Ross Stores, Inc. (NASDAQ:ROST) earnings didn’t bolster the argument that the retail apocalypse is ending. Despite a solid quarter from distant cousin Macy’s Inc (NYSE:M) and close sibling TJX Companies Inc (NYSE:TJX), the apparel discounter disappointed. ROST stock is down 7.8% after the company’s fiscal fourth-quarter numbers left investors wanting more.

The knee-jerk pullback is arguably a little more exaggerated than it needs to be. Some of the drop is merely an unwinding of Monday’s 3% gain. On the flipside, before earnings, ROST stock was up 50% since Aug 2017– meaning ROST was priced as if the company would evade the headwind that’s now starting to blow.

ROST Earnings Report

For the quarter ending in early February, Ross Stores turned $4.1 billion into a profit of $1.19 per share of ROST stock, or 98 cents per share…or 88 cents per share, depending on how you choose to measure it.

To get down to 98 cents is simple. The benefit from recent U.S. tax reform added 21 cents to the bottom line on its own.

As far as 88 cents, it was — in simplest terms — a wonky-calendar quarter for Ross. Like Macy’s and a handful of other retailers, the recently-completed quarter was a 14-week stretch rather than the typical 13-week span, adding (the company believes) and extra 10 cents to the bottom line.

Analysts were more or less aware that the two factors could and would skew the numbers, but unsure as to how much. Factset said the pros were collectively looking for earnings of 94 cents per share of ROST stock while Zacks was modeling 93 cents.

Regardless, earnings were much better than the 77 cents per share posted in the same quarter a year earlier, when Ross saw $3.5 billion in revenue. Analysts were only calling for a top line $3.96 billion for last quarter.

CEO Barbara Rentler added to the report:

“Fourth quarter operating margin grew 95 basis points to 14.6%, up from 13.6% in the prior year. This improvement was driven by a combination of strong merchandise margin, expense leverage from solid gains in same store sales, and the impact of the 53rd week. For the 2017 fiscal year, operating margin increased 50 basis points to a record 14.5%.”

For the full year, the company earned $3.55 per share on revenue of $14.1 billion. Both were well up from the year-ago top line of $12.9 billion and earnings of $2.83 per share.

Reasons for the ROST Stock Sell Off

With little more than a quick glance at the key data points, the selloff from ROST may be a little surprising. As they say though, context is everything.

Chief among investors’ concerns is same-store sales. Last quarter’s same-store sales growth was fine. In fact, at 5%, they were better than the year-ago growth of 4%. Projected growth of only between 1% and 2%, however, is well short of the 3.5% same-store sales growth analysts had modeled for 2018.

For the record (and for perspective), rival TJX Companies is also only looking for same-store sales growth of between 1% and 2% this year, further hinting that the discount apparel business is facing a relatively new headwind. Slightly bigger paychecks and an accelerating economy may also finally be diverting shoppers to full-price venues. That picture is still quite fuzzy though.

Ross Stores direct rival Burlington Stores Inc (NYSE:BURL) will report its quarterly results on Thursday, shedding more light on the true health of the discount apparel space.

Looking Ahead for ROST Stock

Still, with all this in mind, new-store additions and a stock buybacks are expected to translate into a solid boost of the top line and per-share profits.

Specifically, the planned addition of 100 stores this year coupled with a buyback budget that’s been ramped up from $875 million to $1.075 billion leads the company to believe it will earn between $3.86 and $4.03 per share of ROST stock. That’s better than analyst forecasts of $3.29. And much stronger than the $3.55 per share it logged for the recently completed fiscal year.

For the quarter underway, the retailer anticipates earning between $1.03 and $1.07 per share, versus 82 cents per share for the comparable quarter of fiscal 2017. Analysts had been calling for $1.03 per share.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.