Why Ross Stores, Inc. (ROST) Shares Are Skyrocketing After Earnings
In a tough operating environment for retailers, off-price apparel and home fashion retailer Ross Stores, Inc. (NASDAQ:ROST) surprised the market with a comparable store sales growth of 4% in the second quarter. The analysts’ had pegged the metric, which reflects sales at the same store against previous comparable period, at 2.2%. “We are pleased with the better-than-expected growth we delivered in both sales and earnings in the second quarter, especially given our strong multi-year comparisons and today’s volatile retail climate”, said CEO Barbara Rentler. With an EPS and revenue of $0.82 and $3.43 billion, respectively, for the quarter, ROST made it the fifth consecutive quarter of both top- and bottom-line beats — shares jumped 10% in early-trading before market-hours. That’s a big vote of confidence from investors considering it took the stock more than five years to deliver 50% capital appreciation. The reason is that high fixed costs business like ROST, which operates more than 1.5k stores, have margins significantly tied to realized per unit fixed costs. So comparable sales growth directly pushes the margins higher as these costs drop with every extra product sold compared to the previous quarter. What else has kept the stock highly attractive are ROST’s consistently rising dividend payouts — from $0.08 per share to $0.64 per share in ten years, reflecting a strong double-digit compounded annual growth rate of more than 15%. Well, it’s not surprising, that institutions own most of this stock.