KSS Kohls Corporation

The largest off-price apparel and home fashion chain in U.S., Ross Stores Inc. (ROST) came out with stronger-than-expected sales and same store sales numbers for the month of January, as well as for the fourth quarter of fiscal 2011.

Ross Stores’ same-store sales for the four weeks ended January 28, 2012 grew 5% compared with a rise of 3% and 8% recorded for the same period in 2010 and 2009, respectively. The company’s same-store sales for the fourth quarter surged 7% versus an increase of 4% and 10% posted in the fourth quarter of 2010 and 2009, respectively.

For fiscal 2011, the company’s same store sales was up 5%, flat with the 2010 same store sales and down from an increase of 6% reported in 2009.

Ross Stores’ sales in January 2012 jumped 10% from the year-ago comparable period (four weeks ended January 29, 2011). Net sales in January reached $483 million versus $441 million reported last year.

For the fourth quarter of fiscal 2011, Ross Stores reported net sales of 2.398 billion, representing an increase of 12% from $2.145 billion in the year-ago period. The company’s full-year sales were up 9% to $8.608 billion from $7.866 billion for fiscal 2010.

Among the merchandise categories, the company’s Juniors, Shoes and Children’s categories showed remarkable performances in January, driving sales and same-store sales results for the month. Region-wise, the company witnessed substantial growth in Florida and the Mid-Atlantic regions.

The good performance in January and for the fourth quarter together with the company’s strong financial position drove management to announce its 18th consecutive annual dividend hike, raise its fourth quarter and fiscal 2011 earnings per share targets and initiate first quarter and fiscal 2012 same store sales and earnings guidance.

Ross Stores declared a quarterly dividend of 14 cents per share, representing an increase of 27% from the previous dividend. The raised dividend is payable on March 30, 2012, to shareholders of record as of February 17, 2012.

The company’s policy of constantly raising dividends and buying back shares not only illustrates its strong financial and cash flow position, but also shows its focus on improving shareholder returns.

During fiscal 2011, the company bought back nearly 11.3 million shares at a total cost of $450 million. The company currently has an authorization worth $450 million remaining under its share repurchase program, which it plans to complete in fiscal 2012.

Following the encouraging January sales results, Ross Stores has also increased its fourth quarter earnings per share guidance to 84 cents – 85 cents, representing a 22% to 23% increase from the 69 cents per share earned in the fourth quarter of fiscal 2010. In December 2011, the company had raised its earnings guidance in the range of 82 cents - 83 cents per share.

The increase in fourth quarter guidance resulted in the company’s earnings per share forecast for fiscal 2011, now shifting to a range of $2.85 to $2.86 with an expected growth rate of 23% to 24%, compared with $2.31 per share reported in fiscal 2010.

The current Zacks Consensus Estimate for the fourth quarter and fiscal 2011 are 84 cents per share and $2.85 per share, respectively, which are both at the lower end of the company’s revised guidance.

Further, anticipating the fiscal 2011 gains to continue into 2012, the company stated that its same store sales for fiscal 2012 (52 weeks ending January 26, 2013) will grow in the 1% to 2% range, compared to 5% gains in the prior two years.

The company’s earnings per share guidance for fiscal 2012 (53 weeks ending February 2, 2013), including one additional week, is in the range of $3.12 to $3.27, representing a growth rate of 9% to 14%. The company expects the additional week to add about 8 cents - 9 cents per share to 2012 earnings per share. The Zacks Consensus Estimate of $3.20 per share for fiscal 2012 is near the mid-point of the company’s forecast.

For the first quarter of fiscal 2012, the company expects same store sales to increase 1% to 2%, compared with gains of 3% and 10% recorded in the first quarter of 2011 and 2010, respectively. Earnings per share for the first quarter will be in the range of 82 cents - 86 cents, with an expected growth rate of 11% to 16% from 74 cents earned in the first quarter of 2011. The current Zacks Consensus Estimate for first quarter 2012 is 84 cents per share, which is at the mid-point of the company estimated earnings per share.

Ross Stores is scheduled to release its February 2012 sales on March 1, 2012, followed by the fourth quarter and fiscal 2011 results on March 15, 2012.

Ross' shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains Outperform. The company primarily competes with the likes of Kohl's Corp. (KSS), The TJX Companies Inc. (TJX) and Wal-Mart Stores Inc. (WMT).

 
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