By Ananya Mariam Rajesh
(Reuters) – Ross Stores on Thursday raised its annual profit forecast after upbeat quarterly results, buoyed by budget-conscious customers increasingly shopping at the off-price retailer and easing freight costs.
Sticky inflation has led consumers to cut spending on higher-priced goods, boosting sales at retailers such as Ross Stores and Burlington Stores Inc that offer products at affordable pricing.
The company’s first-quarter merchandise margin rose 120 basis points as ocean freight costs eased. TJX Cos Inc and Target Corp had also posted better margins on Wednesday due to easing cost pressures.
Ross Stores shares fell marginally in extended trading as it forecast second-quarter profit below estimates, hit by higher incentive compensations and wages.
The company also reiterated that it expects annual comparable sales to be relatively flat, with CEO Barbara Rentler saying that people were searching for even more compelling bargains and inflation had driven its customers to cut discretionary spending in some categories.
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Ross Stores is taking a conservative approach in forecast given a cautious consumer sentiment especially among the lower income customers, Jessica Ramirez, senior analyst at Jane Hali and Associates said.
The company now expects 2023 profit per share of $4.77 to $4.99, compared with its earlier forecast of $4.65 to $4.95.
It posted first-quarter profit per share of $1.09, topping analysts’ average estimate of $1.06 per share, according to IBES data from Refinitiv.
Same-store sales in the first quarter rose 1%, compared with estimates of a 0.4% rise.
The company sees second-quarter earnings per share between $1.07 and $1.14, compared with estimates of $1.25.
(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Vinay Dwivedi)