Ross Stores Rost

Ross Stores, Inc. (ROST) is a S&P 500, Fortune 500 and Nasdaq 100 company  and is one of the big three off-price retailers of home accessories and apparels in the United States. Operating with over 1,125 stores under its two store brands “Ross Dress for Less” and “dd’s DISCOUNTS”, the company reported a total of $8.6 billion of revenues in its 2011 fiscal year (link). Its operations focus on off-price buying strategies to make opportunistic purchases of advance-of-season, in-season, and past-season brand-name and designer merchandise and offer such to customers at daily competitive discounts. The company’s strategic investments in merchandising organization include experienced merchants who held significant positions in other retailer companies like Ann Taylor (ANN), Macy’s, Inc. (M), Foot Locker, Inc. (FL), and Marshalls (link) . Over the past five years, Ross Stores, Inc. (ROST), together with its main competitor TJX Companies (TJX), outperformed its full-price apparel industry counterparts with a compounded annual growth rate of 10% against 4%. 

The products of Ross Stores, Inc. can be divided into 6 segments according to its 2010 sales mix namely Ladies 29%, Home Accents and Bed and Bath 25%, Men’s 13%, Accessories, Lingerie, Fine Jewelry, and Fragrances 12%, Shoes 12%, and Children’s 9% (link). Of these, majority of the apparel and apparel related low-price purchases of the company are done through opportunities created by manufacturer overruns and cancelled orders both during and at the end of the season. These are targeted to value-conscious middle income earners and moderate income earners by Ross Dress for Less and dd’s DISCOUNTS respectively.

The third quarter of 2011 proved to be a good showing for Ross Stores, Inc. as illustrated by its above-the-forecast sales and earnings (link). The earnings per share of the company increased to $1.26 from $1.02 of the third quarter of last year while its net earnings also grew by 19% to $144 million from $121.4 million of last year. Furthermore, 2011 third quarter sales also increased 9% to $2,046,000,000 over the prior year. These can be mainly attributed to the company’s ability to produce fascinating bargains on a wide variety of exciting name-brand fashions for today’s increasingly value-focused consumers. In addition, an increase of 45 basis points in merchandise margin was experienced through fewer markdowns brought upon by low in-store inventories and faster inventory turnovers.

In the company’s  November 17, 2011 conference call, Mr. Michael Balmuth, the Chief Executive Officer of the company, stated that the position of the company as a value retailer remains favorable even uncertainties in the macroeconomic situation exist (link). According to him, the company expects long-term growth from its expansion of its Ross Dress for Less and dd’s DISCOUNT stores to 35 new locations amidst constant pressures on consumer spending. As a result, management sustains an optimistic outlook as it retains its prior fourth quarter sales and earnings forecasts at a sales growth between 2-3% and an EPS forecast range of $1.53 to $1.59.

With its stock buyback program in constant progress along with its significant stock appreciation over the past few years, Ross Stores, Inc. has renewed investor’s confidence in the company’s commitment to optimizing stockholder value. A total of 1.4 million shares were repurchased representing a return of $113 million to investors in the third quarter of 2011(link). This would be expected to continue until the repurchase of half the current authorization is completed. Moreover, the Board of Directors has approved a 2-for-1 stock split in view of the company’s future growth aspects. The company believes that it has the potential to double its size over the long term as it continues to expand to the entire U.S.

As regards to its competitors in the industry of off-price retailers, Ross Stores, Inc. is currently the second largest next to TJX Companies (TJX). However, despite reporting over $8 billion dollars in revenue (link) in fiscal year 2011, Ross Stores Inc. remains inferior to TJX’s revenues of over $22 billion dollars (link). On the other hand, Ross edges TJX in terms of stock performance with its P/E ratio of 20.76 against 19.82 of TJX.