Ross Stores Shares Fall 5% Despite Topping Q2 Expectations

American off-price retailer Ross Stores, Inc. (ROST) reported better-than-expected second-quarter results backed by ongoing government stimulus, increased vaccination rollouts, and relaxed COVID-19 restrictions.

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However, shares sank 4.7% in the extended trading session on Thursday after the company warned of rising freight and supply chain expenses and uncertainty surrounding the COVID-19 situation. (See Ross Stores stock charts on TipRanks)

The company reported earnings of $1.39 per share, much higher than the Street’s estimate of $0.94 per share, and also significantly above the year-ago period’s earnings of $0.06 per share.

Additionally, sales grew a whopping 79% year-over-year to $4.80 billion and beat the consensus estimate of $4.48 billion. The reported quarter witnessed strong demand for the company’s offerings of great bargains and backed by the overall economy returning to normal.

Barbara Rentler, the company’s CEO, said, “Moving forward, we remain optimistic about our prospects for continued growth in both sales and profitability over the longer term, especially given consumers’ increasing focus on value and convenience. Moreover, the significant number of retail closures and bankruptcies in recent years further enhances our ability to gain additional market share in the future.”

Based on the company’s expectations of increasing freight and supply-chain costs and COVID-19 related operating expenses, Ross Stores forecasts third-quarter earnings to fall in the range of $0.61 – $0.69 per share, while same-store sales are expected to grow 5% – 7%.

Moreover, ROST projects full-year 2021 earnings to be in the range of $4.20 – $4.38 per share, compared to the consensus estimate of $4.35 per share. Full-year same-store sales are expected to grow 10% – 11%.

Prior to the Q2 results, J.P. Morgan analyst Matthew Boss reiterated a Buy rating on the stock and lifted the price target to $137 (8.2% upside potential) from $132.

Boss had an overall bullish outlook for the department stores and specialty softlines sector and expected “broad-based beats” in the second quarter.

Based on 10 Buys and 1 Hold, the stock has an overall Strong Buy consensus rating. The average Ross Stores price target of $140.64 implies 11.1% upside potential to current levels. Shares have gained 44.7% over the past year.

Furthermore, Ross Stores scores an 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.