KSS Kohls Corporation

Ross Stores Inc. (ROST), one of the leading off-price retailers of apparels and home accessories, recently posted earnings of 85 cents per share for fourth-quarter 2011, in line with the Zacks Consensus Estimate. Earnings grew more than 23% from the prior-year figure of 69 cents primarily due to the company's aptitude in providing attractive brand name bargains to customers who value both quality and price.

Let’s Dig Deep

Net sales for the quarter increased 11.8% to $2,397.9 million from $2,145.2 million in the prior-year quarter, beating the Zacks Consensus Estimate of $2,390.0 million. This robust increase in net sales was primarily backed by initiatives taken by the company to keep merchandise fresh by reducing store inventories and providing a wide range of fashion brands. Comparable store sales increased 7% during the period.

Gross profit in dollar terms increased 12% to $652.8 million from $582.9 million in the year-ago quarter. However, gross profit margin remained flat year over year at 27.2% due to increased cost of goods sold.

Increased merchandise gross profit, less shortage costs and leverage on operating expenses, led to an increase of 18.7% in operating income to $305.7 million from the prior-year level of $258.2 million. Consequently, operating margin for the quarter expanded 70 basis points to 12.7%.

Fiscal 2011 Summary

Ross Stores’ posted earnings of $2.86 per share for fiscal 2011, in line with the Zacks Consensus Estimate and up more than 23% from the previous fiscal earnings of $2.32 per share. Net sales for the fiscal year stood at $8,608.3 million, ahead of the Zacks Consensus Estimate of $8,594 million and were 9.4% higher than the year-ago figure of $7,866.1 million.

Other Financial Aspects

Ross Stores, which faces stiff competition from Kohl's Corporation (KSS) and Wal-Mart Stores Inc. (WMT), ended fiscal 2011 with cash and cash equivalents of $649.8 million compared with $833.9 million in the previous fiscal. During 2011, Ross generated $820.1 million of operating cash flows. This will enable the company to make capital investments, pay dividends and repurchase shares. At the end of the quarter, the company had a long-term debt of $353.6 million and shareholders' equity of $1,493.0 million.

During fiscal 2011, the company bought back nearly 11.3 million shares for $450 million. The company currently has $450 million remaining under its share repurchase program, which it plans to complete in fiscal 2012.

The good performance in the fourth quarter coupled with the company’s strong financial position induced management to announce its 18th consecutive annual dividend hike.

Ross Stores declared a quarterly dividend of 14 cents per share, representing an increase of 27% from the previous dividend payout. 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 reflects its focus on improving shareholder returns.

Guidance

Ross Stores anticipates the profitability achieved in fiscal 2011 to continue through fiscal 2012 and projected same-store sales growth in the 1% to 2% range for fiscal 2012 (52 weeks ending January 26, 2013), compared with 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 year-over-year growth of 9% to 14%. The company expects the additional week to add about 8 cents - 9 cents per share to earnings per share in 2012. The Zacks Consensus Estimate of $3.29 per share for fiscal 2012 is above 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 is expected 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 87 cents per share, which is above the company estimated earnings per share.

Our Take

Ross Stores and its subsidiaries operate two chains of off-price retail apparel and home accessories stores in the United States. These stores offer branded apparel, shoes, and accessories for the entire family, as well as gift items, linens, and other home-related merchandise.  The company also offers small furniture and furniture accents, educational toys and games, luggage, gourmet food and cookware, watches, sporting goods, and fine jewelry, which provide it with a competitive edge over its rivals.

Ross Stores has implemented a micro-merchandising tool, through which the company expects to enhance its total sales and profitability by targeting expansion in its existing markets. Moreover, Ross remains focused on new store growth, share buybacks, and paying an attractive dividend even as many other retailers make dramatic cutbacks, and has the financial strength to continue its course and build shareholders' value.

Currently, we have a long-term Outperform recommendation on the stock. Moreover, Ross Stores holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

 
KOHLS CORP (KSS): Free Stock Analysis Report
 
ROSS STORES (ROST): Free Stock Analysis Report
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research