Ross Stores Earnings Beat Sends Stock To New Highs

Key Points

• Ross Stores delivered another strong earnings beat in the first quarter, as broad-based customer traffic growth helped drive a 21% jump in revenue and a 17% increase in comparable store sales.
• The company issued upbeat second-quarter guidance and raised its full-year outlook after reporting stronger-than-expected margins and earnings in the first quarter.
• While analysts see more limited upside after the stock’s massive multiyear rally, the latest earnings beat and raised guidance helped push shares to a new all-time high following the report.

Ross Stores Inc. NASDAQ: ROST demonstrated once again that bargain hunting is alive and well in today's economy. The off-price retailer posted strong first-quarter results on May 21 as higher customer traffic across the board helped drive growth.

The results also extended the company's streak of better-than-expected earnings and helped reignite momentum in the stock.

Shares, which had pulled back recently as investors took a breather after an impressive run, rose nearly 7% and hit a new all-time high following the report.

Strong Traffic Growth Fuels Earnings Beat

Revenue for the quarter rose 21% year over year to $6.01 billion, topping analyst estimates by $369 million. Comparable store sales increased 17% from the prior-year period. Customer traffic was the primary driver of the strong sales trend, though the company said higher tax refunds also helped support consumer spending.

On the earnings call, Chief Executive James Conroy said the increase in traffic was broad-based among demographic groups. "We saw healthy increases in customer count on a comp store basis across income levels, ethnicities, and all age groups, including the young customers."

The strong sales performance also helped drive meaningful margin expansion. Operating margin came in at 13.4%, well above the company's estimate of 11.8% to 12.1%. Net income rose to $650 million from $479 million last year, while earnings per share increased to $2.02 from $1.47 in the prior-year period, and easily topped Wall Street expectations of $1.73 per share.

Ross Stores Raises Full-Year Outlook

Ross Stores also provided upbeat second-quarter guidance and raised its full-year outlook. For the second quarter, the company expects comparable store sales growth of 6% to 7%, which could translate to earnings per share of $1.85 to $1.93, compared with $1.56 per share in the year-ago period.

Total sales are projected to rise 9% to 11%, while operating margin is expected to improve to 12.8% to 13.0%, up from 11.5% last year.

For the full year, Ross now expects same-store sales growth of 6% to 7%, building on a 5% gain in 2025. Earnings per share are projected to be between $7.50 and $7.74, up from $6.61 last year. Previously, the company had forecast same-store sales growth of 3% to 4% and earnings per share of $7.02 to $7.36.

Earnings Help Reignite Stock Momentum

The latest quarter marked the 16th consecutive earnings beat for Ross Stores, an impressive stretch that has helped drive shares up more than 85% over the last five years. Over the last year alone, shares have gained more than 50%.

The stock hit an all-time high above $231 on May 7 but had pulled back in recent weeks, likely as investors took profits and looked for signs that the company could continue to deliver strong results despite a difficult macroeconomic backdrop. Shares had fallen to around $217 ahead of the earnings report.

However, the strong first-quarter results and upbeat outlook seemed to give investors the reassurance they were looking for. By midday Friday, shares were trading at a new all-time high above $232.

Analysts Stay Bullish, Though Upside May Be Limited

Wall Street has remained largely bullish on Ross Stores following the strong earnings report. The stock currently carries a Moderate Buy consensus rating, based on 17 Buy ratings and five Holds. Since the start of the month, four analysts have raised their price targets on the shares.

Still, after such a strong multiyear run, many analysts see limited to no upside ahead. The average 12-month price target of roughly $223 suggests a slight downside from the current stock price.

Of the 18 analysts with price targets on the stock, 11 have targets below the current share price, ranging from $130 to $227. The remaining targets range from $235 to $290.

Off-Price Retailers Continue to Outperform

Ross Stores is not the only off-price retailer benefiting as consumers have become more selective in their spending. Fellow discount retailers TJX Companies Inc. NYSE: TJX and Burlington Stores Inc. NYSE: BURL have also enjoyed long streaks of better-than-expected earnings reports as consumers have continued to hunt for deals amid a tough macroeconomic climate.

TJX, which reported another better-than-expected quarter on May 20, has seen its stock rise about 18% over the last year and more than 135% over the last five years.

Meanwhile, Burlington, which is set to report first-quarter earnings on May 28, is up more than 23% over the last year. While the stock is down slightly over the last five years, having given back much of its pandemic-era gains, shares have climbed more than 170% since October 2022.

Ross Stores' valuation is largely in line with its peers. The stock currently trades at a price-to-earnings (P/E) ratio of 35X, compared with 30X for TJX and 34X for Burlington. The broader retail industry currently has a P/E ratio of around 25X.

Ross Stores' strong quarter reinforced the idea that off-price retailers continue to outperform in a difficult retail environment. While many analysts see limited upside following the stock's massive multiyear rally, the latest earnings beat and raised guidance could help reignite momentum in the shares.