What Happened:
Shares of off-price retail company Ross Stores (NASDAQ:ROST) jumped 9.2% in the morning session after the company reported first-quarter results that beat analysts' gross margin expectations, which led to operating profit and EPS beats. Adding to the positive aspect, revenue came in slightly ahead of analysts' expectations due to an increase in traffic. This suggests healthy demand from its consumer base despite some of the macro concerns raised by some of the retailers that have reported earnings this quarter. Ross also acknowledged challenges with low-to-moderate income consumers, as well as other concerns, including "the weather, the Easter calendar shift, and tax refund timing."
On the other hand, its full-year earnings forecast--while raised from the previous outlook--was below expectations. To blunt the impact of that, the company guided to next quarter's EPS in line with expectations. Also, the company plans to open 24 locations in Q2, which supports the current sales momentum, with revenue expected to grow by 6% year-on-year during the quarter. Zooming out, we think this was a very good quarter with less exciting guidance.
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What is the market telling us:
Ross Stores's shares are somewhat volatile and over the last year have had 2 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock gained 7.1% on the news that the company reported second quarter earnings that exceeded analysts' expectations for same-store sales, revenue, and earnings per share. Moving ahead, management raised second half sales and earnings outlook. Comparable store sales for the third and fourth quarters of 2023 are expected to be up 2% to 3% and up 1% to 2%, respectively. As such, EPS guidance for the next quarter and the full year were also both ahead of expectations.
The company also continued to return cash to shareholders adding, "During the second quarter, we repurchased 2.2 million shares of common stock for an aggregate price of $230 million. As previously announced, we expect to buy back $950 million of common stock this year under our two-year $1.9 billion repurchase program that extends through fiscal 2023." Overall, this was a solid quarter for Ross Stores.
Ross Stores is up 4.8% since the beginning of the year, and at $144.18 per share it is trading close to its 52-week high of $150.45 from February 2024. Investors who bought $1,000 worth of Ross Stores's shares 5 years ago would now be looking at an investment worth $1,555.
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