4 Ross Analysts React To Q1 Earnings Miss, Guidance Cut, Execution Missteps

Shares of Ross Stores, Inc. ROST dropped 23.9% on Friday after the company became the latest retail stock to disappoint the market with its first-quarter numbers.

On Thursday, Ross reported first-quarter adjusted EPS of 97 cents on revenue of $4.33 billion. Both numbers missed consensus analyst estimates of $1 and $4.53 billion, respectively. Revenue was down 4.2% from a year ago.

Ross reported that first-quarter same-store sales fell 7%.

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Looking ahead, Ross guided for full-year EPS of between $4.34 and $4.58, well below Wall Street expectations of $5. Ross also guided for full-year same-store sales to decline between 4% and 2%.

Underperforming Peers: BMO Capital Markets analyst Simeon Siegel said the Ross numbers look particularly bad relative to a solid report from TJX Companies Inc TJX.

"We continue to see ROST as a long-term share taker, but also recognize a very high short-term bar to own Consumer Discretionary," Siegel wrote.

Bank of America analyst Lorraine Hutchinson said macroeconomic factors weighed on Ross' performance in the first quarter, but investors can expect conditions to improve throughout the remainder of 2022.

"The sales miss was disappointing versus TJX Companies, but we still view Ross Stores as well-positioned to benefit from trade-down and gain market share as consumers seek value in the coming quarters," Hutchinson wrote.

Inventory Challenges Ahead: Wells Fargo analyst Ike Boruchow said Ross' report is one of the most surprising earnings misses of all in the first quarter.

"Big picture, numbers are coming down, and as margins continue to face mounting pressures (while their larger peer appears to be managing much better), investors will likely continue to debate what the right multiple is for the stock (as the cost of doing business continues to move higher in a post COVID world)," Boruchow wrote.

Telsey Advisory Group analyst Dana Telsey said Ross can't afford execution missteps in such a difficult macroeconomic environment.

"We anticipate incremental near-term pressure as the company looks to work through elevated inventory levels," Telsey wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and a $110 target.
• BMO Capital Markets has an Outperform rating and a $99 target.
• Wells Fargo has an Equal Weight rating and an $80 target.
• Telsey Advisory Group has a Market Perform rating and an $80 target.

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