Stock Story -
Off-price retail company Ross Stores (NASDAQ:ROST) reported results in line with analysts’ expectations in Q2 CY2024, with revenue up 7.1% year on year to $5.29 billion. It made a GAAP profit of $1.59 per share, improving from its profit of $1.32 per share in the same quarter last year.
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Ross Stores (ROST) Q2 CY2024 Highlights:
- Revenue: $5.29 billion vs analyst estimates of $5.25 billion (small beat)
- EPS: $1.59 vs analyst estimates of $1.49 (6.4% beat)
- EPS (GAAP) guidance for the full year was raised and is $6.06 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 28.3%, in line with the same quarter last year
- EBITDA Margin: 13.8%, in line with the same quarter last year
- Free Cash Flow Margin: 7.5%, down from 10.3% in the same quarter last year
- Locations: 2,148 at quarter end, up from 2,061 in the same quarter last year
- Same-Store Sales rose 4% year on year (5% in the same quarter last year) (beat vs. expectations of up 2.9% year on year)
- Market Capitalization: $51.35 billion
Discount RetailerDiscount retailers understand that many shoppers love a good deal, and they focus on providing excellent value to shoppers by selling general merchandise at major discounts. They can do this because of unique purchasing, procurement, and pricing strategies that involve scouring the market for trendy goods or buying excess inventory from manufacturers and other retailers. They then turn around and sell these snacks, paper towels, toys, clothes, and myriad other products at highly enticing prices. Despite the unique draw and lure of discounts, these discount retailers must also contend with the secular headwinds of online shopping and challenged retail foot traffic in places like suburban strip malls.
Sales GrowthRoss Stores is one of the larger companies in the consumer retail industry and benefits from economies of scale, enabling it to gain more leverage on fixed costs and offer consumers lower prices.
As you can see below, the company’s annualized revenue growth rate of 6.4% over the last five years was sluggish , but to its credit, it opened new stores and grew sales at existing, established stores.
This quarter, Ross Stores grew its revenue by 7.1% year on year, and its $5.29 billion in revenue was in line with Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 3.4% over the next 12 months, a deceleration from this quarter.
Same-Store SalesA company’s same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
Ross Stores’s demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company’s same-store sales have grown by 2.9% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Ross Stores is reaching more customers and growing sales.
In the latest quarter, Ross Stores’s same-store sales rose 4% year on year. This growth was a deceleration from the 5% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from Ross Stores’s Q2 Results This was a 'beat and raise' quarter. Specifically, it was good to see Ross Stores beat analysts’ same-store sales, gross margin, and EPS expectations this quarter. That the company raised full year EPS guidance shows that the Ross Stores is outperforming despite some macro and consumer weakness called out by other companies such as McDonald's (NYSE:MCD). Overall, this quarter had some key positives. The stock traded up 7% to $163.24 immediately after reporting.
