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Ross Stores posts robust FQ3 results, lifts full-year EPS guidance

Ross Stores (ROST), a US-based operator of off-price retail apparel and home accessories stores, issued robust financials for its fiscal 2016 third quarter ended October 29. Revenues increased 10.9% y-o-y to $3.09 bn, backed by positive response from value-focused customers to the company’s extensive collection of brand bargains, and surpassed consensus estimate of $2.96 bn. Comparable-store sales rose 7% compared with 3% in the prior-year quarter driven by an increase in the size of average basket along with higher traffic. Operating income grew 16.1% to $390.4 mn, and operating margin improved 55 basis points to 12.6%. Adjusted earnings per share jumped 17% to 62 cents topping both the company’s guidance of 52-55 cents and analysts’ average projection of 56 cents.

Ross Stores ended FQ3 with cash and cash equivalents of $878.8 mn and long-term debt of $396.4 mn. During the reported quarter, the company repurchased 2.8 mn shares for around $179 mn, bringing the 9-month tally to $530 mn, and remains on track to buy back $700 mn worth of shares in fiscal 2016. A quarterly dividend was 13.5 cents per share, which offers annualized dividend yield of 0.8%.

In FQ3, the company opened 25 new Ross and 9 dd’s DISCOUNTS stores and completed its store-opening plan for fiscal 2016. As of October 29, it operated 1,342 Ross Dress for Less stores across 36 states, the District of Columbia and Guam as well as 193 dd’s DISCOUNTS outlets across 15 states.

Though Ross Stores expects to face challenges related to strong y-o-y comparisons amid macroeconomic uncertainty and a volatile retail landscape, it remains confident of performing well in the upcoming holiday season. The company improved its full fiscal year 2016 EPS guidance and now expects it in the range of $2.78-2.81 (growth of 11-12% y-o-y) compared with the previous forecast of $2.69-2.75.

I expect Ross Stores’ shares to continue growth, with medium-term target at $75.