Ross Stores’ SWOT analysis: off-price retailer’s stock resilience tested

Ross Stores, Inc. (NASDAQ:ROST), a leading off-price retailer with a market capitalization of $48.1 billion, has been navigating a complex retail landscape marked by economic uncertainties and shifting consumer behaviors. As the company approaches the end of fiscal year 2025, investors and analysts are closely examining its performance, strategies, and future prospects. According to InvestingPro analysis, the company maintains a "GOOD" financial health score, reflecting its strong market position and operational stability. This comprehensive analysis delves into Ross Stores’ recent financial results, market position, and the factors shaping its outlook.

Company Overview and Recent Performance

Ross Stores operates in the U.S. Specialty Retail, Apparel & Footwear sector, known for its off-price retail model that offers brand-name and designer apparel, accessories, footwear, and home fashions at discount prices. This business model has historically provided resilience during economic downturns, a factor that continues to attract investor attention.

In the second quarter of fiscal year 2025, Ross Stores reported earnings per share (EPS) of $1.56, surpassing the consensus estimate of $1.53. With trailing twelve-month revenue of $21.5 billion and a P/E ratio of 23.85, this performance demonstrates the company’s ability to manage costs effectively and maintain operational efficiency even in challenging market conditions.

Want deeper insights into ROST’s valuation and growth potential? InvestingPro subscribers get access to over 10 additional exclusive ProTips and comprehensive financial metrics. The strong gross margin (GM) performance in Q2 further underscores the company’s pricing strategy and inventory management capabilities.

Looking back at the first quarter of 2025, Ross Stores had also exceeded expectations with an EPS of $1.47, outperforming the consensus estimate of $1.44. However, the company faced headwinds related to tariff impacts on products in transit, which led to a cautious outlook for the subsequent quarter.

Guidance and Future Outlook

Ross Stores has recently reinstated its full-year 2025 guidance, providing a mixed outlook for the remainder of the fiscal year. The company anticipates comparable store sales to increase by 2% to 3% in both the third and fourth quarters. Notably, Ross Stores has maintained dividend payments for 32 consecutive years, with a recent dividend yield of 1.1% and impressive dividend growth of 10.2% over the last twelve months. However, the projected third-quarter EPS is expected to be 9% below consensus, while the fourth-quarter EPS is forecasted to be 4% above consensus.

Analysts note that a shift in packaway expense timing and diminishing tariff headwinds are expected to benefit the fourth quarter of 2025. This outlook suggests that while near-term challenges persist, the company foresees improvements in the latter part of the fiscal year.

The reinstatement of full-year guidance, after previously withdrawing it due to uncertainties, indicates a level of confidence in the company’s ability to navigate the current retail environment. However, the mixed projections for Q3 and Q4 highlight the ongoing volatility in the market and the need for cautious optimism.

Industry Trends and Competitive Landscape

The retail sector, particularly apparel and footwear, is grappling with significant challenges, including the impact of tariffs and changing consumer preferences. Ross Stores maintains a strong financial position with a healthy current ratio of 1.58, indicating sufficient liquidity to meet short-term obligations. The company’s gross profit margin of 32.48% demonstrates its pricing power in the competitive retail landscape.

Discover more about ROST’s competitive position and financial metrics with a InvestingPro subscription, which includes exclusive analysis and Fair Value estimates for over 1,400 US stocks. Analysts project that tariffs could drive apparel and footwear prices up by mid to high single digits. This trend has implications for all retailers, but companies with pricing power may be better positioned to mitigate these impacts.

Off-price retailers like Ross Stores are often viewed as defensive plays in the retail sector due to their ability to capitalize on market disruptions and offer value to price-conscious consumers. The company’s scale and focus on the U.S. market are factors that analysts consider when assessing its resilience to economic pressures.

Competitors in the off-price retail space, such as TJX Companies, are also closely watched by investors. While Ross Stores offers a compelling price-to-earnings (P/E) discount compared to TJX, analysts suggest that broader sector pressures may overshadow stock-specific themes in the near term.

Operational Strengths and Challenges

Ross Stores has demonstrated strength in several operational areas, including cost management and inventory control. The company’s ability to exceed earnings expectations, even when facing sales and gross margin pressures, speaks to its operational efficiency and adaptability.

The projected comparable store sales growth of 2% to 3% for the upcoming quarters indicates that Ross Stores continues to attract customers and drive traffic to its locations. This sustained demand is crucial for the company’s ongoing success in a competitive retail landscape.

However, challenges remain. The company’s dependence on the U.S. market exposes it to domestic economic fluctuations. Additionally, the ongoing impact of tariffs and potential changes in consumer spending patterns due to economic uncertainties could pose risks to Ross Stores’ growth trajectory.

Bear Case

How might tariff impacts affect Ross Stores’ profitability?

The implementation of tariffs on imported goods, particularly in the apparel and footwear categories, presents a significant challenge for Ross Stores. As tariffs drive up costs, the company may face pressure on its gross margins. While Ross Stores has demonstrated strong cost management in recent quarters, the full impact of tariffs could test the limits of its ability to maintain profitability without significantly raising prices.

Analysts note that the company’s guidance for the third quarter of 2025 reflects some of these concerns, with EPS projections below consensus. The tariff situation remains fluid, and any escalation could further strain Ross Stores’ supply chain and cost structure. The company’s off-price model typically thrives on acquiring excess inventory from other retailers, but if tariffs lead to broader industry price increases, it may become more challenging to source products at attractive margins.

What challenges does Ross Stores face in maintaining growth?

Ross Stores’ growth trajectory faces several headwinds in the current retail environment. The company’s focus on physical stores in an increasingly digital retail landscape could limit its ability to capture market share from e-commerce-savvy competitors. While Ross Stores has benefited from its treasure hunt shopping experience, changing consumer behaviors, particularly among younger demographics, may favor omnichannel retailers with strong online presences.

Additionally, economic uncertainties could lead to reduced consumer spending, potentially impacting Ross Stores’ sales volumes. The company’s withdrawal of full-year guidance earlier in 2025 before reinstating it suggests a level of unpredictability in the market. If economic conditions deteriorate, Ross Stores may find it challenging to maintain its historical growth rates, especially given its already significant market presence in the United States.

Bull Case

How does Ross Stores’ off-price model position it for success?

Ross Stores’ off-price retail model has historically provided resilience during economic downturns, positioning the company favorably in uncertain times. The model allows Ross Stores to capitalize on inventory imbalances in the broader retail market, acquiring branded merchandise at discounted prices and passing savings on to consumers. This value proposition becomes particularly attractive when consumers are more price-conscious.

Analysts view off-price retailers like Ross Stores as defensive plays in the retail sector. The company’s ability to adapt quickly to market conditions and its flexible inventory management system enable it to respond to changing consumer demands more effectively than traditional retailers. As economic pressures mount, Ross Stores may benefit from consumers trading down from higher-priced retailers, potentially driving increased foot traffic and sales.

What opportunities exist for Ross Stores in the current retail landscape?

The current retail landscape, characterized by ongoing disruptions and market volatility, presents several opportunities for Ross Stores. As other retailers struggle with excess inventory or store closures, Ross Stores can leverage its strong financial position to acquire merchandise at favorable terms, potentially expanding its product offerings and improving margins.

Furthermore, the company’s focus on value aligns well with consumer trends towards frugality and deal-seeking behavior. As e-commerce giants face challenges with returns and logistics costs, Ross Stores’ brick-and-mortar model, emphasizing the "treasure hunt" shopping experience, offers a differentiated and potentially more cost-effective approach to off-price retail.

The company’s recent reinstatement of full-year guidance, including positive comparable store sales growth projections, suggests confidence in its ability to navigate the current environment and potentially gain market share from struggling competitors.

SWOT Analysis

Strengths:

• Strong off-price retail model with proven resilience
• Effective cost management and operational efficiency
• Consistent comparable store sales growth
• Robust financial position

Weaknesses:

• Limited e-commerce presence compared to competitors
• Geographic concentration in the U.S. market
• Vulnerability to tariff impacts on imported goods

Opportunities:

• Potential market share gains from struggling retailers
• Expansion into new geographic markets or product categories
• Capitalize on increased consumer price sensitivity

Threats:

• Ongoing economic uncertainties and potential recession
• Intensifying competition in the off-price retail sector
• Shifts in consumer preferences towards online shopping
• Escalation of tariffs or trade disputes affecting supply chain

Analysts Targets

• Barclays: $164 (August 22nd, 2025)
• Barclays: $156 (May 23rd, 2025)
• Wells Fargo Securities: $150 (April 8th, 2025)
• Barclays: $150 (March 21st, 2025)
• Barclays: $150 (March 5th, 2025)

This analysis is based on information available up to September 1st, 2025, and reflects the most recent data and analyst perspectives provided in the context.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on ROST. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore ROST’s full potential at InvestingPro.

Should you invest in ROST right now? Consider this first:

Investing.com’s ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if ROST is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level.

To evaluate ROST further, use InvestingPro’s Fair Value tool for a comprehensive valuation based on various factors. You can also see if ROST appears on our undervalued or overvalued stock lists.

These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.