Ross Earnings: Traffic Gains Accelerate at the Off-Price Retailer; Shares Look Overvalued

Wide-moat Ross Stores delivered fiscal 2023 fourth-quarter results that exceeded our expectations as the firm’s assortment of cheap, branded merchandise attracted consumers to its namesake banner. The off-price retailer delivered 7% comparable store sales growth in the quarter (5% for the full year), driven entirely by increased traffic, and its operating margin of 12.4% (up 85 basis points annually, excluding the extra week) easily outpaced our 11.3% forecast. We plan to modestly increase our $109 fair value estimate in light of the firm’s strong results and our favorable view of Ross’ near-term growth prospects, though we still view shares as overvalued.