You have to hand it to Ross Stores (ROST 77.18, -3.33, -4.1%). The off-price apparel and home fashion chain is operating in a very competitive climate, and yet it still managed to deliver record fourth quarter results.
The problem for its stock, which is down 4.1% in pre-market action, is that the company's fiscal 2018 guidance was conservative, coming in below analysts' average expectation.
The good news was widespread for the fourth quarter. Sales rose 16% to $4.1 billion, comparable sales jumped 5% on top of a 4% gain last year, the retailer's operating margin expanded 95 basis points to 14.6%, and its adjusted earnings per diluted share increased 14% to $0.88.
Following its third quarter report in November, Ross Stores said it expected fourth quarter comparable sales to increase 2% to 3%, so with the 5% gain it is clear Ross Stores saw healthy traffic in the holiday quarter as it battled with other off-price retailers, such as TJX Cos. (TJX 84.39) and Burlington Stores (BURL 122.74), and other retailers such as Kohl's (KSS 66.82), Walmart (WMT 89.06), and Target (TGT 71.79).
Ross Stores appreciates that it did as well as it did, yet it is cognizant that its past success has created some challenging comparisons. Accordingly, it is taking a conservative-minded approach with its fiscal 2018 forecasting.
The company is estimating comparable store sales growth of 1% to 2% and earnings per share to be $3.86 to $4.03, the upper end of which is below analysts' average expectation. The company earned $3.55 per share for the 53-week period ended February 3, 2018.
The earnings guidance includes a per share benefit of approximately $0.69 from the recently enacted tax legislation and also incorporates plans to make competitive wage and benefit-related investment, which include raising its minimum wage to $11.00 per hour.
For the first quarter, Ross Stores is forecasting comparable store sales to be up 1% to 2% and earnings per share to be $1.03 to $1.07, including a $0.16 per share benefit from the tax legislation.
Shares of ROST are little changed in 2018 but have risen 20% over the last 52 weeks.