Ross Stores (ROST) is trading modestly higher today after reporting Q1 (Apr) earnings results last night that came in better than expected. In case you're not familiar, Ross Stores operates Ross Dress for Less, the largest off-price apparel and home fashion chain in the US with 1,363 locations in 37 states.
It sells name brand apparel, accessories, footwear and home fashions at everyday savings of 20% to 60% off department store prices. ROST also operates 198 dd's DISCOUNTS in 15 states that feature a more moderately-priced assortment that are 20-70% off department stores. ROST is based near San Francisco and its stores are primarily in the western and southern US but it's expanding to all regions.
Ross Stores are very similar to TJ Maxx and Marshalls. ROST notes that it's the largest player in this space in the US with about 1,300+ stores. That is true but TJX Cos owns both T.J. Maxx (1,191 US stores) and Marshalls (1,039 US stores) which would make them much larger if you added both chains together. Plus, TJX operates 500+ HomeGoods stores in the US. Furthermore, ROST operates solely in the US while TJX has some pretty substantial international operations (mostly Europe where they are known as TK Maxx instead of TJ Maxx). Overall, TJX is much larger but it is true that the Ross for Less chain is the biggest single off-price banner in the US.
Turning to the AprQ results, EPS rose 12% YoY to $0.82, which was well above the $0.76-0.79 prior guidance. Revenue rose 7.0% year/year to $3.31 bln, which also was above market expectations. Same store sales comps in AprQ were +3%, a bit above prior guidance of +1-2% and vs +4% last year. Comps were driven by higher traffic, as well as an increase in the size of the average basket. Operating margin of 15.2% decreased relative to last year's 15.4%, but it exceeded internal expectations due to above-plan sales and merchandise margin.
In terms of guidance for Q2 (Jul), ROST expects EPS to come in around $0.73-0.76, which is below market expectations although ROST tends to be conservative with guidance. JulQ same store comps are expected to be up +1-2%. For the full year, ROST now expects EPS of $3.07-3.17, up from prior guidance of $3.02-3.15.
On the call, ROST talked about its new store plans. Its store expansion program remains on track with the addition of 23 new Ross and five dd's DISCOUNTS stores in AprQ. ROST is planning a total of 90 new locations in 2017 comprised of approximately 70 Ross and 20 dd's DISCOUNTS. These numbers do not reflect plans to close or relocate about 10 older stores during the year.
In terms of share repurchases, during AprQ, ROST repurchased 3.3 mln shares for a total of $215 mln. The company remains on track to buy back as planned a total of $875 mln in stock for the year under its new two-year $1.75 billion program authorized in February.
In sum, ROST says it had a solid AprQ despite the challenging external environment. Looking ahead, ROST concedes that it will be lapping increasingly difficult prior-year comparisons. That, along with political, macroeconomic, and a difficult retail climate is causing management to maintain a somewhat cautious outlook for the balance of the year. Over the longer term, ROST is confident the off-price sector will remain a strong performing segment of retail as consumers continue to seek value.