Ross Stores: When Not Bad Is Good

Sometimes, not doing bad is good.

With the fear of a tapped-out consumer having little to spend this holiday season, many investors have been braced for poor results from the retail sector. It turns out that just making good on a company's sales targets have been well received.

One company that didn't do bad was Ross Stores (NYSE: ROST  ) . The off-price retailer's sales report was in line with expectations. The company managed a 2% gain in comparable same-store sales for December on top off a 6% gain the prior December. Total sales were up 8% from $672 million to $729 million. Management felt confident enough with its sales momentum that it raised the low end of the fourth-quarter guidance from a range of $0.59-$0.65 to $0.63-$0.65.

It turns out that regional exposure had a material influence with the company's performance. The company lagged close competitor TJX (NYSE: TJX  ) , which reported an increase of 6% in comparable same-store sales. TJX -- which operates Marshall's, TJ Maxx, and Bob's Discount Stores -- contributed its strong results to its strength in the Northeast, where Ross has little exposure.

However, Ross fared better than its smaller competitor Stein Mart (NYSE: SMRT  ) , which reported flat comparable same-store sales. Stein Mart's stock, while recovering today, took a good wallop from the company's disappointing sales report yesterday. Stein Mart also noted strength in its northern tier of stores as well as out west, where Ross does have significant exposure.

One last note from the report is the company's management of inventory. Ross noted that inventories only grew 2% as improvements in the supply chain offset growth in its new store build out. While Ross' margin slippage is not good, management is offsetting the declines with increased inventory turns, which help lower its cash conversion cycle and increase its returns on invested capital.

And as the company continues on to new highs, not doing bad can be rather good.

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Fool contributor Matthew Crews welcomes your feedback -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy.


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