What happened
Ross Stores (NASDAQ: ROST) shareholders beat the market this week as the stock gained 10% by 10 a.m. ET on Friday. That boost was enough to trounce the 2.1% spike in the wider market, according to data provided by S&P Global Market Intelligence.
The rally put the off-price retailer's stock slightly above the 20% decline in the S&P 500 year to date. Shares are down 17% so far in 2022. The move higher was sparked by growing optimism on Wall Street about the company's short-term growth prospects.
So what
Ross Stores caught a head-turning upgrade earlier in the week when a Wells Fargo analyst called the stock a buy and raised the short-term price target to $110 per share from $90 per share. The company should do well in the current selling environment, the analyst predicted, and into 2023 as consumers look to save money with off-price shopping.
Ross Stores might have an unusually strong selection of merchandise if the holiday season requires extra promotions from major apparel and home goods, brands, too.
The retailer's last earnings report was a disappointment for investors. Management cited "mounting inflationary pressures" as a key reason why it reduced its 2022 outlook. Ross Stores is now predicting same-store sales declines of roughly 8% and 6% in the fiscal third and fourth quarters, respectively.
Now what
This week's stock price jump reflects the opinion of many on Wall Street that the pressures management cited in the fiscal second-quarter report in mid-August might start to ease by the time the company announces its next earnings update in mid-November. The rally in the wider market was powered by brightening sentiment around consumer spending, after all, which is holding up well despite persistent inflation.
In any case, Ross stores is likely to return to steady growth within the next few quarters following extreme volatility associated with pandemic-related demand shifts. Its long-term outlook is bright, even if the next few quarters might show continued weakness in sales and profitability.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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