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Corporate Valuation of Ross Stores
1. Introduction Ross Stores, Inc. (NASDAQ: ROST) is a chain of American off-price department stores, operating under the name Ross Dress for Less. It is the nation's third largest off-price retailer (behind T.J. Maxx and Marshalls). Ross Stores is in the apparel industry which includes companies whose sales come from discretionary income purchases.
2. Competitors TJX Companies (TJX) Retail Ventures (RVI) Men's Warehouse (MW) Macy's Inc. (M) Kohl's (KSS) Discount retailers such as Target (TGT) and Wal-Mart (WMT)
3. Industry Outlook Despite the positive reaction to retail earnings outlook remain negative on the discount retail industry. Negative view of the group is based on the weak economic environment, higher savings rates and de-leveraging in the financial system. These factors all point to continued pressure on consumer spending.
4. Financial Outlook Earnings For the fourth quarter, the company reported earnings of $1.16 per share, which is in line with the Zacks Consensus Estimate. Quarterly earnings were up 52.6% year-over-year. For fiscal 2009, Ross reported earnings of $3.54 per share, which were up 51.9% from fiscal 2008.
6. Strategic Advantage Ross Stores is trying to obtain a Strategic advantage over its competition by: Maintaining a recognizable brands, labels, and fashions at strong discounts throughout the store Meeting customer needs on a local and consistent basis Delivering a shopping experience reflective of the expectations of an off-price customer Managing real estate growth to compete effectively across all our markets
8. Recent News Ross Stores has recently been downgraded by JP Morgan and Barclays Capital from Overweight to Neutral. Moving ahead the outlook according to analyst look bleak on the discount retail shop which may see increase in market share but decrease in profit margin. The market leader and biggest competitors in discount stores market is TJX Companies (TJX) with $19 billion in revenue compared to $6.5 billion for Ross Stores. Other competitors in the industry have significantly weaker profit margins. Ross Stores March 2010 same-store sales up by 14%.