Company Overview
Ross Stores, Inc. (NASDAQ: ROST) has emerged as a formidable force in the off-price retail industry, captivating shoppers with its unbeatable bargains and unwavering commitment to delivering exceptional value. As the largest off-price apparel and home fashion chain in the United States, Ross Stores has skillfully navigated the ever-evolving retail landscape, solidifying its position as a go-to destination for savvy consumers seeking high-quality merchandise at steeply discounted prices.
The company's history can be traced back to 1982, when it opened its first Ross Dress for Less store in Newark, California. Over the past four decades, Ross Stores has undergone a remarkable transformation, expanding its footprint to 1,792 locations across 43 states, the District of Columbia, and Guam as of the end of fiscal 2023. Complementing its flagship Ross Dress for Less brand, the company also operates 353 dd's DISCOUNTS stores, catering to a more price-conscious consumer segment with a moderately-priced assortment of name-brand apparel, accessories, footwear, and home fashions.
Historical Background
Ross Stores' journey began long before the opening of its first store. The company was originally incorporated in 1957 as Ross Stores, Inc., laying the groundwork for its future success. Following the launch of its first Ross Dress for Less store in 1982, the company experienced rapid growth, particularly in the western United States. By 2001, Ross Stores had reached a significant milestone with the opening of its 500th store. In 2004, the company made a strategic move to expand its presence nationwide, opening its first East Coast store in New Jersey. This marked the beginning of Ross Stores' transformation into a truly national retail chain. In 2009, the company further diversified its portfolio by acquiring dd's DISCOUNTS, a more moderately-priced off-price concept, which has since grown to become an integral part of the company's operations.
Financials
The company's financial performance has been equally impressive, with annual revenue reaching $20.38 billion and net income of $1.87 billion in fiscal 2023. Ross Stores has consistently demonstrated its ability to generate strong cash flow, recording annual operating cash flow of $2.51 billion and free cash flow of $1.75 billion in the same year. These robust financials have enabled the company to maintain a healthy balance sheet, with a current ratio of 1.56 and a debt-to-equity ratio of 0.61 as of the end of fiscal 2023.
In the most recent quarter (Q2 2024), Ross Stores reported revenue of $5.29 billion, representing a 7.1% year-over-year increase. Net income for the quarter stood at $527.15 million, with operating cash flow of $592.12 million and free cash flow of $394.64 million. The revenue growth was primarily driven by a 4% increase in comparable store sales and the opening of 87 net new stores between Q2 2023 and Q2 2024. The increase in net income was primarily due to lower distribution, incentive, and freight costs, partially offset by a decline in merchandise margin.
Liquidity
Ross Stores' strong financial position is further evidenced by its healthy liquidity. The company's current ratio of 1.56 indicates that it has sufficient short-term assets to cover its short-term liabilities. Additionally, its low debt-to-equity ratio of 0.61 suggests that the company has a conservative approach to leverage, which provides financial flexibility and reduces risk.
As of the most recent quarter, Ross Stores had $4.67 billion in cash and cash equivalents. The company also maintains a $1.3 billion senior unsecured revolving credit facility, which was undrawn as of Q2 2024. This robust liquidity position, combined with a quick ratio of 1.05, underscores the company's financial stability and ability to weather potential economic headwinds.
Business Strategy
A key driver of Ross Stores' success has been its unwavering focus on offering customers exceptional value. The company's nimble buying strategies and efficient supply chain allow it to source high-quality, branded merchandise at deep discounts, which it then passes on to consumers. This value-focused approach has resonated with shoppers, particularly during periods of economic uncertainty, as evidenced by the company's consistently strong performance during the COVID-19 pandemic.
Ross Stores operates two main off-price retail brands: Ross Dress for Less and dd's DISCOUNTS. Ross Dress for Less, with 1,790 locations as of August 3, 2024, offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices. dd's DISCOUNTS, operating 353 stores in 22 states, features a more moderately-priced assortment with savings of 20% to 70% off moderate department and discount store regular prices.
In the latest quarter, Ross Stores reported a 7.1% year-over-year increase in sales, driven by a 4% rise in comparable store sales. Earnings per share for the period came in at $1.59, up from $1.32 in the same quarter of the prior year. The company's management team attributed the strong results to its ongoing efforts to offer customers sharper pricing and a broader assortment of branded merchandise, which has been well-received by its target demographic.
The company's sales mix for Q2 2024 was as follows: Home Accents and Bed and Bath (24%), Ladies (23%), Men's (17%), Accessories, Lingerie, Fine Jewelry, and Cosmetics (14%), Shoes (13%), and Children's (9%). This diverse product mix allows Ross Stores to cater to a wide range of customer needs and preferences.
Future Outlook
Looking ahead, Ross Stores remains focused on expanding its store footprint, with plans to open approximately 90 new locations in fiscal 2024, comprised of around 75 Ross and 15 dd's DISCOUNTS stores. The company's strategic investments in its supply chain and technology infrastructure are also expected to drive operational efficiency and support its long-term growth objectives.
For Q2 2024, Ross Stores forecasts comparable store sales to be up 2% to 3%, with earnings per share projected to be $1.43 to $1.49. For the full fiscal year 2024 (52 weeks ending February 1, 2025), the company maintained its comparable store sales guidance of up 2% to 3%. Ross Stores now projects earnings per share for fiscal 2024 to be in the range of $5.79 to $5.98, compared to $5.56 for fiscal 2023.
The company also plans to buy back a total of $1.05 billion in stock during fiscal 2024, demonstrating confidence in its financial position and commitment to returning value to shareholders.
However, the company is not without its challenges. Like many retailers, Ross Stores has had to navigate ongoing macroeconomic headwinds, including persistent inflation and the resulting pressure on consumer discretionary spending. Additionally, the company faces competition from both traditional and online retailers, as well as potential supply chain disruptions and changes in consumer preferences.
Despite these obstacles, Ross Stores has demonstrated its resilience and adaptability, consistently delivering strong financial results and maintaining its position as a leader in the off-price retail sector. The company's commitment to value, innovation, and customer satisfaction has positioned it well to capitalize on the evolving retail landscape and continue its trajectory of growth and success.
Conclusion
In conclusion, Ross Stores' compelling combination of a proven business model, strong financial performance, and a steadfast dedication to customer satisfaction make it a compelling investment opportunity for value-oriented investors seeking exposure to the dynamic off-price retail industry. The company's consistent growth, healthy liquidity position, and strategic expansion plans underscore its potential for continued success. As Ross Stores continues to execute on its strategic initiatives and adapt to the changing retail environment, it is poised to remain a beacon of value and innovation in the years to come, offering both customers and investors alike an attractive proposition in the competitive retail landscape.