Share analysis: Ross Stores' strategic expansion fuels growth amidst market pressures

Opening one new store per week over the past five years, it now operates more than 2200 stores within the competitive fashion and home accessories sector. The company primarily runs two brands: Ross Dress for Less and dd's DISCOUNTS. This analysis comes at a time when the company has recently released quarterly figures, showing steady performance and a strategic focus on expanding its physical footprint to drive future growth. Ross Stores currently holds a strong position in the market, appealing to value-conscious consumers.

Company profile and history

Founded in 1957 by Stuart G. Moldaw, Ross Stores was established with a focus on providing branded and designer merchandise at significant discounts. The company's business model is centered on offering a constant rotation of products at deep discounts, which creates a 'treasure hunt' experience for shoppers. This model allows the company to operate without the constraints of a traditional retail calendar.

Barbara Rentler serves as the company's chief executive officer, a role she has held since 2014. The business has grown to become the largest off-price apparel and home fashion chain in the US. The company's market presence is substantial, with 1,873 Ross Dress for Less stores in 44 states, the District of Columbia, Guam, and Puerto Rico, and 360 dd's DISCOUNTS locations in 22 states, bringing the total store count to 2,233.

The company's price range is well below traditional department stores, with an average price point of around 20 to 60 percent off. Examples of mainstream items and prices might include a branded T-shirt for five dollars, a pair of jeans for eighteen dollars, or a home decor item for twelve dollars. The company does not produce its own merchandise but procures it from a vast network of vendors. Most of their production is sourced from global suppliers, with a significant portion of merchandise originating from China.

The company's most noteworthy news over the last two years has been its strategic expansion plan, including the opening of new distribution centers and numerous new stores. This aggressive physical growth strategy, coupled with strong earnings reports, has been a key driver for the share price. The share price has fluctuated since June 2022 due to a combination of factors, including macroeconomic pressures like inflation and consumer sentiment, as well as the company's operational efficiency and ability to manage inventory effectively. Recent positive earnings surprises and an optimistic outlook have led to a recent increase in the stock price.

Performance and financial outlook

The company had its initial public offering on August 8, 1985, at a price of 17 dollars per share, which, after adjusting for stock splits, was 0.53 dollars per share.

Share price development

Ross Stores has demonstrated a strong long-term share price performance. The all-time high for the stock was 158.69 dollars, while the all-time low was 0.20 dollars in 1986. At the start of this year, the share price was approximately 130 dollars, with a low for the year of 122.36 dollars. Over the past five and ten years, the share has consistently outperformed the broader market, driven by its resilient business model and effective inventory management.

Revenue and growth

The company has shown consistent revenue growth over the past few years, with fiscal 2025 revenues reaching 21.1 billion dollars, a 3.69% increase from 2024. In the three months ending on August 2, 2025, sales were 5.529 billion dollars, up 5% year-over-year. Future prospects for the next one to three years remain positive, with analysts forecasting annual revenue growth of 4.9%. The primary drivers of this growth are the ongoing expansion of the store network and the company's ability to attract value-seeking consumers in various economic climates. Inhibitors could include increased competition, economic downturns impacting discretionary spending, and supply chain disruptions.

Profitability

Ross Stores has maintained solid profitability metrics. In recent years, the gross profit margin has hovered around 32%, with the latest fiscal year reaching 32.7%. The company’s ability to secure merchandise at low costs and maintain an efficient supply chain has been a key factor influencing its profitability. Net earnings for the three months ending August 2, 2025, were 508 million dollars, which was a decrease from 527 million dollars in the same period in 2024, primarily due to higher costs.

Dividend and cash flow

The company has a consistent dividend policy, paying quarterly dividends. The current dividend yield is 1.07%. The dividend has been increased for four consecutive years, signaling financial stability. The payout ratio is low at 24.66%, indicating that the company retains a significant portion of its earnings for reinvestment in the business. The development of free cash flow has been strong, allowing the company to fund its store expansion plans and return value to shareholders.

Competitor comparison

When compared to key competitors in the off-price sector, such as TJX Companies (TJX) and Burlington Stores (BURL), Ross Stores demonstrates competitive financial performance. In terms of growth, all three companies have been expanding their store count, but Ross Stores has been particularly aggressive in its expansion. Ross Stores' gross margins are comparable to TJX but generally lower than Burlington Stores. However, Ross Stores' valuation, as measured by its price-to-earnings ratio, is approximately 23.65, which is in line with or slightly higher than its peers, suggesting a premium valuation from investors due to its consistent performance and growth potential.

SWOT analysis

Strengths

Strong brand recognition: Ross Dress for Less is a well-known brand in the US, with a loyal customer base attracted to its 'treasure hunt' shopping experience.
Effective inventory management: The company’s off-price model allows for quick turnover of merchandise and effective management of inventory, reducing the risk of holding obsolete stock.
Aggressive store expansion: The company's strategic plan to open a significant number of new stores annually provides a clear path for future revenue and market share growth.

Weaknesses

Reliance on physical retail: The company's business model is heavily dependent on brick and mortar stores, as it lacks a substantial e-commerce presence, making it vulnerable to shifts in consumer shopping habits.
Dependence on external sourcing: The company's business model relies on securing branded merchandise at a discount, which can be impacted by supplier availability and fluctuations in the wholesale market.
Vulnerability to economic downturns: While off-price retail can perform well during economic uncertainty, a prolonged and severe downturn could negatively impact consumer discretionary spending.

Opportunities

E-commerce expansion: Developing a robust e-commerce platform could significantly expand the company's market reach and attract a younger, digitally native consumer base.
Targeting new demographics: The company could explore new marketing strategies and product lines to appeal to a broader range of consumers, including Gen Z.
Supply chain innovation: Investing in new technologies for supply chain and logistics could further optimize operations and reduce costs.

Threats

Intense competition: The off-price sector is highly competitive, with established players like TJX Companies and Burlington Stores, as well as fast fashion and online retailers.
Economic fluctuations: An economic downturn or periods of high inflation could impact consumer spending on non-essential items, potentially hindering sales.
Trade regulations and tariffs: The company's heavy reliance on imported merchandise, particularly from China, makes it vulnerable to changes in trade policies and the imposition of new tariffs.

Sustainability and ESG

Ross Stores' ESG efforts are detailed in its corporate social responsibility reports. The company has a focus on a variety of initiatives, particularly in the social and governance areas.

Environmental: The company's environmental policies focus on reducing its operational footprint through energy efficiency and waste reduction programs.
Social: The company emphasizes its commitment to diversity, equity, and inclusion (DE&I) by nurturing a respectful workplace culture, attracting diverse talent, and supporting community networks.
Governance: The company's governance framework ensures transparency and accountability, with disclosures aligned with frameworks like the Global Reporting Initiative (GRI).

While the company has made progress, its ESG performance has faced scrutiny, particularly in certain environmental and social areas, receiving a low impact score from some rating agencies. For investors and consumers, the relevance of ESG factors is increasing, with growing pressure for companies to demonstrate a commitment to sustainable and ethical practices. While some of the company’s ESG efforts are notable, there is room for improvement in areas like supply chain transparency and comprehensive environmental targets.

Ross Stores share price past 5 years Credits: Yahoo Finance

Conclusion and investor perspective

Ross Stores presents a compelling case for investors due to its solid business model, consistent revenue growth, and effective management. The company’s disciplined off-price strategy has proven resilient, even in challenging economic environments.

This share might be suitable for a value investor who seeks a stable company with a proven track record and strong fundamentals. Its consistent dividend payments and low payout ratio also make it an attractive option for a dividend growth investor. The company's strategic store expansion offers a clear growth narrative, which could also appeal to a growth investor.

The primary risks for the share include its heavy reliance on physical retail in a world increasingly dominated by e-commerce and its exposure to macroeconomic and geopolitical factors that can impact consumer spending and supply chains. However, the company's strong brand loyalty and ability to adapt to market conditions present significant potential for long-term growth.

Disclaimer: This article is intended for informational purposes only and does not constitute financial or investment advice in any way. Investors should conduct their own comprehensive research and analysis before making any investment decisions.

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