UPDATE 2-Ross Stores profit up; holiday outlook cautious

Thu Aug 19, 2010 10:36am EDT

* Q2 EPS $1.07 vs Wall Street view $1.07

* Sees Q3 same-store up 1-2 pct, Q4 flat to down 1 pct

* Sees Q3 EPS 79-83 cents vs Street view 80 cents

* Sees FY EPS $4.18-$4.27 vs Street view $4.20

* Shares down 2.0 pct; TJX falls 0.3 pct (Adds CEO comment, details on inventory, byline; updates share activity)

By Phil Wahba

NEW YORK, Aug 19 (Reuters) - Ross Stores Inc (ROST.O) reported a higher quarterly profit, helped by bargain hunters and lean inventories, but the off-price retailer said sales could be flat or lower during the holidays.

Ross and larger rival TJX Cos Inc (TJX.N) buy excess inventory from vendors and sell the brand name goods at prices much as 60 percent lower than department stores. Both companies have won market share at the expense of other U.S. retailers during the economic slowdown.

Sales at Ross stores open at least a year rose 4 percent during the second quarter ended on July 31, while overall sales rose 8 percent to $1.91 billion. The strongest categories included housewares, dresses and shoes.

But Chief Executive Officer Michael Balmuth warned that the chain's gains could slow and said it was still difficult to predict the pace of economic recovery. Retail executives catering to high- and low-income consumers made similar remarks this week, saying spending could slow in the second half of the year.

Shares of Ross fell 2.0 percent on Thursday, while TJX slipped 0.3 percent

Ross said it expected same-store sales to rise 1 percent to 2 percent in the current quarter, but to be flat to possibly down 1 percent in the fourth quarter, including the key holiday selling season.

TJX, whose stores include the T.J Maxx chain, reported a higher profit on Tuesday and warned same-store sales could be flat or down this quarter and next. [ID:nN17114733] Both TJX and Ross face tough comparisons, having logged strong gains in the year-earlier periods.

Ross's net income in the second quarter rose 25 percent to $129.3 million, or $1.07 per share, from $103.4 million, or 82 cents per share, a year earlier.

The analysts' average forecast was $1.07 per share, according to Thomson Reuters I/B/E/S.

The Pleasanton, California-based company said much of the profit increase came from leaner inventory, which fell 1.1 percent.

Ross expects third-quarter earnings of 79 cents to 83 cents per share, compared with Wall Street estimates of 80 cents. For the full year, the retailer forecast a profit of $4.18 to $4.27 per share, compared with analysts' expectations of $4.20. (Reporting by Phil Wahba; editing by John Wallace and Lisa Von Ahn)