Ross Stores, Inc. ROST emerges as an attractive value opportunity in the Retail - Discount Stores industry, trading at a forward 12-month price-to-earnings ratio of 22.8, below the industry average of 31.71x and the Retail-Wholesale average of 25.77x. The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the Retail-Wholesale sector. Furthermore, ROST’s VGM Score of B underscores its appeal as a potential investment.
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ROST stock is currently priced at $150.85, trading at a 7.8% discount from its 52-week high of $163.60 reached on Aug. 23, 2024. The stock is currently trading above its 200-day and 50-day moving averages of $143.52 and $146.19, respectively, highlighting a sustained upward trend.
ROST Trades Above 200 & 50-Day Moving Average
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Ross Stores stock has been trending up the charts, recording growth of 8.6% in the past month. This upside outpaces the broader Retail-Wholesale sector’s return of 7.4% and the Zacks Retail - Discount Stores industry's 3.9% growth in the same period. ROST’s shares have also surpassed the S&P 500 Index’s appreciation of 3.1% in the same timeframe.
ROST Stock Past Month Performance
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Ross Stores Growth Driven by Strategic Expansion and Value Offerings
Ross Stores continues to benefit from strong customer response to its merchandise across both banners, driving a 1% improvement in comparable store sales (comps) in third-quarter fiscal 2024. This growth was primarily fueled by increased customer traffic and larger basket sizes, reflecting a rise in the number of shoppers and the volume of purchases per visit. Consequently, sales grew 3% year over year during the quarter.
The company’s proven business model emphasizes competitive bargains, making its stores appealing destinations across various economic conditions. Additionally, its off-price model delivers a strong value proposition and leverages micro-merchandising to optimize product allocation and improve margins.
This strategy ensures that ROST 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 Stores has been consistent with the execution of its store expansion plans over the years. The company’s store expansion efforts are focused on continually increasing penetration in the existing and new markets. Given the large retail closures and bankruptcies over the past several years, Ross Stores earlier raised its long-term store expansion targets. The company expects to expand “Ross Dress for Less” to 2,900 stores and dd’s DISCOUNTS to 700 stores.
Upward Earnings Estimate Revisions Signal Confidence in ROST
Reflecting optimism around ROST, analysts have revised their EPS estimates upward. In the past 30 days, analysts have increased their fiscal 2024 and 2025 estimates by 1% to $6.17 and 0.8% to $6.67 per share, respectively. These estimates indicate expected year-over-year growth rates of around 10.9% and 8.1%, respectively.
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What Could Derail ROST Stock’s Momentum?
Despite its strong performance and strategic initiatives, Ross Stores anticipates a more moderate growth trajectory for the fourth quarter of fiscal 2024. The company expects comps growth of 2-3%, compared with growth of 7% achieved in the fourth-quarter of fiscal 2023. The company foresees fourth-quarter EPS to be $1.35-$1.41, down from $1.82 in the prior-year quarter.
Ross Stores has been witnessing higher costs for a while now. The company’s cost of goods sold (COGS) inched up 1.9% year over year in third-quarter fiscal 2024. Selling, general and administrative (SG&A) expenses in the reported quarter rose 2.8% year over year. Our model predicts COGS to increase 2.8% year over year for fiscal 2024. We expect SG&A expenses to increase 5.7% year over year for the fourth quarter and 4% for fiscal 2024.
Final Thought on ROST Stock
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. This approach has enabled the company to maintain its competitive edge and stay aligned with its long-term growth objectives.
However, management has acknowledged challenges facing its core customer base, primarily low-to-moderate-income shoppers under pressure from persistently high costs for essential goods. This economic strain restricts their discretionary spending, impacting sales in the near term. Currently, the stock has a Zacks Rank #3 (Hold), reflecting a balanced outlook for its future performance.
Stocks to Consider
We have highlighted three better-ranked stocks in the broader sector, namely Deckers DECK, Abercrombie & Fitch Co. ANF and The Gap, Inc. GAP.
Deckers, a footwear and accessories dealer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DECK delivered an average earnings surprise of 41.1% for the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings indicates growth of 13.6% and 12.7%, respectively, from the year-ago reported figures.
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank of 1. Abercrombie has a trailing four-quarter earnings surprise of 14.8%, on average.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 14.9% and 68.9%, respectively, from the year-ago reported figures.
Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It presently flaunts a Zacks Rank #1.
The Zacks Consensus Estimate for Gap’s fiscal 2025 earnings and sales indicates growth of 41.3% and 0.8%, respectively, from the year-ago reported figures. GAP delivered a trailing four-quarter average earnings surprise of 101.2%.
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