Ross Stores(US:ROST)2025-05-24 07:45Investment Rating - The report maintains an "Overweight" rating for Ross Stores with a price target of $141.00, lowered from a previous target of $161.00 [2][19][20]. Core Insights - Ross Stores reported an adjusted 1Q EPS of $1.47, exceeding the Street estimate of $1.44 and within management's guidance of $1.33 to $1.47, driven by flat same-store sales growth and stable operating margins [1][16]. - Management has withdrawn FY25 guidance due to uncertainties surrounding tariff announcements but has provided expectations for 2Q25, forecasting EPS of $1.40 to $1.55, which is below the Street estimate of $1.65 [1][14]. - The company is positioned favorably in the off-price retail sector, with a target of 2,500 stores implying over 10 years of annual square footage growth of 5-6% [10][19]. Financial Performance - For 1Q, Ross Stores achieved flat same-store sales growth, with April showing a notable improvement to +3% compared to previous months [1][16]. - The company reported a 12.2% EBIT margin, above the Street's expectation of 11.9%, and gross margin remained flat year-over-year at 28.2% [1][18]. - The report indicates a revenue growth of 2.6% for 1Q, with net income of $479 million and an adjusted EPS of $1.47 [18]. Future Outlook - Management expects 2Q same-store sales to be flat to +3%, which represents a significant acceleration compared to 1Q [1][14]. - The anticipated operating margin for 2Q is projected to decline to 10.7-11.4%, below the Street's expectation of 12.4% [1][14]. - The report highlights potential headwinds from tariffs, estimating a quarterly EPS impact of $0.11 to $0.16 due to tariff-related costs [7][14]. Valuation Metrics - The revised price target of $141 is based on approximately 22 times the revised 2026 EPS, reflecting a low-double-digit growth algorithm [11][20]. - The report outlines adjusted EPS estimates for FY25 at $6.16, down from a previous estimate of $6.60, with a projected operating margin of 11.4% [2][14]. Market Position - Ross Stores is well-positioned to capture market share from department stores, benefiting from a strong value proposition that offers prices 20-60% lower than competitors [10][19]. - The company has a robust balance sheet, ending 1Q with $3.8 billion in cash against $1.5 billion in debt, supporting its growth strategy [16][18].