Ross Stores Makes It Look Easy

Someone forgot to tell Ross Stores (Nasdaq: ROST  ) that retail is tough these days. The California based off-price retailer made it look like times were good again, posting strong fourth-quarter results and capping off its third consecutive year of impressive growth.

Like the company's larger competitor, TJX (NYSE: TJX  ) , which glided through the holidays, Ross showed that consumers are looking to stretch their shopping dollars. Comp sales advanced 2% for the holiday quarter. Total sales grew 3% against a 14-week quarter last year. Adjusted for the extra week, sales grew 8.6% with the help of dresses and shoes.

These sales stand in sharp contrast to those of department stores like Kohl's (NYSE: KSS  ) and J.C. Penney (NYSE: JCP  ) , which struggled to entice shoppers during the holidays, posting mid-single-digit declines in comp sales.

Ross' earnings per share of $0.70 met analyst estimates for the eighth quarter in a row, growing 6% over last year's fourth quarter. Operating margins of 9% for the quarter improved roughly 25 basis points from the prior year (adjusted for the extra week) on a slight expansion of merchandise margins.

It's easy to see why Ross was able to grow margins while most of the apparel world took big fourth-quarter markdown hits. Unlike many retailers these days, the company's inventory level ended the season exceptionally clean -- down 2.5% in total, with average in-store inventory down 9%.

Deep discounters seem like a welcome ray of sunshine in the current retail environment. Fool Alyce Lomax noted last month that Wal-Mart (NYSE: WMT  ) is back in its element, while bargain-hunters are making for salad days at warehouse clubs like BJ's (NYSE: BJ  ) .

Last summer, Ross looked like it was running out of steam. But in the current consumer environment, I think those concerns are overblown: Ross enjoyed 2% comp sales growth during the quarter and 4% growth in February. As long as the company can continue to fill the pipeline with name-brand merchandise at "treasure hunt" prices, it should be solidly positioned.  

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