21 August 2020

Ross Stores Surprises Markets with Q2 Profit

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News shaping
the markets today

     

What’s happening: Shares of Ross Stores rose slightly in extended trading on Thursday after the company reported better-than-expected results for the second quarter.

What happened: As infections spread across the US, customers were just not in the mood for retail therapy. This hurt nonessential retailers, like Ross Stores.

The pandemic also forced the company to shutter its stores for a part of the quarter. While most apparel retailers struggled for survival, Ross Stores surprised investors by reporting a profit for the second quarter.

How were the results: The Dublin, California-based company reported a decline in sales and earnings, although both figures came in ahead of market expectations.

  • Sales contracted 33% to $2.68 billion, while beating the consensus view of $2.51 billion.
  • Profits stood at $22 million, or 6 cents per share, down significantly from $412.7 million, or $1.14 per share, in the same quarter last year. This was, however, much better than the consensus estimate of a loss of 25 cents per share.

Why it matters: While retailers focusing on essential goods, like Target and Walmart, benefitted from the shopping trends triggered by the lockdowns and from remaining open throughout the period, retailers of nonessentials have faced severe challenges.

After experiencing a slump in sales during the initial part of the quarter, Ross Stores said its sales had recovered better than expected with the reopening of the economy in May. The company believes that pent-up demand led to the increased demand and it focused on aggressively clearing old inventory by marking down prices.

“In the weeks thereafter, trends were negatively impacted from depleted store inventory levels while we were ramping up our buying and distribution capabilities,” CEO Barbara Rentler said during the earnings call. Same-store sales for these stores declined 12% from the reopening date till the end of the quarter.

Management refrained from issuing a forecast for the current quarter and the fiscal year due to uncertainties caused by the pandemic. The CEO said that there could be “additional government mandated shutdowns if covid-19 cases remain elevated or further increase.”

How shares performed so far: Shares of Ross Stores gained 0.2% to reach $87.60 in after-hours trading on Thursday, following a 3.1% decline during the regular session. The retailer’s stock has lost around 4% over the previous three months, versus the S&P 500’s 15% gain.

What to watch: Investors will look out for news related to reopening measures and store footfall at Ross Stores. The market remains bullish, however, about Ross Stores being able to make a strong comeback once the pandemic eases. Investors will also keep an eye on the performance of other off-price retailers.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of economic data scheduled for release during the day.

Context: The Canadian dollar slipped versus the greenback on Thursday, following a decline in oil prices and the US reporting higher-than-expected jobless claims.

Details: The loonie, which jumped to a seven-month high versus the US dollar on Wednesday, retreated from its highs amid worries of the global economy taking longer to recover.

US weekly jobless claims surprisingly climbed back above the 1 million level. The rise in jobless claims came a day after the release of the Federal Reserve’s minutes, which painted a gloomy picture of the country’s economic recovery.

The US is a major market for Canada, being the destination for almost 75% of its exports. Therefore, any pressure on the US economy has implications for Canada.

The loonie was also impacted by a decline in crude prices, which slipped to $42.58 per barrel on Thursday, as Canada is the world's fourth largest exporter of crude oil. The CAD/USD also came under pressure with a recovery in the US dollar.

Investor sentiment was not even lifted by Canada reporting 1,149,800 job additions by private businesses in July, after four months of declines.

The CAD/USD had climbed its highest intraday level of 1.3133 in around seven months on Wednesday. The loonie gave back gains yesterday, falling to 1.3187.

Canada’s government bond yields also slipped, with the 10-year yield falling 3.5 basis points to 0.547%.

What to watch: Investors await data on new housing price index and retail sales from Canada. The country’s retail sales, which surged 18.7% in May, are expected to climb 24.5% in June. New house prices had gained for the second straight month in June, rising 0.1%.

Markets will continue to monitor covid-19 infections, with total cases exceeding 22.6 million globally.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.2%, 0.6% and 0.6%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s car production, Mexico’s retail sales as well as the US manufacturing PMI, services PMI, composite PMI, existing home sales and Baker Hughes crude oil rigs.

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