Ross Stores reported a sales increase to $4.9bn in the three months ended 29 July 2023 from $4.6bn in the prior year period.
Comparable store sales were up 5% compared to the decline of 7% in the same period in the second quarter of 2022.
With the demand for discounted and off-price products rising more than ever, GlobalData apparel analyst Neil Saunders attributed the growth in performance to the lowering of gas prices and more modest inflation which has tamed consumer difficulties and put a little more money in their pockets.
He says: “To Ross’ core lower-income shoppers these marginal gains make a big difference and allow them to spend more freely.”
Saunders notes that Ross Stores’ slight reengineering of its price structure and making sure its assortment have strong opening price points encourages visitors to leave Ross Stores having purchased at least one item.
Ross Stores CEO Barbara Rentler states: “We are pleased with our second quarter results, with both sales and earnings well above our expectations. Along with easing inflationary pressures, customers responded well to our improved value offerings throughout our stores.”
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Key results from Ross Stores Q2 report:
- Overall sales were up by 7.7%
- Earnings before taxes (EBT) was $595m compared to $505m in the prior year period.
- Ross Stores reported a net income of $446m, up from $385m the prior year
TJX Cos, the parent company of off-price retailer TJ Maxx also increased its yearly outlook last week, (17 August) driven by consistent sales of discounted clothing and accessories and customer traffic.
According to Saunders, Ross Stores is not up to par with TJ Maxx due to it having a much narrower appeal to a more income-constrained shopper.
“There is nothing inherently wrong with this position, but it is one of the reasons for the slight difference in performance between Ross and its main off-price rival,” he says.
Saunders explains that Ross Stores is more successful at gaining new shoppers through its ongoing programme of store expansion and brings the concept into the reach of more people and further drives sales.
Ross Stores ups guidance
Looking ahead, the company has raised its full-year sales and profit outlook and now expects same-store sales for the year ending 27 January 2024, to be 2% and 3% higher than the prior year.
Ross Store projects third-quarter earnings per share between $1.16 to $1.21, up from $1 a year earlier and $1.58 to $1.64 for the fourth quarter compared to $1.31 in 2022.
The company expects earnings in the range of $5.15 to $5.26 per share compared to $4.38 in 2022.
Saunders believes the second half of the year looks favourable for Ross as he expects inflationary pressures to continue easing, which will bring in more shoppers.
Furthermore, he states the company’s investments in bargains and prices should continue to lure more shoppers into buying: “This upside is one of the reasons Ross has raised its second-half guidance. From a usually cautious retailer that normally errs on the downside, this is a good signal that things are starting to pick up.”
Rentler adds: “Moving forward, we remain focused on delivering the most compelling bargains possible while also carefully managing our expenses and inventory to maximise our potential for both sales and earnings growth. Longer-term, we believe the rigorous execution of our off-price business model will allow us to consistently deliver solid results.”