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Ross Stores Inc ROST

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Solid Quarter at Ross as Inflationary Environment Creates Off-Price Opportunity

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Narrow-moat Ross posted solid third-quarter results (including 14% comparable growth that handily beat our 8% target) that show that its value proposition is resonating, and we believe the inflationary environment will make customers more responsive to the discounts that the chain provides. Consequently (and to reflect the time value of money), we plan to raise our $106 per share valuation by a mid-single-digit percentage. However, our long-term targets should remain in place (mid-single-digit percentage annual top line growth against low-teens adjusted operating margins). While the shares traded down by a mid-single-digit percentage after the news (perhaps due to heightened expectations after other retailers' earnings announcements), we suggest investors await a more attractive entry point.

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Company Profile

Business Description

Ross Stores is a leading American off-price apparel and home fashion retailer, operating over 1,850 stores (at the end of fiscal 2020) across the Ross Dress for Less and dd's Discounts banners. Ross offers a variety of name-brand products and targets undercutting conventional retailers' regular prices by 20%-70%. The company uses an opportunistic, flexible merchandising approach; together with a relatively low-frills shopping environment centered on a treasure-hunt experience, Ross maximizes inventory turnover and traffic, enabling its low-price approach. In fiscal 2020, 28% of sales came from home accents (including bed and bath), 23% from the ladies' department, 14% from each of men’s and accessories, 12% from shoes, and 9% from children's. All sales were made in the United States.

5130 Hacienda Drive
Dublin, CA, 94568-7579
T +1 925 965-4400
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 93,700