Ross Stores stock rockets higher on upbeat forecast, adding to upbeat holiday-period expectations

Rentler said she now expected the off-price clothing and home-décor chain to report full-year earnings per share of $4.21 to $4.34, compared with an earlier forecast for a range of $3.84 to $4.12. Analysts polled by FactSet expected full-year earnings per share of $4.03, on revenue of $18.2 billion, with a 6.2% drop in same-store sales.

Rentler said she expected fourth-quarter same-store sales to be flat to down 2%, when compared with a 9% bump in the same quarter last year. She said she expected earnings per share of between $1.13 to $1.26. Those forecasts, too, were above FactSet estimates for a same-store sales decline of 4.6% earnings of $1.13 cents a share.

For the third quarter, Ross reported third-quarter net income of $342 million, or $1.00 a share, compared with $385 million, or $1.09 a share, in the same quarter last year.

Revenue of $4.6 billion was largely the same as the prior-year quarter. Same-store sales fell 3%, after a big gain during the same quarter last year.

Analysts polled by FactSet expected Ross Stores
ROST,
+1.48%
to earn 81 cents a share, on revenue of $4.37 billion. Same-store sales were expected to fall 7.8%.

Shares vaulted 12% higher in after-hours trade.

Ross reported as analysts weigh recession concerns and the discounting crusade from the chain’s bigger rivals, as well as a mix of holiday forecasts.

Retailers this year have slashed prices on things like clothing to clear shelves, after rising costs for more essential items caused demand to fall. Analyst sales forecasts on the holiday season remain relatively upbeat, helped by higher prices but still-durable demand. But Target Corp.
TGT,
+4.21%
this week forecast a same-store sales decline for the current quarter. However, shares of big-box rival Walmart Inc.
WMT,
-0.34%
jumped on Tuesday after it boosted its full-year outlook and cleaned up its inventories.

Ross Stores is coming off of what it characterized as a disappointing second quarter in August. Rentler at that time cited “mounting inflationary pressures our customers faced as well as an increasingly promotional retail environment.”

“The recession-focused market is currently interested in 3 types of Softlines stocks: 1) ‘De-risked’ stocks; 2) Defensive stocks; and 3) Growth stocks,” UBS analysts said in a research note last week. “The problem for ROST is the market is having a hard time fitting it into any of these groups.”

However, rival retail chain TJX Cos. on Wednesday raised its U.S. same-store-sales outlook for its full fiscal year, as customers show more signs of shrugging off inflation to spend on the holiday season. Ernie Herrman, TJX’s
TJX,
-1.30%
chief executive, said he was “particularly pleased” with results from the company’s Marmaxx division, which oversees the T.J. Maxx and Marshalls chains.

Jefferies analysts noted that U.S. same-store sales in TJX’s home furnishings chain HomeGoods chain slid 16%.

Off-price stores tend to buy up the excess inventory of others and sell it at a bargain. But as other retailers dump their supplies of clothing and other goods, and as customers refresh their wardrobes to return to offices and other aspects of pre-pandemic life, gauging demand can be difficult.

Still, the Jefferies analysts said an industry consultant they spoke with said he expected “order cancellations to continue to benefit off-price names near-term. Additionally, corroborating this, TJX noted in-store inventory levels are healthy and overall availability is ‘exceptional’. These same factors are likely to benefit ROST and BURL as well.”

Ross Stores stock is down 15% so far this year. By comparison, the S&P 500 Index
SPX,
-0.31%
is down 18% over that time.