The company's value-based model resonates with inflation-weary consumers up and down the income ladder. Its stock is still a buy. By Teresa Rivas
From screen-time eyestrain to social media's negative impact on mental health, there are plenty of reasons to get offline even as technology takes over more aspects of our lives. Off-price retailers like Ross Stores are living proof that analog can thrive in the age of e-commerce.
Investors might be hesitant to invest in Ross Stores after the shares soared some 80% in the past year, but consider another double-digit number: 17%. That's how much comparable sales rose in the discounter's most recent quarter. This "unprecedented" figure, as Guggenheim analyst Simeon Siegel puts it, dates back as far as his extensive model on Ross goes. It's a sign that its momentum is far from over, as its value-based model resonates with inflation-weary consumers up and down the income ladder -- no digital sales required.
"It's counterintuitive, but these off-price companies really benefit from not being online because moving online just means that a retailer is going to be compared to Amazon.com...it really permanently impaired most margins for companies," says Julie Biel, chief market strategist and portfolio manager at Kayne Anderson Rudnick, which owns the shares. "The thing I probably like best about off-price retailers is that they're not online."
That's not the only thing to like, however. Off-price, a category that also includes T.J. Maxx owner TJX Cos. and Burlington Stores (another Barron's Investor Circle stock pick), has been gaining market share for years. Consumers not only don't mind the lack of online presence but actually enjoy the treasure-hunt model, in which each visit to a physical store brings unexpected new products. And they don't need to comparison-shop online to know that they're getting good deals.
"Value really resonates in this inflation era," says Biel. "Retailers like Ross are giving legitimate value, not just low prices, but real 'wow' moments."
Investors probably had their own wow moment after Ross' fiscal first quarter, delivered in May. Barron's noted in March that the company was on an upswing, but it was still better than even many bulls were expecting. Beyond strong top- and bottom-line results and blowout comparable sales, all of its categories notched at least midteens gains, and operating and gross margins were both easily ahead of expectations.
"We view this as more than just a beat: It's a validation of a higher-quality growth algorithm versus the Ross of a few years ago, with a setup that still skews toward further beat-and-raise potential," noted Jefferies analyst Corey Tarlowe.
He isn't the only one who thinks the quarter is more than a one-off. Nineteen out of 22 analysts tracked by FactSet raised their full-year earnings-per-share estimate for Ross after the report. Consensus now calls for EPS to jump 18.4% this year to $7.83, and climb more than 10% next year to $8.62.
Guggenheim's Siegel points to sales per store as one of the most telling factors. That metric's rise was a strong signal to buy TJX in the prepandemic era, correlating with its rise to dominance in off-price. With the completion of the first quarter, Ross' average sales per store over the past 12 months have closed the gap, climbing 8% year over year, roughly double the 4% seen by TJX brand Marmaxx.
That growth may "hold the key to a multiyear opportunity," Siegel writes, showing that Ross "may be now executing a similar playbook" as TJX did on its way to the top. Siegel has a $290 price target on Ross shares, up more than 25% from Wednesday's close of $228.62.
Consumers' focus on value means there can be more than one winner. Even with the spike in energy prices, retail sales are up, and credit-card data show that Americans are buying discretionary items as well as essentials. A combination of less debt, a still healthy job market, and stock market gains have kept shoppers coming back to stores, particularly those like Ross that give them the best bang for their buck. The company recently has seen success on social media, as well, and unlike traditional retailers -- where shoppers come to pick up a specific viral item -- the hunt itself is what draws people to Ross. Browsing is a form of entertainment, increasing the likelihood that they walk out with a purchase, regardless of what's in stock.
Of course, Ross' success hasn't gone unnoticed, as its rally shows, and the shares trade for 29.5 times next year's earnings, a few turns above its five-year average. It's hard to argue that the stock will have as strong a run as it has in the next 12 months as it did in the past, and the bar has been reset higher after its fantastic first quarter. If consumers pull back further as tax returns dwindle and gas prices remain elevated, those lofty expectations could become simply unrealistic.
A worst-case scenario seems unlikely, however. Ross trades roughly in line with peers Burlington and TJX, while reaping the benefits of improved inventory, stronger marketing, and refreshed stores. Comps will moderate but are likely to remain healthier than before, as Ross continues to acquire new customers, particularly younger shoppers who can become long-term loyalists.
"It doesn't feel like it's a peak for Ross," says Biel. "It feels like this is a part of its ongoing momentum."
Ross is on a roll.
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June 26, 2026 21:30 ET (01:30 GMT)
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