It seems this is the week for retail clothiers to report on the Nasdaq. Tomorrow alone, we have Hot Topic (NASDAQ:HOTT), Gymboree (NASDAQ:GYMB), and Charming Shoppes (NASDAQ:CHRS) reporting. Also up tomorrow is off-price retailer Ross Stores (NASDAQ:ROST). We'll look at each of the others separately, but in this particular column, we'll focus on Ross. The company reports before market-open.

Wall Street Wisdom:

  • General consensus. Fifteen analysts follow Ross, split almost down the middle in their ratings: Seven say "buy" and eight say "hold."
  • Revenues. Quarterly sales are expected to rise 15% to $1.39 billion.
  • Earnings. Profits are expected to come in quite a bit stronger. If the company hits the $0.49 per share that analysts are projecting, that will make for 48% growth year over year.

Margin watch:
Last month, Ross released its sales figures for the fourth quarter and updated its quarterly guidance as well. Sales came in at $1.411 billion, and profits are expected to hit $0.48 or $0.49 per share. The added sales will help the company toward its profits goal, but even the extra 1% in sales growth can't translate into three times better profits -- especially when weighed down by the declining margins.

I, for one, am eager to see how the company manages that feat. I'm not doubting the projection, mind you -- it would be the height of foolishness (small "f") for a company to predict such strong profits so close to its reporting date and then fail to deliver. But as the chart below reflects, Ross' rolling margins are trending downward, not upward. Gross, operating, and net -- wherever you look, the company's profitability is down across the board.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

24.8

23.9

22.6

22.5

22.2

22

Op.

8.7

8

7

6.8

6.5

6.2

Net

5

4.6

4

3.9

4

3.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
The only way I can see for Ross to "hit its numbers" is if the stock buyback program it announced last quarter was implemented aggressively in Q4 2005, magnifying the firm's profits growth by dividing those profits among fewer shares outstanding. I expect that tomorrow, we'll see a considerably smaller share count at Ross than was evident one year ago.

Fool contributor Rich Smith does not own shares of any company named above.