First Prize Goes to Ross Stores (NASDAQ:ROST)

Earnings results often indicate what direction a company will take in the months ahead. With Q1 behind us, let’s have a look at Ross Stores (NASDAQ:ROST) and its peers.

Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.

The 5 discount retailer stocks we track reported a very strong Q1. As a group, revenues beat analysts’ consensus estimates by 3.3% while next quarter’s revenue guidance was 2.2% above.

While some discount retailer stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 4.5% since the latest earnings results.

Best Q1: Ross Stores (NASDAQ:ROST)

Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.

Ross Stores reported revenues of $6.01 billion, up 20.6% year on year. This print exceeded analysts’ expectations by 6.6%. Overall, it was a stunning quarter for the company with EPS guidance for next quarter exceeding analysts’ expectations and a solid beat of analysts’ EBITDA estimates.

Jim Conroy, Chief Executive Officer, commented, “We achieved outstanding sales and earnings results in the first quarter with superb execution throughout the business, especially the transition of our Spring assortment. Momentum was solid throughout the quarter, with broad-based strength across the business. Customer traffic was the primary driver of the strong sales trend as compelling merchandise assortments, higher customer acquisition and engagement from our ongoing marketing initiatives, and an improved in‑store experience are resonating with shoppers. We believe our results also benefited from higher consumer spending related to tax refunds.”

Ross Stores achieved the biggest analyst estimate beat of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The…