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Ross Earnings, Sales Up But Guidance Spooks Shareholders

Ross beat expectations on both sales and income but a cautious forecast for FY18 dragged shares down.

In a nutshell: A boost in foot traffic and larger basket size drove comps up for Ross Stores during the fourth quarter. The company noted children’s wear as a standout category and said cold weather items also performed well. While accessories struggled throughout the year, even that category saw a slight uptick in Q4. Looking ahead to 2018, the company, which operates 1,409 of its namesake off-price stores as well as 213 dd’s Discounts locations, sees opportunity in both the apparel and home sectors.

Ross announced it will raise the minimum wage to $11 per hour, provide some store employees with a one-time bonus and improve its paid leave programs.

Citing the challenging retail environment, Ross offered a “prudent” forecast, which sent share prices down. The retail group anticipates same store sales to grow by 1 percent to 2 percent for the year. Full-year earnings per share are expected to be $3.86 to $4.03. The company anticipates a 69-cent benefit from the recent tax legislation for the year.

Sales: Ross reported a 16 percent sales increase to $4.1 billion for the 14 weeks ended Feb. 3. Comp store sales for the 13 weeks ended Jan. 27 rose 5 percent compared to a 4 percent increase during the same period of FY16 year.

Full-year sales were up 10 percent to $14.1 billion. Comp store sales increased 4 percent.

Earnings: Ross reported net earnings for the 14-week period of $451 million, or $1.19 per share, compared to $301 million, or 77 cents per share, during the prior-year 13-week period.

Net earnings for the 53 weeks were $1.4 billion, or earnings per share of $3.55, up from $1.1 billion, or an EPS of $2.83, during the 52 weeks of FY16.

The company reported EPS benefited from the recent tax reform legislation by 21 cents.

 CEO’s Take: “As noted in today’s press release, despite our own difficult multi-year comparison in a very competitive retail climate, sales and earnings were well ahead of our expectations for both the fourth quarter and the full year. We are pleased with these results, which reflect our ongoing success and delivering broad assortments of compelling bargains to today’s value-driven shoppers,” said CEO Barbara Rentler.