Is Ross Unzipped?

Ross Stores (Nasdaq: ROST) may sport the tagline "dress for less," but that "less" theme extended to its quarterly profits today, as the off-price retailer ran into snags. Cost-conscious shoppers may haunt the racks at Ross, but higher costs helped drive the retailer's profits lower.

The retailer's first-quarter earnings were flat compared to last year, at $48.5 million, or $0.32 per share. Net sales for the quarter jumped 13% to $992 million, though same-store sales showed a less hectic increase, with a 3% uptick.

Ross' press announcement said that earnings came in as expected. Apparently, it could have been worse, given inclement weather and the partial roof collapse at its South Carolina distribution facility in January. That ratcheted up costs; it's also ramping up expenses related to the company's retrofit of its Pennsylvania facility and start up of its Southwestern facility.

Ross is working to implement new technology to smooth its inventory flow, but so far, inventories are imbalanced and it said sales and margins will be negatively affected for the remainder of the year. Now Ross is taking a "conservative" view of its first and second quarters, lowering guidance for each, although it did say in its conference call (transcript courtesy of CCBN StreetEvents) that its distribution problems are behind it.

It's another dose of disappointment for those who have followed Ross in recent months. In March, Ross warned, citing the distribution facility problem cited above as well as a disappointing holiday weekend.

Are shoppers compelled to dress for less through other off-price retailers, like TJX (NYSE: TJX) or Syms (NYSE: SYM)? On the one hand, an improving economy might drive shoppers back to Nordstrom (NYSE: JWN) or Saks (NYSE: SKS). On the other hand, saving money never goes out of style, even with those born with those silver spoons. Getting name-brand merchandise cheap is a popular endeavor, and that's why the off-price retailers shine.

Speaking of rivals, yesterday TJX reported quarterly profit that increased nearly 50%, with net sales jumping 20% and same-store sales up 8%. It doesn't sound like shoppers defected from its doors, even if they did have some extra cash to burn.

So, what about Ross? This may just be a protracted phase where temporary glitches make Ross look shabby. Ross has a forward P/E of 15, while TJX trades at 17 times forward earnings. Though bargain hunters shop at Ross, given its currently frayed edges, Ross shares don't sound like much of a bargain yet.

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Alyce Lomax does not own shares of any of the companies mentioned.