In times of economic trouble, cheap is good. Ross Stores (NASDAQ: ROST), which offers brand-name merchandise at discount prices, saw its retail sales grow 6.4% CAGR (compound annual growth rate) in the past five years. This is compared to the wider U.S. retail sales market, which only grew by 3.2% CAGR. This growth persists across both up and down economic cycles, including the pandemic, high interest rates, and high inflation. Let’s face it—good stuff for cheap is always good.
ROST has topped earnings-per-share estimates for eight quarters. Although shares faltered due to conservative Q4 guidance inspired by inflation concerns, fiscal Q1 EPS exceeded estimates by 8.4%, with a 3% YoY increase in sales and a higher operating margin of 12.2%, up from 10.1%. The company has kept its cautious outlook, anticipating same-store sales to grow by 2% - 3% in FY 2024.
What Is Ross?
The first Ross Department Store opened in California in 1950, and the company went public in 1985. Its Ross Dress For Less brand closed out fiscal year 1986 with 121 stores across 16 states. Its lower-priced spin-off, dd’s Discounts, was launched in 2004. By the end of 2023, there were 1,764 Ross Dress for Less stores in 43 states and 345 dd’s Discounts locations in 22 states.
Ross Stores (ROST) stands out in the retail sector due to its resilient off-price business model, which attracts budget-conscious shoppers even during economic downturns. They sell designer or brand-name goods at a discount, typically 40-60% off the full retail price. Unlike its competitor TJ Maxx (TJX), Ross Stores focuses mainly on U.S. apparel.
Ross Stores’ current initiatives include expanding its range of competitively priced brands to boost market share and adding about 90 new locations.
What The Analysts Are Saying
ROST currently trades at a forward price-to-earnings ratio of 24x, and its valuation is substantially above the industry average. However, analysts justify the higher forward P/E ratio due to the company’s consistent outperformance and resilient business model. Analysts predict EPS growth of 8% and 10% for 2024 and 2025. Based on two dozen analysts, the consensus is a bullish outlook on ROST, with most recommending it as "Buy" or "Strong Buy." The average price target is $162.88, with a high estimate of $176.
Analysts believe that Ross is well-positioned for continued success in the volatile retail industry thanks to its defensive characteristics and ability to adapt to changing market conditions.
Neither Julie Stoller nor Stocks.News have positions in this company.
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Contributing Writer
As a professional writer since 2012, Julie Stoller has covered many industries, from healthcare and technology to consumer products and industrials. She has written about IPOs, spinoffs, ETFs, stock splits, commodities, legislative actions impacting investors, and macroeconomic issues. While keeping up with the latest meme stocks and trends, Julie's special interests are discovering ...