I’m a big believer in the off-price clothing/home goods retail model shared by Ross Stores and companies including The TJX Companies, Inc. (NYSE:TJX) and Stein Mart, Inc. (NASDAQ:SMRT), and frankly assumed at least the former pair would shrug off lingering consumer-related concerns including the Federal payroll tax increase, delayed income tax returns and elevated gasoline prices. Turns out I was wrong where Ross Stores is concerned, as the company chiefly blamed delayed returns for its February under performance. The company said sales began to accelerate into March and maintained its same-store sales guidance for March (-1.5%) and April (+5.5%).
You read that correctly: Ross Stores, Inc. (NASDAQ:ROST) expects to suffer a second consecutive month of negative same-store sales growth. That’s disappointing, to be sure, but I refuse to believe the company’s management has suddenly misplaced its proven acumen, or that consumers no longer appreciate and seek out value. With that in mind, let’s look at the recent performances of Ross Stores, The TJX Companies, Inc. (NYSE:TJX), Stein Mart, Inc. (NASDAQ:SMRT) and Kohl’s Corporation (NYSE:KSS) in several key metrics. Note that Kohl’s offers similar price points to the other three, but instead thrives on routine discounting of regularly priced items; plus, it doesn’t carry high-end clothing brands.
EPS and sales
Even Sir Edmund Hillary would’ve likely been impressed by the upswing in annual EPS at Ross Stores and The TJX Companies, Inc. (NYSE:TJX) over the last four years. The move is particularly solid when considering the pair’s sales growth (see below), though steadily rising, has lagged comparatively, meaning management is pulling a lot of the right strings between the top and bottom lines. As for Kohl’s, its humming e-commerce unit has become somewhat of a double-edged sword. Online sales surged 42% in 2012 to $1.4 billion, but the company’s bricks-and-mortar sales have suffered as a result. Management estimates that one-third of the e-commerce growth has come from stores, and in response is remodeling some locations, boosting productivity through IT spending and freshening its marketing approach—all initiatives that eat into the bottom line despite steady sales growth. Stein Mart, Inc. (NASDAQ:SMRT) weathered sales declines from 2009-2011, but the company appears to be picking up momentum in the metric, sporting a multi-month run of same-store sales growth after a trying early 2012. The company’s 12.4% slashing of SG&A expenses in 2010 helped produced the EPS spike in the same year.
Operating income/ROE
Two of my favorite metrics for determining management efficiency, and Ross Stores and The TJX Companies, Inc. (NYSE:TJX) have excelled here, too. A drop in both cost of goods sold and SG&A expenses as a percentage of sales helped TJX power its recent operating income growth, and it appears Ross Stores, Inc. (NASDAQ:ROST) is on a similar track. Kohl’s saw its operating income dip due largely to a 5.7% year-over-year rise in cost of goods sold, and Stein Mart, Inc. (NASDAQ:SMRT) just isn’t growing sales enough to drive operating income growth.
Foolish takeaway
Looking to the future, Ross Stores, Inc. (NASDAQ:ROST) continues to improve its inventory logistics and has ample room to open new stores (only 4% of its overall store count lies in the northeast US). The TJX Companies, Inc. (NYSE:TJX) is expanding overseas with great success and is preparing to take baby steps into e-commerce. I like both companies quite a bit and believe their respective management teams know how to optimize an already solid business model.
The article This Retailer’s on Sale originally appeared on Fool.com and is written by Chad Heiges.
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