Ross Stores, Inc. ROST has provided investors with decent gains, appreciating 10.7% over the past six months. While trailing behind the broader industry’s growth of 14.2%, this performance highlights the company's resilience in a competitive retail environment.
The company’s resilience is attributed to several factors, including its value-oriented off-price retailing model, offering branded and designer goods at discounted prices. This has helped maintain customer loyalty and adapt to changing consumer preferences.
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Closing at $146.25 on Tuesday, the stock’s current level reflects a 10.6% discount from the 52-week high mark, indicating that the stock has further upside potential. Moreover, the stock’s current level reflects a premium of 30.1% from its 52-week low.
The technical indicators show that the stock is trading above its 200-day moving average, indicating strong upward momentum and suggesting sustained investor confidence in the company's performance.
Reflecting the positive sentiment around Ross Stores, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their current and next fiscal year estimates by 3.9% to $6.20 and 1.5% to $6.62 per share, respectively. These estimates indicate expected year-over-year growth rates of around 11.5% and 6.9%, respectively.
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What’s Fueling Ross Stores’s Stock Performance?
Ross Stores’ business model has proven effective, as its competitive bargains make its stores appealing to customers across various economic environments. The company’s off-price retail strategy presents a strong value proposition, leveraging its micro-merchandising approach to drive better product allocation and improve margins.
This strategy ensures that the company delivers in-demand products while maintaining cost efficiency, which resonates well with budget-conscious shoppers. The continued focus on offering designer and branded goods at discounted prices has helped Ross Stores maintain its competitive edge amid massive economic pressure.
Ross Store continues to gain from positive customer response for its merchandise across both banners, which has been boosting the comparable sales (comps) performance. In the second-quarter fiscal 2024, comps improved by 4% attributed to higher customer traffic and increased basket size, indicating that more shoppers visited Ross Stores in the quarter and purchased more items per visit.
Ross Stores has been consistent with the execution of its store expansion plans over the years. In the second quarter of fiscal 2024, the company opened 21 new Ross Dress for Less stores and three dd's DISCOUNTS locations, reflecting its commitment to growing its off-price retail footprint.
The company’s store expansion efforts are focused on continually increasing penetration in the existing and new markets. This expansion is part of its ambitious plan for fiscal 2024, aiming to open 90 locations, including 75 Ross and 15 dd's DISCOUNTS stores. The plan does not incorporate the closure or relocation of 10-15 older stores as part of the company's ongoing efforts to optimize its store portfolio.
ROST Stock’s Promising Outlook
Ross Stores remains optimistic about its growth prospects, fueled by ongoing sales momentum. For the third and fourth quarters of fiscal 2024, the company expects comparable sales to increase by 2% to 3%, respectively. Total sales for the third quarter are projected to rise by 3% to 5% year over year, demonstrating confidence in continued strong customer demand.
Ross Stores forecasts third-quarter earnings per share (EPS) between $1.35 and $1.41, an improvement from the $1.33 earned in the same quarter last year. The operating margin is expected to be between 10.9% and 11.2%, slightly lower than the 11.2% achieved last year. This dip is attributed to a decline in merchandise margins, partially offset by lower incentive, freight and distribution costs.
Given the company’s strong performance in the first half of fiscal 2024 and its positive outlook for the second half, Ross Stores now anticipates full-year EPS for the 52 weeks ending Feb. 1, 2025, to range between $6.00 and $6.13, marking an increase from the $5.56 recorded last year. This guidance reflects the company's continued ability to drive profitability and growth in a challenging retail environment.
ROST Stock’s Attractive Valuation
ROST is trading at a forward price-to-earnings multiple of 22.50x, below the Zacks Retail - Discount Stores industry multiple of 29.48x. The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the Retail-Wholesale sector. ROST’s Value Score of A underscores its appeal as a potential investment.
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Final Thought
Investors should consider Ross Stores stock due to its strategic focus on value-oriented off-price retailing, offering branded and designer goods at discounted prices. Buoyed by these efforts, the company is well-poised to achieve its long-term growth objectives. ROST stock is performing strongly in the market and currently holds a Zacks Rank #2 (Buy).
Three Picks You Can’t-Miss
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. ANF, Costco Wholesale Corporation COST and Burlington Stores BURL.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 13% and 63.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Costco Wholesale Corporation, which operates membership warehouses, currently carries a Zacks Rank #2. COST has a trailing four-quarter earnings surprise of 2.02%, on average.
The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings suggests growth of around 7.4% and 10.1%, respectively, from the year-ago reported numbers.
Burlington Stores is a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories and merchandise for the home at everyday low prices. It currently carries a Zacks Rank #2. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 10.1% and 30.5%, respectively, from the year-ago reported numbers.
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