Ross Stores, Inc. (NASDAQ:ROST) seems well-poised for growth, thanks to its robust strategic efforts. The company has been gaining from positive customer response for its merchandise across both banners, which has been boosting the comparable-store sales (comps) performance for a while now. Its store expansion plans also bode well.
In first-quarter fiscal 2024, comps improved 3%, mostly attributed to higher customer traffic and a favorable reaction from shoppers toward the enhanced assortments across its stores. This led to a sales improvement of 8% year over year in the quarter. Additionally, earnings rose 33.9% year over year while the top and bottom lines surpassed the Zacks Consensus Estimate. This marked the fourth straight quarter of a top and bottom-line beat.
The company remains focused on continually increasing penetration in the existing as well as new markets. As of May 24, 2024, Ross Stores operated a total of 2,127 stores, comprising 1,775 Ross Dress for Less stores and 352 dd's DISCOUNTS locations. This reflects the company's continued expansion strategy. Notably, ROST inaugurated 11 Ross Dress for Less stores and seven dd's DISCOUNTS outlets through February and March, thus spreading its reach across 11 diverse states.
In the fiscal second quarter, the company expects to open 24 stores, including 21 Ross and three dd's locations. This expansion is part of its ambitious plan for fiscal 2024, aiming to open 90 locations, which will include about 75 Ross and 15 dd's DISCOUNTS stores. The plan does not incorporate the closure or relocation of 10 to 15 older stores as part of the company's ongoing efforts to optimize its store portfolio.
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We note that Ross Stores operates a chain of off-price retail apparel and home accessories stores, which target value-conscious shoppers. The company has a proven business model as the competitive bargains it offers continue to make its stores attractive destinations for customers in all economic scenarios. Moreover, the off-price model offers a strong value proposition and micro-merchandising that drive better product allocation and margins. Overall, gains at the core business demonstrate consumers' continued focus on value and the company's ability to deliver value bargains to customers.
In addition, Ross Stores has been benefiting from lower distribution expenses, domestic freight and occupancy expenses due to the easing of supply-chain headwinds. However, throughout fiscal 2024, the company anticipates merchandise margins to be pressured due to its plans to offer more sharply priced brands, thus delivering on the strong value proposition expected by customers. Nevertheless, management expects an operating margin in the range of 11.5-11.8% for second-quarter fiscal 2024 compared with 11.3% in the year-earlier period.
Bottom Line
Given the aforesaid positives, Ross Stores stock seems to deserve a place in your investment bucket. Analysts seem quite optimistic about the Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for fiscal 2024 sales and earnings per share is currently pegged at $21.2 billion and $5.97 respectively. These estimates indicate corresponding growth of 4.1% and 7.4% year over year. The consensus mark for fiscal 2025 sales and EPS is $22.5 billion and $6.52, respectively, implying year-over-year growth of 5.9% and 9.2%.
Buoyed by such strengths, shares of this apparel and accessories dealer have gained 11% compared with the industry's 13.4% growth in the past three months.
Other Key Retail Picks
We have highlighted three other top-ranked stocks, namely Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS) and Deckers (NYSE:DECK).
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for Abercrombie & Fitch's current financial-year sales indicates growth of 10.4% from the year-ago reported figure. ANF delivered an earnings surprise of 28.9% in the last reported quarter.
Gap, a leading apparel retailer, currently sports a Zacks Rank of 1. GPS delivered an average earnings surprise of 202.7% in the trailing four quarters.
The Zacks Consensus Estimate for Gap's current financial-year sales indicates growth of 0.2% from the year-ago reported figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank of 2. DECK delivered an average earnings surprise of 42.8% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers' current financial-year sales indicates growth of 11.1% from the year-ago reported figure.