We have initiated coverage on
Ross Stores Inc.
) with a Neutral recommendation and a target price of $74 per
We are impressed by Ross Stores' off-price business model that
offers strong value proposition to its target customers. The
company's compelling business model has worked well as the
competitive bargains it offers continue to make its stores an
attractive destination for customers in all economic
scenarios. We believe this will help sustain the company's
top- and bottom-line growth trends.
We believe the company's ongoing merchandise initiatives and
inventory management bode well for future growth. A key
ingredient of the company's strategies to keep itself on the
growth trajectory is continued focus on merchandising
organization through investments in workforce, processes and
technology. The company continually fine-tunes and upgrades its
systems and processes to enhance productivity.
We applaud Ross Store's ability to run the business with leaner
inventory levels and faster inventory turnover. Lower inventory
should help support Ross Stores' strong merchandise margins and
ability to continue to capitalize on in-season inventory buying
opportunities in the marketplace to ensure a current assortment
and better brand content.
Moreover, its focus on store expansion, along with consistent
share buybacks and attractive dividend payouts highlight its
However, we are disappointed by the company's dismal
third-quarter fiscal 2013 performance and conservative outlook.
This has triggered a downward trend in the Zacks Consensus
Estimate for the fourth quarter and fiscal 2013, as analysts
became less constructive on the stock's future performance.
Further, the stock remains sensitive to the slow economic
recovery, intense competition and exposure to seasonal
Other Stocks to Consider
Ross Stores currently has a Zacks Rank #4 (Sell). Better-ranked
stocks in the retail space include
Christopher & Banks Corporation
Barnes & Noble Inc.
G-III Apparel Group Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
BARNES & NOBLE (BKS): Free Stock Analysis
CHRISTOPHER&BNK (CBK): Free Stock Analysis
G-III APPAREL (GIII): Free Stock Analysis
ROSS STORES (ROST): Free Stock Analysis
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