Retail Earnings Cheat Sheet: Are Ross Stores (ROST) Shares Attractive?

Pleasanton, Calif-based Ross Stores Inc (ROST) announced earnings on August 19th with a dose of cautious sentiment in a very shaky market. Considering the retailer is known for discounted accessories, apparel and home-related merchandise, you would assume business is plush for Ross Stores. The stock is up over 16% since the start of the year, so the discount retailing trend has been the ROST friend. But, will the trend continue? Here is the latest earnings breakdown:

Earnings: Q2 profits of $1.07 vs. $1.07 consensus and a gain of $.82 in Q2 last year, an 23.4% rise in profits Year-over Year.

Revenue: Increased 8% Year-over-Year from $1.77 Billion last year t0 $1.91 Billion this year, versus $1.92 Billion consensus, barely missing expectations.

Michael Balmuth, ROST CEO and Vice Chairman stated, “We faced extremely tough comparisons in the second half of the year as same store sales grew 9% and earnings per share rose 67% in the back half of 2009. As a result while we hope to do better, we believe it is prudent to maintain a somewhat cautious outlook concerning our sales and earnings targets for the second half of 2010.” He also said, “We remain on track to complete during 2010 approximately $375 million of our current two year $750 million stock repurchase program.”

Comment: Shares of ROST are trading down 2.7% following the company’s earnings release August 19th before-the-bell, trading at $49.58 share, mainly due in part to the overall market sell-off though.

In the chart above, ROST shares are trading slightly below the 200-day and well below the 50-day moving averages. On a technical basis, it is evident the current support level around $49 per share is a potential area of consolidation relative to last year’s peak prices in September and October. ROST shares experienced a strong run in the first quarter of 2010 and have pulled back since late April, not fully finding support quite yet. ROST pays a 1.3% annual dividend and has plenty of cash in the coffers, $775 million in cash versus $150 million in debt. With $62+ revenue per share, cost-cutting measure in place and a stock buyback program that is meeting its intended goals, Ross Stores Inc (ROST) may very well be building a base of support in the current price range as consumer still seek out discounts now more than ever.