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Ross Stores (ROST +1%) is modestly higher following its Q4 (Jan) report last night. This off-price retailer reported mostly in-line results when you back out a gain from the sale of a packaway facility. Comps came in at the high end of guidance. However, weak guidance for Q1 (Apr) and the full year was disappointing. ROST did announce a 10% dividend increase, but it was a lackluster report overall. Jim Conroy took over as CEO on Feb 2 and it looks like he has his work cut out for him in the new year.

• Let's start with the Q4 comps. They came in at +3%, at the high end of the +2-3% prior guidance. Comps benefitted from higher traffic. Also, customers responded positively to improved assortments of branded. For the holiday season, ROST noted that cosmetics, home, and children were the best-performing areas. In a bit of a surprise, apparel trailed the chain average.
• Comp guidance was disappointing for both Q1 at -3% to flat and for the full year at -1% to +2%. ROST said that it was pleased with the holiday selling period. However, sales trends began softening later in January and into February. ROST believes the softness is primarily due to macro pressures impacting consumer confidence, resulting in a pullback in discretionary spending.
• The good news is that ROST expects some of the weaknesses could be transitory in nature. Also, a silver lining is that the volatile environment could result in more opportunities for ROST to purchase closeout merchandise and benefit future quarters.
• Operating margin is another metric we watch closely. In Q4, it came in at 12.4%, which was flat yr/yr. However, that gain on the sale of a packaway facility boosted operating margin by 105 bps. The resulting 11.35% was in line with prior guidance of 11.2-11.5%. ROST expects Q1 operating margin to be 11.4-12.1%, a bit below 12.2% in the prior year period.

We think the modest move higher in the stock despite the weak guidance is because investors were likely already expecting a cautious outlook given the weak guidance we saw recently from WMT and TGT. Its off-price peer TJX also offered lackluster guidance last week. Furthermore, shares of ROST pulled back quite a bit in February (from $153 to $136 heading into this report), so a lot of this was likely priced in already.

Another off-price peer, Burlington (BURL) reports before the open tomorrow. We suspect we will see weak guidance as well. The one caveat is that Burlington is particularly sensitive to weather. BURL was once called Burlington Coat Factory, so outerwear is still a key part of its assortment. BURL's cold weather businesses represent almost a quarter of sales, which is significantly higher than its peers. February was quite cold, which might help its guidance.