22 May 2020

Investors Dump Ross Stores Stock After Q1 Loss

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News shaping
the markets today

     

What’s happening: Shares of Ross Stores fell in extended trading on Thursday after the retailer reported a surprise loss for its first quarter.

What happened: The coronavirus pandemic has hurt retail stores of all shapes and sizes in the US.

The Dublin, California-based retailer’s stores had to remain closed for six out of the thirteen weeks in the first quarter, resulting in a massive net loss for the company. Despite this, management’s comments remained positive and Ross expects to see a pickup in sales in the current quarter, with various shoppers queuing outside one of its recently opened stores and one of its major competitors filing for bankruptcy.

How were the results: The retailer saw a steep decline in revenue, which resulted in the quarterly loss.

  • Ross reported a net loss of $306 million, or 87 cents a share, versus a net income of $421 million, or $1.15 a share, in the same quarter last year. The figure was much worse than the consensus estimate of a loss of 13 cents a share.
  • Sales plummeted to $1.8 billion in the quarter, from $3.8 billion, and missed expectations of $2.2 billion.

Why it matters: Ross Stores started reopening its stores gradually from May 14, and 700 stores have been opened since then. The company expects to reopen its remaining stores by the end of June.

The retailer is taking a cautious approach with its current inventory and is evaluating the current consumer buying behaviour for purchasing further inventory.

Ross said there had been queues outside its Tropicana & Fort Apache location in Las Vegas. Bearish investors feel the queues look longer outside stores because of social distancing norms.

The company also said it is witnessing positive trends in its women’s apparel and home segments, which is likely to support the retailer to sell its current inventory.

With its rival JC Penney filing for bankruptcy, Ross sees an opportunity to gain market share in the moderate segment.

The company’s CEO Barbara Rentler said, “Our first quarter results reflect the unprecedented impact the covid-19 pandemic has had on our business, which led to the closure of all stores and our first quarterly operating loss in more than 30 years…We look forward to gradually reopening all of our stores fairly soon when we can return to our mission of providing compelling bargains in a safe environment for our associates and customers.”

Ross suspended its quarterly dividend to maintain enough cash for the crisis. The company had already suspended its share buyback plan.

How the shares responded: Shares of Ross Stores fell 3.2% in after-hours trading, after spiking around 6.6% during the regular session. The company’s shares have climbed 17% over the past month and are down mor than 21% in the last three-month period.

What to watch: Investors will look out for Ross safely reopening its remaining stores and maintaining its strong financial position. Investors expect the company to make a steady recovery in the coming months.

The Markets Today

     

US stocks will be in focus today, ahead of the three-day weekend.

Context: US stocks closed lower on Thursday, as investors monitored rising tensions between Beijing and Washington. Dismal economic reports, including weaker-than-expected initial jobless claims, also contributed to dampening investor sentiment on Wall Street.

Details: The Labor Department reported that 2.44 million people had filed for unemployment benefits during the week ending May 16. This brings the total number of claims to around 40 million during the coronavirus outbreak. Analysts were expecting jobless claims to total 2.4 million last week.

Adding to the woes came a legislation being passed by the US Senate, which will result in the barring of certain Chinese firms from the US stock exchanges.

In other economic news, the Philadelphia Fed’s manufacturing index came in worse than expected for May, and sales of earlier owned homes also plunged to a 10-year low. The IHS Markit PMIs for manufacturing and services rose slightly from last month’s reading, but continued to reflect a decline in new orders.

The Dow shed 101.78 points to close at 24,474.12 on Thursday. The S&P 500 index declined 0.8% to 2,948.51, while the Nasdaq 100 slid 1% to 9,284.88. Despite yesterday’s declines, all three major indices are on course to booking gains for the week. US markets will be closed on Monday for the Memorial Day holiday.

In corporate news, shares of L Brands jumped more than 18% even as the company reported a higher-than-expected quarterly loss for the first quarter. The company’s Bath & Body Works business recorded a strong rise in sales. Take-Two Interactive Software’s stock fell around 6% despite the videogame publisher surpassing consensus estimates for its fiscal fourth quarter.

What to watch: US stocks are expected to open on a lower note today, with the stock futures trading down in the European session. There are no major economic reports scheduled for release today, except the rig count report by Baker Hughes.

Investors will continue to assess the coronavirus figures, with the number of infections surging to 5,106,680 globally. The US has confirmed over 1,577,280 covid-19 cases with around 94,700 fatalities.

Other Markets: European indices were trading lower at 9am GMT, with the FTSE 100, German 30 and French 40 down by 1.7%, 1.4% and 1.3%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s retail sales, India’s deposit growth, foreign exchange reserves and bank loan growth, Canada’s retail sales and Russia’s producer prices.

 

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