Shares of Ross Stores Inc. dropped 4.6 percent in after-hours trading following the company’s report of second-quarter results that indicated a decline in operating margins.
Net income for the three months ended Aug. 4 rose 23 percent to $389.4 million, or $1.04 a diluted share, from $316.5 million, or 82 cents, a year ago. Net sales rose 8.9 percent to $3.74 billion from $3.43 billion, while comparable-store sales gained 5 percent on top of the 4 percent increase in the same year-ago period.
Wall Street was expecting earnings per share of $1.01 on revenues of $3.66 billion.
Barbara Rentler, chief executive officer, said, “We are pleased with the above-plan growth we delivered in both sales and earnings in the second quarter. Though better than expected, operating margin and leverage on occupancy and buying costs were more than offset by a combination of unfavorable timing of pack away-related expenses, higher freight costs and this year’s wage investments.”
She told analysts during a conference call that the company “saw broad-based strength across merchandise categories and geographic markets.”
The ceo reaffirmed projections of a comps growth rate of 1 percent to 2 percent for the third and fourth quarters, noting the company’s “robust multi-year comparisons.” EPS for the third quarter ending Nov. 3 is projected at between 84 cents and 88 cents. For the fourth quarter ending Feb. 2, the company forecasted EPS at $1.02 to $1.07. For the full year, EPS was guided to a range of $4.01 to $4.10.
Rentler also said the company has raised its long-term projected store potential to 3,000 sites, up from a previous target of 2,500 stores.
“This is based on our research that indicates we can now further increase penetration in both existing and new markets,” Rentler said.
By nameplate, the company is projecting that Ross Dress for Less can grow to 2,400 locations, up from the prior target of 2,000. DD’s Discounts is now believed to be capable of supporting 600 locations, compared with previous estimates of 500 stores. The current store base consists of 1,453 Ross Dress for Less doors and 227 DD’s Discount locations.
And while Rentler said results for the first half exceeded expectations and that the company hopes to “once again outperform our projections,” she noted that the company faces stronger prior-year comparisons over the next six months “in a retail landscape, both brick-and-mortar and online, that will likely remain very competitive.”
The company posted earnings results after the markets closed. Shares of Ross Stores closed up 1.7 percent to $95.03.