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Tickers in this Article: ROST, TJX, KSS, JWN, JCP, DDS
Discounter Ross Stores (Nasdaq: ROST) posted a terrific third quarter, as its net income soared 83% over the third quarter last year. Revenue increased 12% while same store sales gained 8%. Guidance for the fourth quarter was maintained at a 5-6% increase for same store sales, and for its fiscal year, which ends on January 30, 2010, the company increased its guidance. All in all, this is a healthy report for the thriving apparel and home accessory off-price retailer. (Learn to pick out your investments on your next trip to the mall in our related article Analyzing Retail Stocks.)

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Discounters: Sweet Spot Of Retailing
Discounters in apparel and accessories are doing well. TJX (NYSE: TJX), which has discount apparel store TJ Maxx, just reported a terrific earnings quarter, with a massive increase in its earnings to $347.8 million from $235.8 million in the third quarter last year, and raised its forecast. Kohl's (NYSE: KSS), apparel competitor and discount department store which has combined value and quality, continues its growth and was mentioned in a study as one of the top 10 retailers for customer service. This study included a batch of online retailers and only two other department stores, Nordstrom (NYSE: JWN) and JC Penney (NYSE: JCP).

Contrast this with a couple of traditional department stores' results, Dillards (NYSE: DDS) which had gains in net income, but had a more than 10% fall off in sales, and Sears Holdings (Nasdaq: SHLD), which owns both Sears and K Mart, but continues to struggle with large losses.

More on Ross Stores Earnings Numbers
Ross' revenues for the quarter were $1.74 billion versus $1.56 billion in the same quarter a year ago, while its income rose to $105.1 million or 84 cents a share compared to $57.3 million or 44 cents per share in last year's same quarter. Strong sales in shoes and dresses for the apparel discounter were cited.

In a continuing trend, designer apparel is finding its way more and more into the discounters. Designer Jimmy Choo is making a shoe and accessory line available at H & M Stores, while Badgley Mischka will debut an affordable collection of apparel on HSN. Wedding designer Vera Wang now has a lower-priced line at Kohl's. The alliance between the exclusive designers and the discounters, with strong sales at TJ Maxx's and Ross Stores, where value shoppers are looking for affordable, stylish products, is a trend that may continue. As high-end luxury has had a tough road in the recession, shoppers have traded down to mid- and lower-priced stores. Designers are at least hedging their bets as luxury stores will try to work their way back during recovery.

Ross Stores in a Good Place
Whatever happens with the designer apparel trend, Ross Stores should do well. Ross Stores' inroads into the slightly higher end of the consumer sales will be a bonus, as Ross is so powerfully embedded already along with TJX in the off-price apparel field. There should be plenty of customers for Ross as the demographics of a slow recovery unfold, and the low and substantial middle income demographic, where frugality is not a fad but a necessity, continues to be a staple. This stock is marked for long-term success; watch for pullbacks on price. There's nothing like getting a thriving discounter at a discount.

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