Ross Stores has reported lower earnings despite a sequential increase in sales during the second quarter.
The company’s sales rose 5 per cent to $5.5 billion for the quarter ended August 2, with comparable store sales up 2 per cent.
Management noted that the top-line numbers reflected the sequential improvement compared to the first quarter, when sales were up 4 per cent and comparable sales flat. During the second quarter, sales in May were strong and softened in June, before rebounding sharply in July.
Meanwhile, the decline on the bottom line still lingered, with operating income down 3.1 per cent to $638 million and net earnings down 3.8 per cent to $508 million.
According to GlobalData MD Saunders, a large part of this quarter’s sales growth came from external conditions, as the weather helped stimulate strong seasonal demand.
Core consumers were also in a better frame of mind, he continued, adding that the much-discussed tariff hikes did not materialize during the quarter, easing concerns about rising prices.
The company also had some credit for some of the growth, with sharper and more compelling assortments and a more enticing shopping proposition, the analyst said.
Saunders noted that the bottom line is a mild area of concern.
“The fly in the ointment this quarter was tariffs, which dented margins. While off-price is often seen as more insulated from such issues, the reality is that a portion of Ross’s ranges are made directly for its stores and are therefore subject to import duties,” he explained.
For both the third and fourth quarters, Ross Stores expects comparable store sales growth of 2-3 per cent.
This is a relatively subdued pace, Saunders said, adding that expansion of the store base will remain the primary driver of growth.
“There is nothing wrong with this, but if underlying improvements in the productivity of existing stores are more muted, it will act as a drag on profit. We also feel that Ross’ performance will be somewhat choppy as the economic mood waxes and wanes,” he concluded.
