Ross Stores (ROST)

Off-price retail company Ross Stores (NASDAQ:ROST) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 4.6% year on year to $5.53 billion. Its GAAP profit of $1.56 per share was 1.4% above analysts’ consensus estimates.

Company Overview

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 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.

Off-price and discount retail competitors include TJX (NYSE:TJX), Burlington Stores (NYSE:BURL), and Ollie’s Bargain Outlet (NASDAQ:OLLI).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $21.5 billion in revenue over the past 12 months, Ross Stores is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. To accelerate sales, Ross Stores likely needs to optimize its pricing or lean into international expansion.

As you can see below, Ross Stores’s 5.7% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was tepid, but to its credit, it opened new stores and increased sales at existing, established locations.

This quarter, Ross Stores grew its revenue by 4.6% year on year, and its $5.53 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months, similar to its six-year rate. We still think its growth trajectory is satisfactory given its scale and suggests the market is forecasting success for its products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Ross Stores operated 2,233 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4.1% annual growth, much faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Ross Stores’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 3.1% per year. This performance suggests its rollout of new stores could be beneficial for shareholders. When a retailer has demand, more locations should help it reach more customers and boost revenue growth.

In the latest quarter, Ross Stores’s same-store sales rose 2% year on year. This growth was a deceleration from its historical levels, showing the business is still performing well but losing a bit of steam.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Ross Stores’s gross margin is slightly below the average retailer, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 34% gross margin over the last two years. That means Ross Stores paid its suppliers a lot of money ($66.02 for every $100 in revenue) to run its business.

In Q2, Ross Stores produced a 27.6% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 1%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Ross Stores’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 12% over the last two years. This profitability was top-notch for a consumer retail business, showing it’s an well-run company with an efficient cost structure. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Ross Stores’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q2, Ross Stores generated an operating margin profit margin of 11.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Ross Stores’s unimpressive 6.2% annual EPS growth over the last six years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q2, Ross Stores reported EPS of $1.56, down from $1.59 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.4%. Over the next 12 months, Wall Street expects Ross Stores’s full-year EPS of $6.30 to grow 3.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Ross Stores has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.8% over the last two years, quite impressive for a consumer retail business.

Ross Stores’s free cash flow clocked in at $466.6 million in Q2, equivalent to a 8.4% margin. This cash profitability was in line with the comparable period last year and its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Ross Stores’s five-year average ROIC was 29.6%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Ross Stores reported $3.85 billion of cash and $5.07 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.08 billion of EBITDA over the last 12 months, we view Ross Stores’s 0.4× net-debt-to-EBITDA ratio as safe. We also see its $84.33 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Ross Stores’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.1% to $150.10 immediately following the results.

Updated: November 6, 2025 at 9:39 PM EST

Before deciding whether to buy Ross Stores or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There’s plenty to admire about Ross Stores. Although its revenue growth was a little slower over the last six years, its new store openings have increased its brand equity. And while its mediocre EPS growth over the last six years shows it’s failed to produce meaningful profits for shareholders, its stellar ROIC suggests it has been a well-run company historically.

Ross Stores’s P/E ratio based on the next 12 months is 24.3x. When scanning the consumer retail space, Ross Stores trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $166.24 on the company (compared to the current share price of $160.23), implying they see 3.7% upside in buying Ross Stores in the short term.