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Ross Stores: Weak Outlook Emphasized over Strong Q1 Results

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ROST stock down on weak outlook

The stock price of off-price retailer Ross Stores (ROST) declined 6.8% on May 25, as investors were displeased with the company’s lower-than-expected earnings outlook. Ross Stores announced its results for the fiscal first quarter[1. fiscal Q1 2018 ended May 5] after the market closed on May 24.

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Strong growth rates

Ross Stores’ (ROST) sales exceeded analysts’ expectations and grew 8.5% in the fiscal first quarter. We’ll discuss the company’s sales in detail in Part 2 of this series.

Ross Stores reported EPS of $1.11 in the fiscal first quarter, a 35.4% increase compared to $0.82 in the fiscal first quarter of 2017. Excluding a $0.17 benefit from lower taxes and a $0.02 benefit from the favorable timing of packaway-related expenses, the company’s adjusted EPS reached $0.92 in the fiscal first quarter. Analysts were expecting adjusted EPS of $1.07.

Lower-than-expected outlook

Ross Stores expects its fiscal second-quarter EPS to be $0.95–$0.99. The company’s guidance includes the benefit from lower taxes. Ross Stores expects the shift in packaway expenses from the fiscal first quarter to the fiscal second quarter to have an adverse impact on its fiscal second-quarter EPS. The company’s earnings guidance was lower than analysts’ EPS expectation of $1.02.

Ross Stores raised its EPS guidance for the fiscal year to $3.92–$4.05 compared to the previous guidance range of $3.86–$4.03. The company reported EPS of $3.55 in fiscal 2017.

Off-price retailers Ross Stores and TJX Companies (TJX) outperformed the major department stores in the fiscal first quarter. Attractive bargain deals on fresh merchandise are helping off-price retailers attract higher store traffic.

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