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Ross Stores posts mixed 3Q18 results, guidance disappoints

21 November 2018

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by Anchor

Ross Stores reported 3Q18 results on Tuesday (20 November), with EPS (+28.2% YoY) coming in at $0.91 vs $0.72 reported in 3Q17, while revenue rose 7% YoY to $3.55bn from $3.33bn in the same quarter of last year. Consensus analyst estimates had expected EPS of $0.90 on revenue of $3.55bn. Net earnings of $1.1bn compared to $912mn in 3Q17, while the quarter under review’s comparable store sales were up 3% YoY (3Q17 saw a same-store sales gain of 4% YoY). The firm said on the earnings call that 3Q18 results included a benefit from Tax Reform Legislation of c. $0.16/ share. The 3Q18 operating margin of 12.4% was down from last year (but still better than forecast) as higher merchandise margin was more than offset by planned increases in freight and this year’s wage investments. CEO Barbara Rentler, commented that both sales and earnings for the quarter “were ahead of our forecast, despite being up against very strong multi-year comparisons”.

The company opened 30 new Ross and 10 dd’s DISCOUNTS locations in the quarter, completing its 2018 store opening programme. The firm said that it expects to end 2018 with 1,477 Ross and 235 dd’s DISCOUNTS stores for a net increase of 95 locations for FY18.

During the quarter, Ross Stores repurchased 2.9mn shares of common stock for a total price of $278mn. YTD, the company has bought back a total of 9.4mn shares for an aggregate price of $807mn. The firm said it remained on track to buy back a total of $1.075bn in common stock during FY18.

Looking ahead to 4Q18, Ross Stores continues to project fourth-quarter comparable store sales to increase by 1%-2% YoY vs its strongest prior-year comparable stores sales gain of 5%. Ross is also now forecasting EPS to be in the range of $1.09 to $1.14, which includes a one-time non-tax benefit of c. $0.07/share related to the favourable resolution of a tax matter. Rentler noted that as the company enters this year’s holiday shopping season it is up against its “toughest sales comparisons from 2017”, but is also expecting another fiercely competitive retail environment.

Based on YTD results and updated 4Q18 guidance, Ross Stores now plan for FY18 EPS to be in the range of $4.15 to $4.20.

YTD, Ross Stores’ share price is up c. 3%.

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