Ross Stores Crushes 3Q Earnings Estimates; Analyst Raises PT

Ross Stores shares advanced 4.3% in the extended trading session on Thursday as the company posted adjusted EPS of $1.02 for 3Q FY20 (ended Oct. 31), crushing analysts’ expectation of $0.62. The off-price retailer gained from improved sales trends in the quarter.

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The 3Q adjusted earnings excluded the impact of a one-time charge of $0.65 associated with the company’s efforts to significantly bring down its debt costs. Meanwhile, Ross Stores’ (ROST) 3Q sales declined 2.5% year-over-year to $3.75 billion, with comparable sales down 3%. The top line improved compared to the 32.5% decline in 2Q and also exceeded analysts’ estimate of $3.43 billion.

The company said that sales trends accelerated during 3Q following a slower start in August. It attributed the favorable trends to improved merchandise assortments, a later back-to-school season, stronger performance in larger markets and a return to more normal store hours. (See ROST stock analysis on TipRanks)

Commenting on 4Q, CEO Barbara Rentler stated, “As we enter the fourth quarter, our month-to-date comparable store sales in November are down mid-single-digits. In addition, there remains a high level of uncertainty related to the worsening health crisis and we are concerned with how the upsurge of this pandemic might impact consumer demand during what we expect to be a highly competitive holiday shopping season.”

“Given the lack of visibility we have regarding these external risks and how they may evolve and impact our business, we will continue to manage our operations conservatively and will not be providing sales or earnings per share guidance for the fourth quarter,” the CEO added.

Following the earnings release, Guggenheim analyst Robert Drbul increased the price target for Ross Stores to $125 from $110 and reiterated a Buy rating. The analyst stated, “For off-price, we see 4 key tailwinds (NTM): 1) store closures (dept stores & specialty retail), 2) access to higher quality merchandise (due to a continued inventory imbalance), 3) favorable real estate (off-mall, large stores), and 4) consumers’ desire for value in a tough economic climate. In 2021, ROST will be up against easy comps, with likely better store traffic (aided by a potential COVID vaccine distribution).”

Ross Stores scores a Strong Buy analyst consensus based on 10 Buys and 3 Holds. However, the average price target of $104.54 indicates a downside potential of 5.1% in the 12 months ahead. Shares have plunged 5.2% year-to-date.