Ross Stores, Inc. (ROST) is an unusual breed. In 2009, when many retailers saw double-digit sales and earnings declines, the company was thriving.

In 2010, as the economy is beginning to recover - albeit slowly - Ross Stores continues to see positive sales and earnings growth even compared to its strong 2009. The company is also returning value to its shareholders via stock buybacks and dividend increases, making this stock a compelling value.

About Ross Stores

Ross Stores is an off-price retailer offering name brand products at significant discounts to the competition.

It does so by taking advantage of overstocking and canceled orders at full-priced retailers. Ross Stores will buy this excess inventory at a steep discount and pass much of the savings on to its customers.

The company operates 1,036 stores in 27 states and Guam. It has a market cap of $7.1 billion.

Quarterly Results

On August 19, Ross Stores reported second quarter earnings per share of $1.07, a 30.5% increase from the same period in 2009. It was in-line with the Zacks Consensus Estimate.

Total sales grew 8.1% over the same quarter last year. Same-store sales were up a solid 4%.

The company's gross margin expanded from 25.9% to 27.0% as the company was able to keep its cost of sales relatively low.


Many companies are seeing excellent sales and earnings growth in comparison to very poor 2009 results. That is not the case with Ross Stores, however.

The company thrived during the recession, and 2009 saw same-store sales growth of 9% and EPS growth of 67%. As a result, management is somewhat cautious regarding sales and EPS targets for 2010.

For 2010, management expects earnings per share between $4.18 and $4.27, up from $3.54 last year. The Zacks Consensus Estimate is above this range at $4.36, representing 23% growth year-over-year.

The estimate for 2011 is currently 9% higher at $4.76.

For the third quarter, management expect earnings per share between $0.79 and $0.83, up from $0.75 in the third quarter of 2009. The Zacks Consensus Estimate is much higher at $0.95. The company reports third quarter results on November 18.

Shareholder Friendly

Ross Stores has an excellent history of returning value to its shareholders. Since 2000, the company has raised its dividend at a compound annual growth rate of 23.7%.

ROST: Ross Stores, Inc.

It currently has a dividend yield of 1.1%. The company's payout ratio is only 15%, so it has plenty of room to continue raising its dividend over the next several years.

Ross Stores also spent approximately $193 million repurchasing 3.6 million shares of common stock in the first 6 months of 2010.


Shares are trading at 13.5x forward earnings, a discount to the industry average of 15.9x. The stock trades at a PEG ratio of just 0.99.

Its price to cash flow ratio of 12.1 is slightly higher than the industry average of 10.7.

It is a Zacks #2 Rank (Buy) stock.

Todd Bunton is the Growth & Income Stock Strategist for


ROSS STORES (ROST): Free Stock Analysis Report