Dive Brief:
- Ross Stores sales rose 8% year over year to $3.8 billion in the third quarter, with comp sales up 5%, according to a press release.
- At 12.4%, operating margins rose above the off-price retailer's expectations, according to CEO Barbara Rentler. Net earnings rose 9.8% to $371 million.
- Ross' profit and sales beat FactSet analyst estimates as well as the retailer's own estimates, sending the retailer's stock up 2% Thursday in extended session, according to MarketWatch.
Dive Insight:
Off-price is, again, proving to be one of the brightest spots in retail, including apparel, which is giving much of the market a headache (with some notable exceptions, including Target, which gained market share in the category in Q3).
Rentler told analysts children's apparel was one of the strongest categories during the period, with ladies apparel also improving, according to a Seeking Alpha transcript. But she also called the sales improvements "very broad based," with categories across the business performing well.
Ross Senior Vice President and CFO Travis Marquette noted that the retailer's comp gains were driven both by increased customer traffic as well as average basket sizes.
The retailer is preparing for Q4, merchandising gift products throughout the store, executives said, but Rentler also cautioned that the period poses challenges, too.
"As we enter this year's holiday season, we are up against multiple years of strong comparable store sales gains," she said in a statement. "In addition, we expect another fiercely competitive retail landscape, along with ongoing uncertainty surrounding the macro-economic and political environment." For Q4, management expects comps to rise 1% to 2%.
That said, the improvement in women's apparel and the all-around solid Q3 positions Ross, which has added around 90 new stores this year, well for the next year. MKM Partners analyst Roxanne Meyer said in an emailed client note that she expects Ross and other off-price players in 2020 "to benefit from tariffs longer term (given industry disruption), ongoing department store weakness and consolidation, and from inventory dislocation in the e-commerce model."
In a report from last week, Meyers noted that Gen Z and millennials were traffic drivers to off-price shops, which bode well for the long-term, as do "abundant" big-box real estate opportunities for the sector.
"The real game changer in our view is the incremental availability of inventory that comes from hundreds if not thousands of online contemporary brands," she added, noting demand forecast difficulties, high customer returns and poor outlet/disposition strategies. "Hence, off-pricers are in a sweet spot."
