One of the largest off-price retailers in the United States for apparel, footwear, and home furnishings, Ross Stores (NASDAQ:ROST) reported results for the third quarter of fiscal year 2014 on Thursday, Nov. 21. Its third quarter results for the period ended Nov. 2, 2013 were spot-on with analysts' estimates of $0.80 a share, up from $0.72 in the third quarter of fiscal year 2013.

Ross currently operates under its two brands Ross Less For Dress and dd's DISCOUNTS, which are normally placed side-by-side in a large spacious retail space. This is similar to how TJX Companies (NYSE:TJX) operates its retail business with T.J.Maxx and HomeGoods. Ross has successfully managed to increase its sales performance over the past several years despite the economy's uncertainties, and it still has lots of room to expand its store count. Ross also announced its predictions for the fourth quarter as the holiday shopping season quickly approaches; this news did not go over so well.

Meeting expectations 
Ross performed somewhat better in a few categories and fell slightly in others. Net earnings, for instance, matched exactly with Wall Street's estimate of $171.6 million, up from $159.5 million a year ago. The company and investors should be happy that total earnings per share for the first nine months ending Nov. 2, 2013 were up by $0.40 to $2.86 from last year's total EPS for the first nine months. Revenue, on the other hand, fell short of analysts' prediction of $2.42 billion, although it did come close at $2.398 billion, increasing by 6% from last year's third-quarter results.

Comparable-store sales also increased slightly by 2%, which is not as impressive when one compares it to the 6% increase in last year's third quarter. Overall, Ross did fairly well in its third quarter, not experiencing any large pitfalls while staying within its guidance. Hopefully, Ross will do better than how it thinks it will do in the fourth quarter. 

Playing it safe in the fourth quarter
Ross is not shooting for the moon this holiday season; instead, the company has chosen to remain cautious and realistic about how it will perform in comparison with last year. The company's Vice Chairman and Chief Executive Officer, Michael Balmuth, believes this year's fourth quarter will experience more challenges than past years as competition becomes fiercer, sales promotions increase dramatically, and stores open even earlier, making it more difficult for any off-price retailer to get ahead of another.

As such, Ross is choosing to play it safe and estimating that comparable-store sales will increase by only 1%-2%, which is much lower than the 5% increase a year ago. In addition, Ross anticipates EPS of $0.97-$1.01 with full year total earnings of $3.83-$3.87 per share. Analysts, on the other hand, estimate Ross' fourth-quarter EPS will be $1.08 per share for a full year total of $3.94 per share. Investors reacted negatively to the company's fourth-quarter performance expectations, which sent the stock down 8% in after-hours trading.

Retail wars
Two of Ross' top competitors in the retail industry are TJX and Kohl's (NYSE:KSS). All three retailers offer discounts on apparel, accessories, and footwear to their customers, with TJX and Ross giving out higher discounts of 20% to 60% off merchandise. Kohl's, on the other hand, offers discounts of only 10% to 30%.

All three retailers reported their third-quarter results for fiscal year 2014 in November within one week of each other. TJX did the best, beating analysts' estimates for revenue and EPS. Ross met most estimates except for revenue, which analysts expected would reach $2.42 billion. Kohl's unfortunately fell short across the board, missing on EPS by $0.05 and coming up $1 billion short on revenue. It's a coin toss for which of these retailers will do the best in the fourth quarter since the competition has heated up so much this year. The following numbers tell the tale:

REVENUE

Company Name

3Q FY 2014

3Q FY 2013

TJX Companies

6.44 Billion

6.41 Billion

Ross Stores

2.398 Billion

2.26 Billion

Kohl's Corporation

4.44 Billion

4.49 Billion

EARNINGS PER SHARE

Company Name

3Q FY 2014

3Q FY 2013

TJX Companies

0.75 EPS

0.62 EPS

Ross Stores

0.80 EPS

0.72 EPS

Kohl's Corporation

0.81EPS

0.91EPS

Foolish takeaway
While Ross did not hit estimates out of the park with its third-quarter release, the company has more growth potential than its competitors going forward. For instance, although TJX is doing better financially and has more than 3,000 stores (the largest of the three retailers), it is reaching its maximum growth capacity.

As of Nov. 21, TJX Companies traded for 20 times its earnings and was frankly over-valued, whereas Ross traded for 18/19 times earnings and Kohl's traded for 12 times earnings. In other words, Ross still has lots of room to expand domestically and internationally with only 1,285 stores before catching up to TJX Companies' store count of over 3,000. Investors in Ross should be patient, as the company's small size relative to its competitors leaves a lot of room for growth in the coming years.  

Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.