Ross Stores (NASDAQ: ROST) reported mixed results for Q3 2024, falling short of Wall Street’s revenue expectations but surpassing profit forecasts. The off-price retail giant saw a 3% year-on-year increase in revenue, reaching $5.07 billion, but missed analysts’ expectations of $5.15 billion. On the positive side, the company reported a GAAP profit of $1.48 per share, exceeding consensus estimates by 6%.
Key Q3 2024 Results:
Revenue: $5.07 billion (3% growth, 1.5% miss vs. analysts’ estimates)
Adjusted EPS: $1.48 (6% beat)
Adjusted EBITDA: $833.2 million (16.4% margin, 21.4% beat)
Operating Margin: 11.9% (unchanged from Q3 2023)
Free Cash Flow Margin: 6.6% (up from 5.5% in Q3 2023)
Store Count: 2,192 locations (up from 2,112 last year)
Same-Store Sales: 1% growth (compared to 5% in Q3 2023)
CEO Barbara Rentler acknowledged the disappointing sales results, attributing the slowdown to high costs for low-to-moderate-income consumers, who are facing pressure on discretionary spending. Additionally, weather-related disruptions, including hurricanes and unseasonably warm temperatures, negatively impacted the company’s performance.
Despite the quarterly setback, Ross Stores has seen steady growth over the past five years, with a 6.2% annualized revenue increase since 2019. However, growth has decelerated slightly, with analysts forecasting a 4.5% revenue increase over the next 12 months. While this is a slight slowdown, it’s expected to be in line with the company’s large revenue base, which naturally limits higher growth rates.
The company’s aggressive expansion strategy continues to pay off, with Ross Stores adding 4.4% more locations annually over the past two years. The addition of new stores is essential for driving growth, especially in regions where there is a lack of physical retail presence.
Ross Stores has traditionally shown strong same-store sales growth, averaging 3.4% over the last two years. However, this quarter’s same-store sales growth slowed to just 1%, signaling a deceleration in organic growth. This raises concerns about whether Ross can regain its previous momentum and reaccelerate sales at existing locations.
The market’s reaction to Ross Stores’ Q3 results was mixed. While the company exceeded analysts’ expectations for EBITDA and gross margin, its EPS guidance for the upcoming quarter fell short. Despite these mixed results, the stock jumped 5.2% to $150.39 following the earnings report, reflecting some investor optimism based on the company’s underlying business strength and future prospects.
Ross Stores continues to face challenges as it navigates a tough retail environment, especially with rising pressures on its consumer base. While the company’s growth strategy remains solid with store expansions and steady revenue increases, its ability to adapt to shifting market conditions and sustain same-store sales growth will be critical in maintaining investor confidence.
For now, while Ross Stores shows resilience in certain areas, prospective investors should weigh the company’s mixed quarterly performance against its long-term growth potential. A more cautious approach may be warranted as the company deals with external pressures like weather-related disruptions and economic uncertainty.
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