus mark of $1.62 per share suggests growth of 23.7% from the year-ago quarter's reported number. The consensus mark for earnings has been unchanged in the past 30 days.

In the last reported quarter, Ross Stores delivered an earnings surprise of 9%. In the trailing four quarters, it delivered an earnings beat of 7.8%, on average.

Ross Stores, Inc. Price and EPS Surprise

 

Ross Stores, Inc. Price and EPS Surprise
Ross Stores, Inc. Price and EPS Surprise

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

Key Factors to Note

Ross Stores has been benefiting from robust customer demand and recovery from supply-chain headwinds in the retail industry. Sales in the fiscal fourth quarter are likely to have benefited from broad-based growth across merchandise categories and regions. Gains at the core business, driven by consumers' continued focus on value and the company’s ability to deliver value bargains to customers, bode well.

Positive customer response for its merchandise across both banners has been boosting the comps performance. Our model predicts comparable store sales to increase 1.5% year over year in the fiscal fourth quarter and 3.1% for fiscal 2023, driven by strength across its namesake and dd's DISCOUNTS business formats.

On its last reported quarter’s earnings call, Ross Stores was optimistic about its fourth-quarter fiscal 2023 performance. The company predicted comps to rise 1.2% year over year for fourth-quarter fiscal 2023, whereas total sales are forecast to increase 8-10% year over year.

Additionally, the company’s results are expected to reflect the continued benefits of higher merchandise margin, lower distribution expenses, domestic freight and occupancy expenses. This is likely to have boosted its margins and the bottom line in the to-be-reported quarter.

We estimate the operating margin to expand 70 bps to 11.4% in the to-be-reported quarter and 40 bps to 11% for fiscal 2023. On a dollar basis, operating profit is expected to increase 16.5% year over year in the fiscal fourth quarter and 11.3% for fiscal 2023.

On its last reported quarter’s earnings call, the company expected an operating margin of 11.3-11.5% for the fiscal fourth quarter, driven by gains from higher merchandise margins, owing to lower ocean freight costs and a 65-bps gain from the 53rd week. However, the company estimates these gains to be moderate from improvements in the prior periods of this year.

The operating margin for the fiscal fourth quarter is also likely to benefit from lower domestic freight and distribution costs partly due to favorable packaway timing. The gains are expected to be partly offset by higher incentive compensation.

The company envisions the bottom line to be $1.56-$1.62 per share for the fourth quarter and $5.30-$5.36 for fiscal 2023.

Ross Stores has been consistent with the execution of its store expansion plans, which are likely to have aided the top line. The company's store-expansion efforts have been focused on continually increasing penetration in existing and new markets. The fourth-quarter fiscal 2023 performance is anticipated to have gained from ROST’s return to normal store opening targets. Gains from new stores are expected to get reflected in ROST’s sales for the fiscal fourth quarter.

However, Ross Stores has been witnessing higher costs due to the ongoing headwinds related to the ongoing macroeconomic volatility, rising inflation and geopolitical uncertainty. The company has been witnessing rising incentive costs, which are likely to have led to increased SG&A expenses in fourth-quarter fiscal 2023.

Our model predicts the cost of goods sold to increase 7.5% year over year to $4.2 billion in the fiscal fourth quarter and 5% to $14.6 billion for fiscal 2023. As a percentage of sales, we expect SG&A expenses to increase 90 basis points to 14% in the fiscal fourth quarter and 120 bps to 16% for fiscal 2023. In dollar terms, SG&A expenses are expected to rise 17% year over year for the fiscal fourth quarter and 16.6% for fiscal 2023.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Ross Stores this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Ross Stores has an Earnings ESP of -0.19% and a Zacks Rank #3.

Stocks With Favorable Combination

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

American Eagle AEO has an Earnings ESP of +1.13% and currently flaunts a Zacks Rank #1. The company is likely to register growth in the top and bottom lines when it reports fourth-quarter fiscal 2023 numbers. The consensus mark for AEO’s quarterly earnings has been unchanged at 50 cents per share in the past 30 days. The consensus estimate suggests 35.1% growth from the year-ago quarter’s reported number.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Eagle’s quarterly revenues is pegged at $1.66 billion, which suggests growth of 11.2% from the figure reported in the prior-year quarter.

Costco Wholesale COST currently has an Earnings ESP of +1.58% and a Zacks Rank #2. The company is likely to register growth in the top and bottom lines when it reports fourth-quarter fiscal 2023 results. The consensus mark for COST’s quarterly revenues is pegged at $59.2 billion, which suggests 7.1% growth from the figure reported in the prior-year quarter.

The consensus mark for COST’s quarterly earnings has moved up 1.1% in the past 30 days to $3.60 per share. The consensus estimate suggests growth of 9.1% from the year-ago quarter’s actual.

Dollar Tree DLTR currently has an Earnings ESP of +0.59% and a Zacks Rank of 3. The company is likely to register top and bottom-line growth when it reports fourth-quarter fiscal 2023 results. The consensus mark for DLTR’s quarterly revenues is pegged at $8.7 billion, which suggests growth of 12.3% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for DLTR’s earnings has been unchanged at $2.66 per share in the past 30 days. The consensus estimate indicates 30.4% growth from the year-ago quarter’s reported figure.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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