Ross Stores Raises Profit Outlook Despite Challenging Consumer Spending Environment

Key Takeaways

• Ross Stores raised its fiscal 2024 profit outlook and beat analysts’ second-quarter top- and bottom-line expectations.
• Q2 sales rose 7% year-over-year and EPS jumped 20%.
• CEO Barbara Rentler said the company is being cautious with its guidance given the economic challenges faced by its customer base.

Ross Stores (ROST) shares rose Friday, a day after the discount clothing retailer raised its full-year profit outlook but acknowledged a challenging consumer spending environment.

The company now expects fiscal 2024 earnings per share (EPS) between $6 and $6.13, up from its prior range of $5.79 to $5.98. In its second quarter, Ross reported $5.29 billion in sales, up 7% year-over-year, and EPS of $1.59, up 20%. Both the top and bottom lines came in above consensus expectations of analysts polled by Visible Alpha.

Retailer’s Customers Face Discretionary Spending Pressure

However, Chief Executive Officer (CEO) Barbara Rentler stressed that the retailer is taking a “cautious approach” to projecting its sales outlook.

“Our low-to-moderate income customers continue to face persistently high costs on necessities, pressuring their discretionary spending,” Rentler said. “In addition, our prior year sales comparisons become more challenging during the second half of the year amidst an external environment that is uncertain and volatile.”

Shares of Ross rose 1.6% to $154.97 as of 12:30 p.m. ET Friday. They are up 12% in 2024.

Despite the challenging consumer spending environment, Ross Stores has managed to raise its profit outlook for fiscal 2024. The discount clothing retailer reported strong second-quarter results, with sales increasing by 7% year-over-year and earnings per share (EPS) jumping by 20%. These figures surpassed the expectations of analysts polled by Visible Alpha.

With the positive performance, Ross Stores now expects its fiscal 2024 EPS to be between $6 and $6.13, up from the previous range of $5.79 to $5.98. This upward revision reflects the company’s confidence in its ability to navigate the current economic challenges.

Caution Amidst Economic Challenges

Despite the optimistic outlook, CEO Barbara Rentler emphasized the need for caution. Ross Stores is well aware of the economic challenges faced by its customer base, particularly those with low-to-moderate incomes. These customers continue to struggle with high costs of necessities, which puts pressure on their discretionary spending.

Rentler also highlighted the challenging sales comparisons with the prior year, especially in the second half of the year. The external environment remains uncertain and volatile, adding to the complexity of projecting sales performance. As a result, Ross Stores is taking a cautious approach to its sales outlook.

Investors responded positively to the news, with Ross Stores’ shares rising by 1.6% to $154.97 as of 12:30 p.m. ET on Friday. The stock has also seen a 12% increase in value since the beginning of 2024.

Despite the cautious approach, Ross Stores’ strong performance in the second quarter and the upward revision of its profit outlook demonstrate the company’s ability to adapt to the challenging consumer spending environment. By focusing on its target market and carefully managing costs, Ross Stores aims to continue delivering positive results in the future.

As the year progresses, Ross Stores will closely monitor the economic landscape and adjust its strategies accordingly. The company remains committed to providing affordable clothing options to its customer base while navigating the uncertainties of the market.

In conclusion, Ross Stores’ decision to raise its profit outlook despite the challenging consumer spending environment reflects its confidence in its ability to overcome economic challenges. By acknowledging the difficulties faced by its customers and taking a cautious approach to sales projections, the company aims to maintain its positive momentum. With its strong second-quarter results and optimistic outlook, Ross Stores is well-positioned to navigate the uncertainties of the market and continue delivering value to its stakeholders.