Yahoo Finance Ross Stores Business Model & Store Expansion Aid: Apt to Retain Stock?
Ross Stores, Inc. ROST is well-poised for growth, thanks to its robust strategic efforts. Solid customer response for its merchandise across the banners has been boosting its comparable-store sales (comps) performance for a while. Its store-expansion plans and off-price model also bode well.
Currently trading at $150.73, the stock is hovering around its 52-week high of $163.60, reached on Aug. 23, 2024. However, it is trading at a 39.1% premium to its 52-week low mark.
Let’s find out more.
Off-Price Model & Store Plans Benefit ROST
Ross Stores operates a chain of off-price retail apparel and home accessories stores that target value-conscious customers. The company has a proven business model as its competitive bargains continue to make its stores attractive destinations for customers. The off-price model offers a strong value proposition and micro-merchandising that drive better product allocation and margins.
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Ross Stores’ consistent store expansions over the years is quite prudent. It focuses on increasing penetration in the existing as well as new markets. It inaugurated 21 New Rock and three dd's DISCOUNT stores during the fiscal second quarter. ROST expects to open 47 stores in the fiscal third quarter, including 43 Ross and four dd's locations.
This expansion is part of its ambitious plan for fiscal 2024. The company aims to open 90 locations, which will include about 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 its ongoing efforts to optimize the store portfolio. Ross Stores projects expanding “Ross Dress for Less” to 2,900 stores and dd’s DISCOUNTS to 700 stores in the long run.
These initiatives have been bolstering comps, which rose 4% in the fiscal second quarter, on increased customer traffic and basket size, indicating that more shoppers visited Ross Stores and purchased more items per visit. This led to a sales improvement of 7% year over year . Additionally, earnings per share (EPS) rose 20.5% year over year. For both the third and fourth quarters of fiscal 2024, Ross Stores projects comps growth to be between 2% and 3%.
Bumps in ROST’s Growth Path
Despite the aforementioned strengths, Ross Stores grapples with the ongoing headwinds related to macroeconomic volatility, inflation and geopolitical uncertainty. The company remains cautious about inflation, which is affecting consumer spending on housing, food and gasoline. Management highlighted that the core customer base, which typically comprises low-to-moderate-income shoppers, continues to struggle with persistently high costs for necessities. This pressure limits their discretionary spending, which, in turn, hits the company’s sales and profits.
Ross Stores has been witnessing higher costs for a while now. The cost of goods sold jumped 6.2% year over year in the fiscal second quarter while selling, general and administrative expenses grew 3.5%. Such costs are likely to weigh on the company’s profitability. Management envisions EPS to be in the bracket of $1.60-$1.67 for the fiscal fourth quarter fiscal, down from $1.82 in fourth-quarter fiscal 2023.
Conclusion
Ross Stores has been making smart moves to tackle the ongoing challenges. Shares of this apparel and accessories dealer have gained 32.5% compared with the industry’s 43.1% growth in the past year. The stock is trading at an attractive valuation relative to the industry. Going by the price/earnings ratio, it is currently trading at 23.3 on a forward 12-month basis, lower than 30.1 for the industry. Also, the stock is trading at par with its median level.
Analysts seem quite optimistic about ROST. The Zacks Consensus Estimate for fiscal 2024 sales and EPS is currently pegged at $21.3 billion and $6.20, respectively. These estimates indicate corresponding growth of 4.4% and 11.5% year over year. The consensus mark for fiscal 2025 sales and EPS is $22.5 billion and $6.63, respectively, implying year-over-year growth of 5.8% and 7%. The consensus mark for EPS has risen 3.9% for fiscal 2024 and 1.7% for fiscal 2025 over the past 30 days. ROST currently carries a Zacks Rank #3 (Hold).
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie ANF, Boot Barn BOOT and Deckers DECK.
Abercrombie & Fitch, 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 Abercrombie’s current financial-year sales indicates growth of 13.1% from the year-ago figure. ANF delivered an earnings surprise of 16.8% in the last reported quarter.
Boot Barn, a leading footwear, apparel and accessories retailer, currently sports a Zacks Rank of 1. BOOT delivered an average earnings surprise of 7.1% in the trailing four quarters.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 11.6% from the year-ago figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 47.2% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.5% from the year-ago figure.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Ross Stores, Inc. (ROST) : Free Stock Analysis Report
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
