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Ross Stores Inc ROST

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Recovery Underway for Ross as Shoppers Return to Physical Retail, but the Shares Seem Rich

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $100 per share valuation of narrow-moat Ross should rise by a mid-single-digit percentage, due to the combined effects of stronger-than-expected first-quarter earnings and the time value of money. While first-quarter sales were considerably higher than we had anticipated ($4.5 billion versus our $3.8 billion), we attribute the outperformance to transitory pandemic-related effects, particularly consumers’ rising comfort with physical retail as vaccination rates rise and the impact of economic stimulus. Therefore, our long-term forecast still calls for mid-single-digit sales growth rates against low- to mid-teens adjusted operating margins long-term. We believe prospective investors should seek 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.

Contact
5130 Hacienda Drive
Dublin, CA, 94568-7579
T +1 925 965-4400
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Apr 30, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 93,700

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