Ross Stores: Solid Q1 Beat, Guidance Withdrawn On Macro Uncertainty — Analysts Cut Price Target

Ross Stores (ROST) shares declined after reporting Q1 earnings of $1.47 per share, beating estimates by $0.03, and flat same-store sales growth, which was better than the estimated 0.6% decline. While Q1 results exceeded expectations, driven by larger basket sizes offsetting weaker traffic, the company withdrew its full-year guidance, citing tariff uncertainties, and projected Q2 earnings of $1.40-$1.55 per share, below the consensus of $1.65, due to tariff headwinds impacting operating margins.

Analysis

Ross Stores (ROST) experienced a significant share price decline of 11.15% to $135.28 following its first-quarter earnings report, despite exceeding Street expectations. The company reported Q1 earnings per share of $1.47, surpassing the $1.44 estimate, and achieved flat same-store sales (SSS) growth, which was better than the anticipated 0.6% decline. This SSS performance was reportedly driven by larger basket sizes, which offset weaker customer traffic, and management noted an improving trend with SSS growth reaching approximately 3% in April. Total sales rose 2.6% to $4.985 billion, slightly ahead of the $4.96 billion consensus. Furthermore, Ross Stores outperformed on both gross and operating margins in Q1, even with tariff headwinds and higher ocean freight costs. However, the positive Q1 results were overshadowed by the company's decision to withdraw its full-year guidance, citing the "varying nature of tariff announcements" and continued macroeconomic uncertainty. Compounding the negative sentiment, management issued Q2 earnings guidance of $1.40-$1.55 per share, notably below the $1.65 consensus. This weaker outlook is attributed to anticipated tariff impacts, which are projected to create a 90-120 basis point headwind to Q2 operating margins, translating to an $0.11-$0.16 drag on Q2 EPS. Analyst reactions were mixed, with JPMorgan reiterating an Overweight rating but cutting its price target from $161 to $141, Goldman Sachs maintaining a Buy rating while reducing its target from $177 to $162, and Telsey Advisory Group reaffirming a Market Perform rating with a $150 price target. The overarching concern remains the impact of tariffs on future profitability and the lack of full-year visibility.

Key Decisions for Investors

• Investors should closely monitor developments regarding U.S. tariff policies, as these are the primary driver for Ross Stores' withdrawn full-year guidance and weaker Q2 earnings outlook.
• Consider the substantial stock price decline as a potential re-evaluation point, weighing the better-than-expected Q1 operational performance against the significant, albeit potentially temporary, tariff-related headwinds and increased uncertainty.
• Evaluate the resilience of Ross Stores' off-price model, evidenced by Q1 SSS beating estimates and margin outperformance, in the context of ongoing macroeconomic pressures and specific tariff impacts on operating margins in the upcoming quarter.
• Note that while analysts have lowered price targets, firms like JPMorgan and Goldman Sachs maintain positive ratings, suggesting underlying confidence in the business model despite near-term challenges.