Jefferies cuts Ross Stores price target to $145, maintains hold

Published 05/03/2025, 12:10
Jefferies cuts Ross Stores price target to $145, maintains hold

On Wednesday, Jefferies adjusted its outlook on Ross Stores, Inc. (NASDAQ:ROST), reducing the price target on the company’s stock to $145 from the previous $161, while continuing to hold a neutral stance on the shares. According to InvestingPro data, the stock currently trades at $135.97, with a market capitalization of $44.9 billion, and shows relatively low price volatility - a characteristic that might appeal to stability-focused investors. The reduction comes in the wake of the retailer’s fourth-quarter performance, which saw comparable store sales at the higher end of management’s expectations. This uptick was attributed to increased customer traffic and a larger average basket size.

Ross Stores’ sales were bolstered by the introduction of higher-quality goods, although this presented a challenge to gross margin (GM), which stands at 32.6%. Nevertheless, the company managed to surpass expectations in operating margin (OM%) and earnings per share (EPS) due to the sale of a facility. The company maintains strong financial health, earning a "GOOD" rating from InvestingPro’s comprehensive analysis, with robust revenue growth of 8.5% over the last twelve months. Despite these positive outcomes, Jefferies noted some concerns regarding the company’s future performance.

Management at Ross Stores has indicated a drop in performance in January and February, setting the anticipated comparable sales and EPS below the estimates of Wall Street analysts. While Jefferies acknowledges that Ross Stores may continue to attract value-conscious consumers, the firm expressed a preference for competitors such as TJX Companies Inc (NYSE:TJX). and Burlington Stores Inc. (NYSE:BURL)

In the analyst’s own words, "4Q comp sales were at the top-end of mgmt’s guide, driven by stronger traffic and avg basket size. Higher quality goods drove improved sales, but was a headwind to GM. Despite this, ROST’s facility sale drove a better-than-expected OM% and EPS beat. Looking ahead, mgmt noted Jan/Feb softness and guided comps and EPS below Street ests. We believe ROST will continue to benefit from value-conscious consumers; however, we still prefer TJX/BURL. PT to $145." The revised price target reflects a cautious outlook on Ross Stores’ near-term prospects in light of the recent sales softness and management’s conservative guidance. Trading at a P/E ratio of 21.5 and offering a dividend yield of 1.08%, the stock currently trades near its 52-week low. For deeper insights into Ross Stores’ valuation and growth prospects, InvestingPro subscribers can access 12 additional key tips and a comprehensive Pro Research Report, part of the platform’s coverage of over 1,400 US stocks.

In other recent news, Ross Stores Inc . reported an earnings per share (EPS) of $1.79 for the fourth quarter of 2024, surpassing analysts’ forecast of $1.65. However, the company’s revenue slightly missed expectations, registering $5.91 billion against the anticipated $5.94 billion. For the full year, Ross Stores saw a 3.4% increase in sales, totaling $21.1 billion, with net income rising by 10.5% to $2.1 billion. Despite these strong earnings, both BMO Capital Markets and Citi adjusted their price targets for Ross Stores, with BMO reducing it to $156 and Citi to $146, while maintaining an Outperform and Neutral rating, respectively.

The company’s management provided a conservative outlook for the upcoming fiscal year, projecting a potential decrease in comparable store sales and lower EPS guidance than analysts expected. Analysts from BMO Capital Markets suggested that Ross Stores’ guidance might be conservative based on historical trends. Meanwhile, Citi’s Paul Lejuez noted that while some factors affecting the outlook might be temporary, such as weather conditions, the off-price business model remains well-positioned amid economic uncertainties.

Ross Stores plans to open approximately 90 new stores in fiscal 2025, signaling continued expansion despite macroeconomic challenges. CEO Jim Conroy emphasized the company’s adaptability and noted that recent challenges could be transitory, providing opportunities for closeout merchandise. The company’s focus on enhancing marketing and store environments was also highlighted as part of their strategic initiatives moving forward.

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