Ross Stores on the hunt for more brands, raises profit forecast

Dublin, Calif. – Ross Stores Inc. remains focused on adding more value-priced brands to its assortment following a solid Q1 performance.

Sales for the quarter ended May 4 rose 8% to $4.9 billion, with comparable sales up 3%. Traffic was largely responsible for the boost. Average basket size was up slightly. Higher AUR was partially offset by lower unit volume.

Accessories and children were strongest areas. Home outperformed the company.

“Some [home] businesses are stronger than others, but we still see a lot of opportunity in our home business based on the size of it,” said Barbara Rentler, CEO.

Related: Ross Stores’ home sales break $5 billion mark

In a surprise, the company’s dd’s Discounts chain generated a larger sales increase than the Ross Dress for Less nameplate. In March, the company had said dd’s wasn’t meeting expectations in newer markets and launched an in-depth study to determine what would resonate best with those consumers.

In part, dd’s benefitted from easier comparisons to the prior-year quarter in Q1. But its shoppers also responded to improved value offerings, according to Michael Hartshorn, Ross Stores Inc. group president and COO.

“I would say we’re just at the beginning stages of making merchandise adjustments there to improve the value offerings. And while we’re encouraged by the initial customer response, it’s still very, very early,” he told investors during the company’s Q1 review call yesterday evening.

On the bottom line, Ross Stores Inc. beat earnings estimates. Net income jumped nearly 32% to $488 million, or $1.46 per diluted share.

In response, the company raised its profit guidance for the full fiscal year and now expects earnings per share in the range of $5.79 to $5.98 versus the $5.56 EPS its generated last year. Guidance for full-year comp remains unchanged at up 2% to 3%.

Still, the company cautioned that it low- and moderate-income shoppers remain under pressure. Executives said Ross is managing inventory tightly and passing through cost savings on merchandise buys to shoppers.

“Ongoing uncertainty in today’s macroeconomic and geopolitical environments, including prolonged inflation, continue to squeeze our low-to-moderate income customers’ purchasing power,” said Rentler. “As a result, we believe it is more important than ever to offer our customers the best branded values possible.”