Analysts See Growth Potential In Ross Stores Amid Holiday Season Optimism: Details

Several analysts expressed views on Ross Stores, Inc. ROST third-quarter results reported on Thursday.

The company reported EPS of $1.48, exceeding the consensus of $1.40, while sales of $5.07 billion missed the street view of $5.15 billion.

Ross Stores expects fourth-quarter EPS of $1.57 – $1.64 versus consensus of $1.67 and FY25 EPS of $6.10 – $6.17 compared to the street view of $6.14.

BofA Securities analyst Lorraine Hutchinson reiterated a Buy rating on the stock with a price target of $180.

The analyst writes that the company’s value-focused offerings continue to appeal to stretched consumers.

The analyst says the fourth-quarter guidance accounts for a timing shift in packaway expenses (benefiting the third quarter by $0.03) and lapping last year’s extra week, which added $0.20 to EPS and 80 basis points to OM. Hutchinson adjusted the FY24 estimate to $6.14, up 1%.

Telsey Advisory Group analyst Dana Telsey reaffirmed the Market Perform rating with a price target of $175.

The analyst writes that Ross Stores’ earnings beat reflected margin tailwinds, despite topline results falling short of expectations. While some sales weakness was attributed to unfavorable weather, product assortment issues also contributed, failing to fully capture consumer interest.

Looking ahead, the company remains aware of the challenging macroeconomic environment, particularly for its low-to-moderate income demographic, which faces pressure from rising essential costs, says the analyst.

The analyst writes that although FY24 EPS guidance was raised, fourth-quarter projections fell short, underscoring persistent challenges.

Ross’s commitment to value continues to attract deal-seeking customers, but macroeconomic uncertainty and the price sensitivity of its core demographic weigh, adds the analyst.

Guggenheim analyst Robert Drbul maintained a Buy rating with a $180 price target.

The analyst says that while macro uncertainties remain, he expects Ross to sustain positive sales momentum this holiday season, driven by strength in gifting, cosmetics, and accessories, and carry this into 2025.

Drbul sees EPS estimates of $6.15 in FY24 and $6.70 in FY25, which reflects a favorable environment for Ross, supported by ample branded goods supply, a strong value proposition, and ongoing sales optimism.

Following the third-quarter revenue miss, the analyst slightly reduced the FY24 revenue forecast, factoring in persistent inflation and its impact on discretionary spending.

Goldman Sachs analyst Brooke Roach writes that they remain positive on Ross Stores. Despite weather-related comp softness and execution challenges, ROST’s strategy of offering branded value merchandise at sharper prices is gaining traction.

While this pressures merchandise margins, operational efficiencies have offset the impact. Management acknowledges ongoing macro pressures on low- to middle-income consumers but expects sequential strength in the holiday quarter, driven by gifting and seasonal items, adds the analyst.

Roach writes that additional catalysts include the appointment of a new CEO, effective February 2025.

The analyst revised the FY24, FY25, and FY26 EPS estimates to $6.19, $6.54, and $7.14 (from $6.07, $6.47, and $7.06), respectively, to account for the quarterly results, timing adjustments, and slight margin forecast updates.

BMO Capital Markets analyst Simeon Siegel kept the Outperform rating and a price target of $168.

The analyst writes that ROST delivered a bottom-line beat, driven by stronger-than-expected gross margins, despite a topline miss attributed to unfavorable weather.

Management lowered its fourth-quarter EPS guidance but reiterated comp expectations, slightly raising the FY EPS high-end by $0.03, which the analyst views as conservative.

Investors can gain exposure to the stock via Virtus ETF Trust II Virtus KAR Mid-Cap ETF KMID and VanEck Retail ETF RTH.

Price Action: ROST shares are up 2.41% at $146.41 at the last check Friday.

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