Ross Stores, Inc. ROST has been benefiting from tailwinds, including store-expansion plans and its off-price retailing model. It has been offering branded and designer goods at discounted prices. This has helped it maintain customer loyalty and adapt to changing consumer preferences. ROST has been expanding its foothold by introducing stores and extending its capabilities.
Let’s delve deeper.
ROST’s Solid Strategies Boost Sales
Ross Stores has been consistently executing store expansions over the years. Recently, ROST concluded its store-expansion plans for fiscal 2024 by introducing 47 stores. These new stores are likely to capture extra sales and boost overall profits. The company has inaugurated 43 Ross Dress for Less (Ross) and four dd's DISCOUNTS outlets in 22 states this September and October.
Including the latest openings, ROST has added 89 new stores in the fiscal year. Together, Ross Dress for Less and dd's DISCOUNTS currently operate a total of 2,192 locations in 43 states, the District of Columbia and Guam. The aforesaid openings highlight the success of Ross Stores’ expansion efforts . The openings also reflect the company's continued expansion strategy. Management expects to expand “Ross Dress for Less” to 2,900 stores and dd’s DISCOUNTS to 700 stores in the long term.
Ross Stores has been reinforcing its presence across both the existing and new markets. The company inaugurated Ross Dress for Less stores in Minnesota, New York and Pennsylvania, alongside enhancing its footprint in the sunbelt states. It also opened dd’s stores in California, Florida, New Mexico and Texas. Store expansions have also been driving comparable-store sales (comps) as well.
In addition, the company operates a chain of off-price retail apparel and home accessories stores, which target value-conscious consumers. It has a proven business model as the competitive bargains it offers 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. Ross Stores continues to gain from positive customer response for its merchandise across both the banners.
Hindrance to Ross Stores’ Growth Path
Despite the aforementioned strengths, Ross Stores grapples with the ongoing headwinds related to macroeconomic volatility, inflation and geopolitical uncertainty. Management further cited that ROST’s prior-year sales comparisons have been more challenging during the second half of the current fiscal year due to an extremely uncertain external environment.
Ross Stores has been witnessing higher costs for a while now. The company’s cost of goods sold jumped 6.2% year over year in the most recent quarter, while selling, general and administrative expenses grew 3.5% year over year. Such costs are likely to weigh on its profitability in the near term. Management envisions earnings per share to be in the bracket of $1.60-$1.67 for the fiscal fourth quarter , down from $1.82 in fourth-quarter fiscal 2023.
Final Words on ROST
Ross Stores has been making smart moves to tackle the macro challenges and enrich customers’ overall experience. The aforementioned tailwinds have been bolstering comps, which rose 4% in the fiscal second quarter on increased customer traffic and basket size. This indicates that a higher number of shoppers visited Ross Stores and purchased more items per visit. This led to a sales improvement of 7% year over year in the same quarter. For both the third and fourth quarters of fiscal 2024, the company projects comps growth to be between 2% and 3%.
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Shares of this apparel and accessories dealer have gained 8.7% compared with the industry’s 7.7% growth in the past six months. ROST currently carries a Zacks Rank #3 (Hold).
Key Picks
We have highlighted three better-ranked stocks, namely Boot Barn BOOT, Abercombie ANF and Nordstrom JWN.
Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and earnings per share indicates growth of 13.9% and 13%, respectively, from the year-ago figures.
Abercrombie, a leading casual apparel retailer, currently carries a Zacks Rank #2 (Buy). ANF delivered an earnings surprise of 16.8% in the last reported quarter.
The consensus estimate for Abercrombie’s current financial-year sales indicates growth of 13% from the year-ago figure.
Nordstrom, a fashion specialty retailer, currently carries a Zacks Rank of 2. JWN delivered an earnings surprise of 29.7% in the last reported quarter.
The Zacks Consensus Estimate for Nordstrom’s current financial-year sales indicates growth of 0.6% from the year-ago figure.
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