Ross Stores, Inc.’s ROST top and bottom lines beat the Zacks Consensus Estimate in the first quarter of fiscal 2024. Both metrics improved year over year. The strong results, which can be attributed to customers' favorable response to quality and branded bargains, lead to impressive earnings growth.

Consequently, this Zacks Rank #3 (Hold) company’s shares have rallied 30.3% in the past year compared with the industry's 36.3% growth.

Q1 Insights

Ross Stores’ earnings of $1.46 per share beat the Zacks Consensus Estimate of $1.34. Earnings also improved 33.9% from $1.09 per share reported in the fourth quarter of fiscal 2023

Total sales of $4,858.1 million rose 8% year over year and surpassed the consensus estimate of $4,827 million. The sales improvement mainly stemmed from strong comparable store sales (comps) performance.  Comps improved 3%, mainly due to higher customer traffic and a favorable reaction from shoppers toward the enhanced assortments across its stores.

Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote

The cost of goods sold (COGS) was $3,490.7 million, which increased 6% year over year and exceeded our estimate of $3,462.5 million. As a percentage of sales, COGS was 71.9%, marking a year-over-year decrease of 140 basis points (bps). Our model had estimated a 130-bps decline in the COGS rate to 73.7%. Distribution costs declined 75 bps while buying improved by 50 bps. Further, domestic freight fell 30 bps and merchandise margin dipped 15 bps as pressure from higher sharply-priced brands was somewhat offset by a fall in ocean freight costs.

Selling, general and administrative (SG&A) expenses of $776.3 million increased 4% year over year and were lower than our estimate of $805.1 million. SG&A, as a percentage of sales, fell 65 bps year over year to 16%. We had estimated the SG&A rate to be 16.8%, indicating a 20-bps increase year over year. The decrease in the SG&A rate was mainly because of lower incentive costs and higher sales. The operating margin of 12.2% grew 205 bps year over year.

Our model had predicted an operating margin of 11.2%, suggesting 110 bps growth from last year.

Financials

Ross Stores ended first-quarter fiscal 2024 with cash and cash equivalents of $4.7 billion, long-term debt of $1.5 billion and total shareholders’ equity of $4.9 billion.

During the first quarter, the company repurchased 1.9 million shares of common stock for $262 million under its new two-year $2.1 billion authorization. The company is on track to buy back a total of $1.05 billion in fiscal 2024. As of May 4, Ross Stores operated a total of 2,127 stores.