Economic doldrums in combination with intense competition are having a negative impact on the US retail industry. However, Ross Stores (ROST 0.45%) out-maneuvered these challenges to some extent by posting a rather healthy third quarter. Does this make Ross a buy? Let's have a look at the company and compare it to peers J.C. Penney (JCPN.Q) and TJX (TJX -0.64%).

Third-quarter earnings
In the third quarter of fiscal year 2013, Ross Stores posted earnings per share of $0.80, up $0.08 from the comparable quarter last year. Revenue also grew by 6% to $2.4 billion. Both earnings and revenue were pretty much in-line with analysts' expectations. Same-store sales for the quarter grew 2%, primarily due to an increase in the average basket size.

Merchandise margins have risen by almost 60 basis points. However, an increase in SG&A expenses, along with new store openings, offset the benefit of higher merchandise margins. For this reason, the company's operating margin remained at approximately 11%.

What is Ross up to?
In early 2013, the company authorized a two-year $1.1 billion share repurchase program. From the start of fiscal year 2013 until the end of the third quarter, Ross bought back 6.4 million shares of common stock worth $421 million. Ross plans on buying back common stock worth $129 million during the fourth quarter to keep itself in-line with its initial plan of buying back $550 million worth of common stock during 2013. In addition to this, the company has a solid history of paying out dividends. Ross recently paid a quarterly dividend of $0.17 per share, showing its strong intent of rewarding its shareholders.

Ross attributed the high sales volume in the third quarter to fresh and exciting products at its stores. Ross continued to operate with leaner inventory levels, thanks to which it has increased its store efficiency. Since the company's sales are on the rise, it's constantly expanding as well. At a time when most of the department store chains are closing their operations in many cities, Ross opened a total of 88 stores last year. This shows that Ross' management is confident about the future prospects of the company.

US retailers are looking for every possible way to reach out to customers, and according to CNBC a shift has been seen toward e-commerce and omni-channels. However, Ross still lags behind in e-commerce as it doesn't have an e-commerce platform of its own. According to the company, high shipping costs on low-priced goods will decrease its margins, which will result in lower profit. For this reason, it still hasn't invested in electronic commerce. 

Ross should keep in view that most of its competitors either have e-commerce platforms or they are in the process of creating them, which could hamper sales for Ross in the long-run. Therefore, the company should find a way to reduce its shipping costs so that it can invest in e-commerce sooner rather than later.

Due to economic headwinds, seasonal fluctuations, and intense competition, Ross' management has a conservative outlook for the 2013 fiscal year. The company now expects its fourth-quarter earnings to be in the range of $0.97-$1.01. For the full year, earnings' guidance stands at $3.83-$3.87. Analysts at Reuters expect the company to post earnings per share of $3.94. Comparable sales as per the company's expectations are expected to grow by 1%-2%.

Ross has given a year-over-year return of 14% to its investors. It has a (relatively) low forward price-to-earnings ratio of 17.5. Furthermore, the company's borrowed capital is on the lower side as evident by its debt-to-capital ratio of 7.1. A low price-to-book ratio of 7.5 and a price-to-sales ratio of 1.42 strengthens my belief that Ross is a value stock.

J.C. Penney has been in trouble for quite some time now. The company lost its foothold in the market after former CEO Ron Johnson's transformative ideas didn't materialize as expected. J.C. Penney's new CEO Myron Ullman is trying his best to get the company back on track but it will take time before the company starts performing well once again. During its recent quarter, J.C. Penney managed to reduce its loss to $1.81 per share. However, its net sales fell to $2.78 billion from $2.93 billion in the last year's comparable quarter. The company is investing in new promotional strategies, which it believes will enhance sales in the coming months.

The discount retailer TJX is doing fairly well. In the third quarter, the company's earnings per share grew 21% from last year's quarter to $0.75 while sales grew by 9% to $6.98 billion. Keeping up the momentum, TJX's management has raised full-year guidance to $2.91-$2.94.

TJX' low-priced merchandise gives it an edge over its competitors. The recent launch of its e-commerce site is expected to further boost the company's sales. TJX is further expanding its business in North America, Europe, and Canada, which will help it capture more market share.

Final thoughts
Ross had a solid third quarter, although the company has slightly narrowed its full-year guidance amid sluggish economic growth which is still affecting the US retail industry. Ross' impressive off-price business model is certainly doing well even under these economic challenges. The company's plans to open new stores will further bring in more revenue as its stores are already doing pretty well. Financially, the company looks sound and it appears undervalued at this moment. However, Ross needs to have an e-commerce platform or it may lose potential online shoppers.

All in all, Ross appears to be on track, hence I believe it presents a good investment opportunity at this point in time.