Ross Stores Continues to Pump Out the Goods

Stock (Symbol)

Ross Stores (ROST)

Stock Price


Retail & Travel
Data is as of
July 11, 2017
Expected to Report
Aug 17
Company Description
rossstores_storefrontRoss Stores operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS. 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. The dd’s DISCOUNTS stores offers its products at savings of 20% to 70% off moderate department and discount store regular prices every day. Source: Thomson Financial
Sharek’s Take
David SharekLast qtr Ross Stores (ROST) fell off as retail stocks sold off. But this qtr ROST bounced back in a big way. In the end, this stock was $65, went to $55, and is $65 once again. Ross 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. Clothing is a tough business right now, but I feel mall based stores are the ones to avoid. People still have to try on clothes to buy them, thus I feel Ross will actually benefit from mall store closures. This is an extremely well run organization. This company has little debt, thus management spends hundreds of millions on stock buybacks and dividends each year. The stock has an Est. LTG of 12% a year in addition to a 1% yield, and sells for 20 times earnings (which is what I think it should sell for). My 2018 Fair Value is $71 a share, plus the dividend. This is a good buy-and-hold stock for conservative investors.
One Year Chart
What a wild ride this stock went on. And really…investors that don’t track profits probably sold along the lows. But ROST is doing well, with double-digit profit growth in each of the last 4 qtrs. Last qtr the company delivered 8% sales growth and 4% same store sales growth. With those kind of numbers the company should be able to deliver double-digit profit growth due to stock buybacks. And Ross did deliver, with a 15% jump in profits which beat estimates of 8%. Looking ahead, analysts expect 8%, 19%, 10% and 11% profit growth the next 4 qtrs, but ROST has beaten the street the last 4 qtrs so these might come in even better.
Fair Value
Ross has sold for around 20x earnings the past few years. And that’s my Fair Value for this stock. The $71 price target for next year might increase in the coming qtrs. ROST has upped 2017 estimates in each of the last 4 qtrs.
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 solid recipe for success. I love the ten-year chart as the stock has delivered investors consistent returns, but do note the company isn’t growing profits like it used to so investors should temper expectations. Still, I feel this could continue to provide conservative investors with low double-digit total returns on a long-term basis. ROST ranks 18th of 32 stocks the Conservative Growth Portfolio Power Rankings.
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