How Ross Stores Can Keep Rising

On Thursday, Ross Stores (ROST 2.30%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Ross Stores has managed to combine two attractive things in a single package: name-brand fashions at bargain prices. But as competitors start to grasp the appeal of the niche, can the retailer hold onto its edge? Let's take an early look at what's been happening with Ross Stores over the past quarter and what we're likely to see in its quarterly report.

Stats on Ross Stores

Source: Yahoo! Finance.

How will Ross Stores match up this quarter?
Analysts have been a bit more optimistic in recent months about their views on Ross Stores and its earnings prospects, boosting their estimates for the just-ended quarter by $0.03 per share. The stock has also continued its upward march, rising 8% since mid-February.

Ross Stores has done a good job of navigating the weak economic recovery over the past several years since the recession, appealing both to shoppers' fashion sense with its designer brand names and to their cost-consciousness with its discounted prices. The retailer did face some challenges from the weather over the past quarter, with February's same-store sales actually declining by 1% as delayed tax refunds and higher payroll taxes likely played a role in cutting shoppers' disposable income. Yet March and April brought accelerating growth to Ross, restoring confidence among investors.

But Ross has plenty of competition to deal with. Archrival TJX (TJX 0.26%) has seen many of the same trends as Ross, and this morning, it reported a 7% gain in revenue on 2% higher same-store sales during its fiscal first quarter. Moreover, for TJX, much of its gains game from its HomeGoods segment, with its T.J. Maxx and Marshalls stores managing only a 1% rise in comps. Stage Stores (SSI +0.00%), which serves predominantly smaller and mid-sized markets, posted a net loss when it reported earnings last week, but the loss came from onetime charges related to operational consolidation, and the stores reported 0.7% rise in comps despite challenging weather conditions. Ross is likely to face the same challenges as these companies did, given their similar business models.

From an economic standpoint, though, Ross and its peers should all benefit from the resiliency of American consumers, who helped push retail sales figures up surprisingly last month. As long as money is tight, Ross should be strategically positioned well to handle the needs of discerning shoppers looking for value.

In Ross Stores' quarterly report, look closely at its projections for future growth. With a forward earnings multiple of just 15, accelerating retail activity could make the stock as much of a bargain as the clothes that the company sells.

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