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Investing.com -- Wells Fargo has updated its outlook on key retail stocks, highlighting Ross Stores (NASDAQ:ROST) as a top performer while acknowledging Bath & Body Works (NYSE:BBWI) faces near-term challenges despite maintaining an overweight rating on both.
The bank’s latest analysis reveals diverging paths for these retailers as they navigate different market dynamics and leadership transitions.
While ROST shows promising momentum under new CEO leadership, BBWI struggles with inconsistent product launches and margin pressures.
1. Ross Stores (ROST) - Overweight, Price Target $180
Wells Fargo has increased its price target for Ross Stores from $175 to $180, expressing growing confidence in the company’s trajectory under CEO Conroy, who has been in the role for nearly 12 months.
The bank notes that ROST shares have slightly underperformed the sector since Q2 reporting, which analysts view as an opportunity given the company’s improving fundamentals.
Strategic initiatives driving growth include store modernization with self-checkout capabilities, improved brand mix and merchandising, and more efficient marketing.
The bank highlights a notable inflection in the Ladies business as evidence that merchandising strength is translating to performance gains.
Wells Fargo raised its Q3 comparable sales estimate to +5% from +2.5%, well above company guidance of +2-3%, and increased its Q3 EPS forecast to $1.45, exceeding both guidance ($1.31-1.37) and consensus ($1.40).
In recent developments, Ross Stores announced the completion of its fiscal 2025 expansion with 40 new locations and appointed William Sheehan as its next Chief Financial Officer.
The company also received several analyst updates, including a price target increase to $162 from TD Cowen and an initiation of coverage at a Neutral rating by BTIG.
2. Bath & Body Works (BBWI) - Overweight, Price Target $33
Despite maintaining an overweight rating, Wells Fargo lowered its price target for Bath & Body Works from previous levels to $33, citing challenges following the company’s highly successful Disney Princesses launch in Q1.
The bank notes that the subsequent Disney Villains collaboration appears to have underperformed expectations.
Analysts believe Q3 started weakly but improved through October, though this improvement appears to be driven by heavier promotions rather than core business strength.
The deeper and longer Fall Sale period suggests top-line gains are coming at the expense of margins.
Wells Fargo has reduced its Q3 EPS estimate to $0.37 (at the low end of guidance) due to weaker gross margins, and significantly cut its FY2026 EPS forecast to $3.30, well below consensus of $3.76.
The bank believes new CEO Heaf’s strategies need more time to take hold, while the business requires more reinvestment than initially anticipated.
Despite these revisions, Wells Fargo maintains its overweight rating based on BBWI’s attractive valuation at approximately 8x P/E on what they view as trough fundamentals, with potential for improvement in the second half of 2026.
Bath & Body Works has received updated analyst commentary, with Goldman Sachs recently reiterating its Buy rating, while Jefferies lowered its price target to $28.50, citing limited progress in reducing promotional activity.
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