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Daily Alert - 12/10/18

Analysts for this retailer are increasing quarterly and yearly earnings guidance.

Analysts for this retailer are increasing quarterly and yearly earnings guidance.

Ross Stores, Inc. (ROST)
From Hendershot Investments

Ross Stores, Inc. (ROST) reported third quarter revenues rose 7% to $3.5 billion with net income up 23% to $338 million and EPS up 26% to $.91. Comparable store sales rose 3% during the quarter driven by both higher traffic into the stores and higher average ticket. Both sales and earnings were ahead of management’s forecast, despite being up against very strong multi-year comparisons. Though above plan, operating margin of 12.4% was down from last year as a higher merchandise margin was more than offset by increases in freight costs and labor costs.

Free cash flow increased 29% year-to-date to $1.2 billion with the company paying $254 million in dividends and repurchasing 9.4 million shares for $806.5 million at an average price of approximately $85.80 per share. Management remains on track to repurchase $1.1 billion of stock for the full fiscal year.

Year-to-date, the company has spent $254 million on capital expenditures with 95 new store locations planned for the full year with the company operating Ross Stores in 38 states and dd’s Discounts stores in 18 states. As Ross enters the holiday season, it expects the retail environment to remain fiercely competitive. While it hopes to do better, Ross Stores continues to project fourth quarter comparable store sales gains of 1% to 2% versus a strong 5% last year.

Fourth quarter EPS guidance was raised to $1.09 to $1.14, which includes a one-time, non-cash benefit of approximately $.07 per share related to the favorable resolution of a tax matter. This also led to an increase in fiscal 2018 full year guidance for EPS in the range of $4.15 to $4.20. Buy.

Ingrid R. Hendershot, Hendershot Investments,, 703-361-6130, December 2018