Ross Stores Looks Strong After a Better-Than-Expected Performance in Q3

Ross Stores (NASDAQ:ROST) reported its third-quarter earnings numbers last week, which came in better than expected. The company's revenue of $4.6 billion was flat from the prior-year period but analysts were only expecting around $4.4 billion for the period. And although earnings per share also declined from a year ago, at $1.00, it was also better than what Wall Street analysts were looking for (roughly $0.81).

The company's margins worsened as CEO Barbara Rentler says that "pressure from higher markdowns and unfavorable timing of packaway-related costs" impacted its bottom line. For the fourth quarter, Ross expects it same-store sales to be between 0% and negative 2% (this past quarter, they were a negative 3%).

Investors have been bracing for some bad results from retailers as many have been carrying excess inventory due to supply chain issues. For Ross, however, there isn't a huge spike on a year-over-year basis: as of Oct. 29, its merchandise inventory was worth just under $2.5 billion – only 12% higher than the $2.3 billion that it reported a year ago. However, it's still around the company's all-time high and is something that investors should keep an eye on.

But the better-than-expected results could make the stock an attractive buy. The off-price retailer may also do well next year and be a popular shopping destination for consumers looking to keep their expenses down as best as they can amid inflation.

It has been a volatile year for the retail stock with shares of Ross falling below $70 per share earlier this year after starting 2022 at around $105. Heading into earnings, it was trading at just under $98.