Ross Stores, Inc. (ROST), The TJX Companies, Inc. (TJX): Why This Retailer Is Well Placed for Growth

We can see echoes of this conundrum in the plans of stores like Nordstrom, Inc. (NYSE:JWN) or brands like Coach, Inc. (NYSE:COH). Nordstrom’s plan to deal with the changing environment is to expand its reduced priced Rack stores and invest heavily in e-commerce and mobile technologies. It fully intends to significantly increase revenues from these areas rather than focusing on its full priced stores.

As for Coach, its plan is to diversify its revenue streams by expanding (you guessed it) its footwear ranges and also men’s accessories. Essentially its strong position within the affordable luxury market is leaving it vulnerable to market share erosion from companies like Michael Kors, and with a cautious consumer it will find it hard to react.

My point in mentioning the strategy of these companies is to note that they cannot afford to heavily discount or coupon their way to growth because it will erode the value of their brands. In effect, they are forced to open up new categories, store concepts or sales channels. This is a situation that the off-price retailers do not find themselves in.

Indeed, gross margins and same store sales are holding up just fine for Ross Stores, Inc. (NASDAQ:ROST).

Where Next for Ross Stores?

In common with The TJX Companies, Inc. (NYSE:TJX), the company has a habit of being conservative with guidance, and the analyst community seems to know this by now. Ross is forecasting 1-2% same store sales growth for the next quarter, and full year overall sales were guided towards 4-5%. However, analysts have the latter number at 6%.

In order to see how conservative Ross Stores, Inc. (NASDAQ:ROST) tends to be, I have broken out the previous quarter’s guidance and then what it actually achieved.

Can we expect 4-5% same store sales growth for the next quarter instead of the 1-2% guided to? We shall see.

In any case, I believe the stock is good value. Analysts have double digit earnings growth forecast for the next few years. Its underlying cash flow is strong, and an EV/EBITDA evaluation of 8.7x is not expensive at all. I will look to pick some up.

The article Why This Retailer Is Well Placed for Growth originally appeared on Fool.com and is written by Lee Samaha.

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