Ross Stores lifts annual profit forecast on lower costs, shares rise

By Juveria Tabassum

(Reuters) -Off-price retailer Ross Stores (NASDAQ:) raised its annual profit forecast on Thursday, as lower freight and supply-chain costs helped soften the impact of slowing sales at its outlets, sending its shares up nearly 8% after the bell.

The company has also been trying to sell a wider product assortment, including branded goods, at different price points as its target customer base of lower-income people becomes increasingly cautious on big spending.

Ross Stores expects its annual earnings per share between $6.10 and $6.17, compared with prior forecast of $6.00 to $6.13.

“With the business clearly bouncing back, in our view, along with what appears to be a very beatable fourth-quarter guide … we think the stock is due for some over-due mean reversion,” Gordon Haskett analyst Chuck Grom said in a note.

However, the company lowered its fourth-quarter profit forecast, while maintaining its target for comparable sales growth at about 2% to 3% as it attempts to attract consumers deferring big spending on apparel and other non-essential items.

“Although our low-to-moderate income customers continue to face persistently high costs on necessities pressuring their discretionary spending, we believe we should have better executed some of our merchandising initiatives,” CEO Barbara Rentler said.

Retailers are ramping up promotions as they compete for strained budgets and customers keen on comparing deals and prices in the holiday shopping period.

Demand for discounted apparel had led Ross’ rival and Marshalls parent, TJX (NYSE:) Cos, to raise its annual profit forecast earlier this week.

Retail giant Walmart (NYSE:) also raised its annual profit and sales targets this month, betting on consumers to head to its superstores for steep discounts during the holidays.

However, Target (NYSE:)’s holiday-quarter forecast for profit and sales was below market expectations, as the retailer cautioned a promotion-heavy period.

Ross Stores, which named retail veteran and former Boot Barn (NYSE:) top boss James Conroy as its next CEO from Feb. 2, expects fourth-quarter earnings per share of $1.57 to $1.64, compared with estimates of $1.67.