Ross Stores: EPS Rises, Revenue Dips

Ross Stores (NASDAQ:ROST), known for its off-price retail model, released fourth-quarter earnings for the fiscal year ending Feb. 3, 2025, on March 4, 2025. EPS exceeded analyst expectations, reaching $1.79 compared to the forecasted $1.66, aided by a one-time sale. However, revenue fell short at $5.9 billion, missing both the estimated $5.943 billion and the prior year's $6 billion. Despite these mixed results, Ross maintained a stable operating margin, underpinning its strategic strength in cost management.

Source: Analyst estimates for the quarter provided by FactSet.

Company Overview

Ross Stores stands as a leader in the off-price retail sector. Its unique model revolves around buying excess inventory and offering substantial discounts on well-known brands. In recent times, Ross focused on expanding its footprint through the addition of new stores, growing from 2,109 locations last year to 2,186 by the end of the current fiscal year.

The company aims to captivate cost-conscious shoppers by providing them with value-driven options while fine-tuning its operations to boost competitiveness. Its merchandise strategy of "packaway" ensures well-timed inventory deployment, a measure contributing to its foundational advantage in pricing competition.

Quarter Review

During the quarter, Ross Stores recorded a $1.79 EPS, 7.8% above the estimates, despite facing challenging market dynamics. This exceptional performance was partly due to a beneficial one-time gain related to the sale of a facility, boosting EPS by $0.14. While EPS brightened the financial display, total revenue of $5.9 billion fell short of the $5.943 billion expectation. This shortfall stemmed from a dip in consumer activity toward Thanksgiving, affecting sales momentum.

Comparative store sales rose by 3%, building on a robust 7% increase from the prior year, although the sales boost was tempered by an extra week in last year's period. Operating margins held steady at 12.4%, with gains from a one-time sale benefiting the bottom line helping to offset weaker merchandise margins and elevated packaway costs. Distributed dividends signaled confidence, with a robust 10% quarterly increase standing out alongside share repurchase commitments.

The expansion into urban centers continued as Ross opened new Ross and dds DISCOUNTS locations. This expansion and cultivation of a dedicated customer base underline its strategy to buttress growth amid a competitive environment. The management's positive tone was emphasized by CEO Jim Conroy, who affirmed, "Fourth quarter sales and earnings results were at the high end of our expectations."

Outlook

Looking ahead at fiscal 2025, Ross projects flat to a 3% decline in comparable store sales in the first quarter, reflecting caution about macroeconomic conditions. Management anticipates annual EPS will range from $5.95 to $6.55, a slight contraction from the previous year’s $6.32, signaling persistent external competitive pressures.

Investor focus should remain on Ross's proactive purchasing strategy, guided by demographic targeting and geographic positioning in dense urban clusters. This aligns with anticipated economic flux, competitive tensions from multiple retail formats—especially e-commerce—and localized effects such as weather patterns impacting shopper behavior.

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