Ross Stores (NASDAQ:ROST) Reports Q1 In Line With Expectations, Stock Soars

Petr Huřťák /
2024/05/23 4:12 pm EDT

Off-price retail company Ross Stores (NASDAQ:ROST) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 8.1% year on year to $4.86 billion. It made a GAAP profit of $1.46 per share, improving from its profit of $1.09 per share in the same quarter last year.

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Ross Stores (ROST) Q1 CY2024 Highlights:

  • Revenue: $4.86 billion vs analyst estimates of $4.83 billion (small beat)
  • Operating profit: $591 million vs analyst estimates of $552 million (7.1% beat)
  • EPS: $1.46 vs analyst estimates of $1.36 (7.7% beat)
  • EPS guidance: raised at the midpoint to $5.89 at the midpoint vs analyst estimates of $5.94 (small miss) (next quarter's EPS guidance was in line)
  • Gross Margin (GAAP): 28.1%, up from 26.7% in the same quarter last year
  • Free Cash Flow of $232.7 million, similar to the same quarter last year
  • Same-Store Sales were up 3% year on year
  • Store Locations: 2,127 at quarter end, increasing by 93 over the last 12 months
  • Market Capitalization: $44.1 billion

Barbara Rentler, Chief Executive Officer, commented, “Though we had hoped to do better, first quarter sales were in line with guidance despite macroeconomic headwinds that continued to pressure our customers’ discretionary spending. Earnings results for the period were better-than-expected primarily due to lower expenses relative to our plan.”

Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.

Discount Retailer

Discount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.

Sales Growth

Ross Stores is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.

As you can see below, the company's annualized revenue growth rate of 6.4% over the last five years was weak , but to its credit, it opened new stores and grew sales at existing, established stores.

Ross Stores Total Revenue

This quarter, Ross Stores grew its revenue by 8.1% year on year, and its $4.86 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 3.7% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

Ross Stores's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 1.5% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Ross Stores is reaching more customers and growing sales.

Ross Stores Year On Year Same Store Sales Growth

In the latest quarter, Ross Stores's same-store sales rose 3% year on year. This growth was an acceleration from the 1% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Ross Stores's Q1 Results

It was good to see Ross Stores beat analysts' gross margin expectations this quarter, which led to operating profit and EPS beats. On the other hand, its full-year earnings forecast--while raised from the previous outlook--was below expectations. To blunt the impact of that, the company guided to next quarter's EPS in line with expectations. Zooming out, we think this was a very good quarter with less exciting guidance. The market seems to be forgiving the guidance, and the stock is up 6.2% on the very solid reported results, though, and currently trades at $140.1 per share.

So should you invest in Ross Stores right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.