Ross Stores, the leading off-price apparel and home fashion retailer in the United States, has a rich history of delivering value and growth to its shareholders. With a unique business model centered around offering first-quality, in-season branded merchandise at significant discounts, the company has established a strong foothold in the ever-evolving retail landscape.
Company Overview
Founded in 1982 and headquartered in Dublin, California, Ross Stores has grown from a single store in San Bruno, California to a vast network of 2,186 locations across 43 states, the District of Columbia, and Guam as of the end of fiscal 2024. The company operates two distinctive brands - Ross Dress for Less and dd's DISCOUNTS - each catering to a slightly different customer demographic while maintaining the core off-price philosophy.
Ross Dress for Less, the larger of the two brands, has 1,831 stores and offers a wide assortment of 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. The dd's DISCOUNTS brand, launched in 2004, has 355 locations and provides a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices.
Financials
The company's financial performance has been impressive, with fiscal 2024 revenues reaching $21.1 billion, up from $20.4 billion in the prior 53-week fiscal year. Net income for fiscal 2024 rose to $2.1 billion, compared to $1.9 billion in the previous year. This strong financial footing is underpinned by the company's consistent execution, strategic expansion, and unwavering focus on delivering exceptional value to its customers.
For the most recent quarter (Q4 2024), Ross Stores reported revenue of $5.9 billion and net income of $587 million. The company's annual operating cash flow for fiscal 2024 was $2.5 billion, with free cash flow of $1.8 billion. Year-over-year growth has been steady, with sales increasing 3% in Q4 2024 compared to Q4 2023, driven by the opening of 80 net new stores and a 3% comparable store sales increase.
Business Model and Resilience
One of the key drivers of Ross Stores' success has been its ability to leverage its off-price business model to navigate macroeconomic challenges. During periods of economic uncertainty, the company has demonstrated its resilience by offering consumers a compelling assortment of branded merchandise at deeply discounted prices. This strategy has resonated with cost-conscious shoppers, allowing Ross Stores to consistently gain market share and outperform the broader retail industry.
The company's resilience has been evident throughout its history. In the early 2000s, Ross Stores successfully navigated a downturn in consumer spending following the dot-com bust, continuing to expand its store base during this challenging period. Similarly, during the Great Recession of 2008-2009, when many retailers struggled with high unemployment and reduced consumer spending, Ross was able to deliver positive comparable store sales growth and expand its store footprint, further demonstrating the strength of its off-price retail model.
Current Challenges
However, the company is not immune to the broader macroeconomic headwinds that have been impacting the retail sector. In the first quarter of fiscal 2025, Ross Stores reported a slowdown in sales, with comparable store sales declining between 3% and flat, and earnings per share guidance of $1.33 to $1.47, compared to $1.46 in the prior-year period. The company attributed this softness to a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environment, which have negatively impacted consumer confidence and discretionary spending.
Liquidity
Despite these near-term challenges, Ross Stores remains well-positioned to navigate the current environment. The company's flexible business model, diversified product assortment, and strong balance sheet provide a solid foundation for weathering the storm. As of the end of fiscal 2024, Ross Stores had $4.7 billion in cash and cash equivalents, a debt-to-equity ratio of 0.98, and an undrawn $1.3 billion senior unsecured revolving credit facility. The company's current ratio stands at 1.62, with a quick ratio of 1.09, indicating a healthy liquidity position.
Future Outlook and Strategies
Looking ahead, Ross Stores has outlined its strategic priorities for fiscal 2025, which include continued investment in store expansion, enhancement of the in-store shopping experience, and optimization of its marketing initiatives. The company plans to open approximately 90 new locations, comprised of 80 Ross Dress for Less and 10 dd's DISCOUNTS stores, while also closing or relocating 10 to 15 older stores.
For the full fiscal year 2025, Ross Stores is planning for comparable store sales to be down 1% to up 2%, and earnings per share to be $5.95 to $6.55 compared to $6.32 in fiscal 2024. Total sales are expected to grow by 1% to 5%. The company's operating margin for fiscal 2025 is projected to be 11.5% to 12.2% compared to 12.2% in 2024, which included a 30 basis point benefit from a one-time facility sale.
Additionally, the company is focused on improving its store environments and shopping experiences, as well as exploring ways to amplify its brand messaging and marketing efforts. These initiatives are aimed at strengthening the company's competitive positioning and driving long-term growth, even in the face of near-term macroeconomic headwinds. Ross Stores expects capital expenditures of approximately $855 million in fiscal 2025 to support store growth and investments in supply chain and merchant processes.
Product Segments and Merchandising Strategy
Ross Stores' merchandise is organized into six main categories: Home Accents and Bed and Bath (25% of sales), Ladies (23% of sales), Mens (16% of sales), Accessories, Lingerie, Fine Jewelry, and Cosmetics (14% of sales), Shoes (13% of sales), and Children's (9% of sales). This diverse product mix allows the company to cater to a wide range of customer needs and preferences.
The company's success is largely attributed to its ability to offer first-quality, in-season, brand name and designer merchandise at significant discounts to department and specialty store regular prices. Ross Stores leverages its off-price business model and opportunistic buying strategies to offer customers savings of 20-60% off regular retail prices. This value proposition has been a key driver of Ross and dd's DISCOUNTS' success in attracting price-conscious consumers.
Conclusion
In conclusion, Ross Stores' distinctive off-price business model, strong financial performance, and strategic focus on adapting to changing market conditions have positioned the company as a resilient player in the retail industry. While navigating the current macroeconomic challenges, the company remains committed to delivering exceptional value to its customers and driving sustainable growth for its shareholders. With its robust liquidity position, strategic store expansion plans, and focus on operational efficiency, Ross Stores is well-equipped to weather near-term headwinds and capitalize on long-term growth opportunities in the off-price retail sector.