Ross Stores Faces Slower Growth With Shifts In Lower-Income Customers Preference, Says Analyst

Core Viewpoint - Telsey Advisory analyst Dana Telsey has reiterated a Market Perform rating on Ross Stores Inc (ROST) and lowered the price forecast from $175.00 to $150.00, reflecting concerns over the company's future performance and outlook [1]. Financial Performance - ROST reported fourth-quarter EPS of $1.79, slightly lower than last year's $1.82 but above the consensus estimate and guidance of $1.57 – $1.64, with the earnings beat driven by a $0.14 one-time gain from the sale of a packaway facility [1]. - Sales decreased by 1.8% to $5.912 billion, slightly missing consensus expectations [1]. Margins and Growth - Comparable store sales grew by 3%, outperforming the 2.6% consensus, while gross margin contracted to 26.5%, below estimates; however, better cost control led to an operating margin of 12.4%, beating expectations [2]. - The initial FY25 outlook for total sales growth is projected at 1% – 5%, which falls short of expectations [2]. Future Guidance - FY25 EPS is estimated to be between $5.95 – $6.55, lower than the $6.32 reported in FY24 and below the consensus of $6.67 [3]. - The first-quarter FY25 guidance is also below expectations, with sales projected to decline by 1% to increase by 3%, compared to a prior consensus of a 6% rise; comparable store sales are expected to fall between -3% and 0%, below the consensus of 2.4% [3]. Market Conditions - The company experienced growth in traffic and basket size; however, sales slowed toward the end of the fourth quarter and continued to decelerate into the first quarter due to unseasonable weather and an uncertain macro environment [4]. - The company faces pressure from shifts affecting its core lower-income customers, leading to conservative outlooks for the first quarter and FY25 [4]. Revised Projections - The analyst has lowered the FY25 sales growth outlook to 4.6% YoY growth to $22.09 billion, down from a previous estimate of 5.7% growth to $22.33 billion; the EPS estimate for FY25 has been adjusted down to $6.54 from $6.70 [5]. - ROST shares are trading higher by 1.38% at $137.84 as of the last check [5].