Ross Stores Faces Slower Growth With Shifts In Lower-Income Customers Preference, Says Analyst

Telsey Advisory analyst Dana Telsey reiterated a Market Perform rating on the shares of Ross Stores Inc ROST and lowered the price forecast from $175.00 to $150.00.

ROST reported fourth-quarter EPS of $1.79, slightly lower than last year’s $1.82 but above both the consensus estimate and guidance of $1.57 – $1.64.

The earnings beat was largely driven by a $0.14 one-time gain from the sale of a packaway facility. Sales decreased by 1.8% to $5.912 billion, slightly missing consensus.

Comps grew 3%, outperforming the 2.6% consensus. Gross margin contracted to 26.5%, below estimates, but better cost control led to an operating margin of 12.4%, beating expectations, said the analyst.

The analyst noted that ROST’s initial FY25 outlook falls short of expectations. Total sales are projected to grow 1% – 5%.

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FY25 EPS is estimated to be between $5.95 – $6.55, lower than the $6.32 reported in FY24 and below the consensus of $6.67.

ROST’s first-quarter FY25 guidance is also below expectations. Sales are projected to decline 1% to increase by 3%, compared to the prior consensus of a 6% rise, with comps expected to fall between -3% and 0%, below the consensus of 2.4%.

While the company saw growth in traffic and basket size, sales slowed toward the end of the fourth quarter and continued to decelerate into the first quarter due to unseasonable weather and an uncertain macro environment.

Given these challenges, the first-quarter and FY25 outlooks are conservative. The company faces pressure from shifts affecting its core lower-income customers.

As a result, the analyst has lowered FY25 sales growth outlook to 4.6% YoY growth to $22.09 billion (from up 5.7% to $22.33 billion prior). EPS estimate for FY25 has been moved down to $6.54 (vs. $6.70 previously).

Price Action: ROST shares are trading higher by 1.38% at $137.84 at last check Wednesday.

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