Ross Stores Q3 Profit Up 8%, Sees Q4 Earnings Below View

(RTTNews) - Ross Stores, Inc. (ROST) on Thursday reported an 8 percent increase in profit for the third quarter on higher sales and gross margin. Earnings per share matched analysts' expectations, while revenues missed their estimates.

Looking ahead to the fourth quarter, the retailer forecast earnings below Street estimates, saying it was adopting a more cautious outlook for the quarter. The company noted that the upcoming holiday season would be the most intensely competitive and promotional selling period in recent years.

In addition, Ross Stores raised the lower end its earnings guidance range for fiscal 2013. Shares of the company declined more than 7 percent in extended trades.

Michael Balmuth, Vice Chairman and Chief Executive Officer of Ross Stores, said, "Third quarter sales were in line with our guidance, while earnings were better-than-expected mainly due to above-plan merchandise gross margin. Operating margin of 11.3 percent was relatively flat to last year."

The Pleasanton, California-based company's third-quarter net income was $171.62 million or $0.80 per share, up from $159.52 million or $0.72 per share in the same period last year. On average, 30 analysts polled by Thomson Reuters expected the company to earn $0.80 per share for the quarter. Analysts' estimates typically exclude special items.

Ross Stores, which owns the Ross Dress for Less and Dd's Discounts chains, said sales for the quarter rose 6 percent to $2.40 billion from $2.26 billion in the year-ago period. Analysts had a consensus revenue estimate of $2.43 billion.

Comparable store sales for the quarter increased 2 percent, on top of a 6 percent gain in the prior year.

Ross Stores buys brand and designer apparels, shoes and accessories from department stores and sells them at discount to customers. Ross has been able to post improved results for the past few quarters despite slow economic conditions by attracting customers with discounts.

Looking ahead to the fourth quarter, Ross Stores forecast earnings in a range of $0.97 to $1.01 per share, compared to earnings of $1.07 per share in the year-ago period. Analysts currently expect the company to report earnings of $1.09 per share for the quarter.

The company projects comparable store sales for the quarter to increase 1 percent to 2 percent, on top of a 5 percent increase in the same period last year.

Balmuth said, "As we enter the fourth quarter, our merchants have acquired a wide array of exciting and sharply-priced name brand fashions and gifts to appeal to today's value-focused shoppers. That said, we are up against our own challenging multi-year comparisons and an upcoming holiday season that we believe will be the most intensely competitive and promotional selling period in recent years."

For fiscal 2013, Ross Stores now forecasts earnings per share in a range of $3.83 to $3.87 per share, compared to its prior outlook for earnings of $3.80 to $3.87 per share. The company recorded earnings of $3.53 in the prior year. The 53rd week in 2012 added about $0.10 to last year's fourth quarter and fiscal year earnings per share.

Analysts expect the company to earn $3.94 per share for the year.

During the first nine months of fiscal 2013, Ross Stores repurchased 6.4 million shares of common stock for an aggregate price of $421 million. The company said it expects to buy an additional $129 million during the fourth quarter that puts it on track to complete about $550 million of the two-year $1.1 billion stock repurchase authorization announced at the beginning of this year.

ROST closed Thursday's regular trading session at $80.26, down $1.06 or 1.30 percent on a volume of 3.03 million shares. In after-hours, the stock further declined $6.01 or 7.49 percent to $74.25.