By Savyata Mishra
(Reuters) - Ross Stores (NASDAQ:ROST) raised its fiscal 2024 profit forecast and posted second-quarter results above Wall Street estimates on Thursday, benefiting from demand for its discounted apparel and easing freight costs.
Its shares rose nearly 6% in extended trading as the company's strategy to cut prices on branded clothing and footwear helped boost stores visits and customer spending per transaction.
"It is reaping the rewards of the improvements to its product assortments to offer a wider selection of brands and at various price points," said Sky Canaves, principal analyst at Emarketer.
The company's results align with trends at off-price peer TJX (NYSE:TJX) Cos and larger retailers Walmart (NYSE:WMT) and Target, which have shown consumers across income categories are searching for bargains.
Still, CEO Barbara Rentler said Ross Stores was "cautious" on its sales forecast, citing inflationary pressures on the low-to-middle income customers.
Operating margins grew 115 basis points to 12.5% during the quarter, buoyed by higher sales of branded items, as well as lower transport and wage costs.
Higher discounts, however, led to an 80 basis point decline in merchandise margin. The company expects the margin pressure to further increase in the second half.
The company has "seen greater productivity from automation and employee retention, and it will look to find more ways to save on operational costs to offset the impact of discounts on gross margins," Canaves said.
The company logged sales of $5.29 billion, above analysts' average estimate of $5.25 billion, according to LSEG data.
It earned $1.59 per share compared to expectations of $1.50.
Annual earnings per share is expected in the range of $6.00 to $6.13, up from its prior forecast of $5.79 to $5.98.
The company kept unchanged its comparable sales growth forecast of 2% to 3% in the second half of the year.