Bay Area department store company Ross Stores (ROST
95.30, +1.13, +1.20%) reported better than expected fourth quarter results and
outlined shareholder return items which are likely an attempt to offset
cautious investor sentiment tied to disappointing first quarter and fiscal 2019
Jumping right into the results ROST last night announced better than expected fourth quarter revenue growth of 1.0% to $4.11 bln on better than expected comparable store sales up 4%. All told, earnings per share came in at $1.13 when excluding a $0.07 benefit related to the favorable resolution of a tax matter as well as a $0.19 benefit from tax reform legislation in the fourth quarter and $0.70 for the year.
Sales and earnings for both the fourth quarter and fiscal year outperformed company guidance despite difficult multi-year comparisons and weakness in the company’s Ladies apparel business during the holiday season.
Additionally, Ross Stores’ Board of Directors authorized a new program to repurchase $2.55 bln of the company’s common stock during the next two fiscal years. At recent stock prices, this new repurchase program represents about 8% of the company’s total market value and a 31% increase compared to the prior two-year $1.95 bln authorization that was completed in January 2019.
Ross Stores’ Board also approved an increase in the quarterly cash dividend to $0.255 per share, up 13% over the prior year’s $0.225 payout. This higher quarterly dividend is payable on March 29, 2019 to stockholders of record as of March 18, 2019.
Looking ahead, CEO Barbara Rentler said, “While we hope to do better, we continue to take a prudent approach to forecasting our business for 2019. Although we remain favorably positioned as an off-price retailer, we face our own difficult sales and earnings comparisons, a very competitive retail landscape, and an uncertain macro-economic and political environment.”
Given the recent underperformance in Ladies apparel, Ross Stores forecasts comparable store sales for the 13 weeks ending May 4, 2019 to be flat to up 2%, a point worse on the bottom end than the company’s 1% to 2% forecast in prior quarters. EPS is projected to be $1.05-1.11, including expectations for a negative impact from the timing of packaway-related expenses that benefited last year’s first quarter along with higher freight and wage costs.
For the 52 weeks ending February 1, 2020, the company is planning same store sales to grow 1% to 2% on top of 4% gains in each of the past four years. Ross also plans to open about 100 new stores this year, consisting of approximately 75 Ross Dress for Less and 25 dd’s DISCOUNTS locations. Fiscal 2019 EPS is projected to be $4.30-4.50.
Having said all of that it isn’t difficult to deduce why the stock sees a muted reaction in Wednesday’s action. Underwhelming guidance was the focal point of the print, to be sure, but the company is still executing well given certain headwinds such as wage inflation and transportation pressures. While there was an issue related to Ladies apparel in the quarter, management faced similar problems in 1Q2016. The apparel issues had been resolved some two quarters later, so it’s likely that investors are anticipating an orderly fix in this case as well.
Shares have traded in a tidy range for the better part of the last two months, hovering above both the 200-day SMA (90.25) and the 50-day (90.67). The stock has now formed an interesting pattern following the results; as you can clearly see above the shorter-term moving average has crossed above the longer-term one, forming what is called a “golden cross.” This essentially is a bullish chart pattern suggesting investor confidence in the price action. The stock pares its better than three-month high from this morning, though it still sits above Tuesday’s close.
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