Stock (Symbol) |
Ross Stores (ROST) |
Stock Price |
$63 |
Sector |
| Retail & Travel |
Data is as of |
| April 13, 2017 |
Expected to Report |
| May 18 |
Company Description |
 Ross Stores, Inc. is an off-price retailer of name brand and designer apparel, accessories, footwear, and home fashions for the entire family. The Company operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS. As of December 31, 2014, the Company operated 1,210 Ross locations in 33 states, the District of Columbia and Guam, and 152 dd’s DISCOUNTS stores in 15 states. The Ross and dd’s DISCOUNTS stores are supported by five distribution centers. The Ross brand stores offers its products at savings of 20% to 60% off department and specialty store regular prices every day. Ross’ target customers are primarily from middle income households. The dd’s DISCOUNTS stores offers its products at savings of 20% to 70% off moderate department and discount store regular prices every day. Its target customers typically come from households with moderate incomes. Source: Thomson Financial |
Sharek’s Take |
 Ross Stores (ROST) is thriving in this tough retail environment that is threatening the existence of mall based retailers. ROST just produced three straight qtrs of double-digit profit growth while beating the street each time. Rost Stores is a discount clothing store that sells clothing and home goods at 20-60% off department store prices. The company began in 1982 in the San Francisco Bay area when 6 junior department stores were acquired and converted into Ross Dress for Less off-price stores. Ross went public in 1985 and as of fiscal year ending 2016 had 1342 Ross stores and 193 dd’s DISCOUNTS locations. Launched in 2004, dd’s DISCOUNTS targets younger households with more moderate incomes than Ross. ROST adds around 20 dd’s locations a year in addition to 70 Ross stores, and management feels it can almost double its total store count to 2500 someday. Significant growth opportunities lie ahead for both concepts as Ross is only in 34 states, with dd’s in just 15 states. Additionally, mall stores are suffering and the impending store closures will (1) force people to shop elsewhere for clothing and (2) put a lot of discontinued products on Ross shelves. In the end I feel discount clothing stores like Ross will thrive in this environment. ROST is also an extremely well run organization. This company has little debt, thus management spends hundreds of millions on stock buybacks and dividends each year. The dividend has increased every year since 1993. With retail stocks getting hammered this week, I will take advantage of the weakness to buy into strength and purchase ROST for the Conservative Growth Portfolio today. |
One Year Chart |
 Ross delivered an impressive 17% gain in profits last qtr and beat the street estimate of 14%. Sales rose 8% (solid) and same store sales increased an impressive 4%. ROST has had 2017 profit estimates increase from $3.02 to $3.15 the last 4 qtrs, so business is really coming in better than expected. This is clearly a bright spot in retail. Profit Estimates for the next 4 qtrs are 10%, 10%, 8% and 17%. The P/E of 20 is reasonable. Ross has an Est. LTG of 11% per year in addition to a 1% yield for a estimated total annual return of 11% per year — not bad. The stock is on a little pullback here which I feel is a buying opportunity. |
Fair Value |
 Ross has sold for around 20x earnings the past few years. Although the stock is fairly valued here, I feel the company might deliver beyond expectations as estimates. My Fair Value is 20x earnings or $63 per share which is around where the stock is now. |
Bottom Line |
 Ross Stores is a well oiled machine that grows its store base, increases same store sales at a modest rate, pays a dividend and buys back stock. That’s a recipe for success. With the stock down a little from its highs I will use this opportunity to add to my conservative stock collection. Overall I feel this stock could product double-digit total returns for the long-term as malls die a slow death. ROST will be added to the Conservative Growth Portfolio, but since the stock isn’t selling at a discount like its clothes are, it will rank just 25th of 31 stocks in the Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 25 of 31 |
