March1,2021 BARRON’S 15
wind and could show up in next
week’s fourth-quarter report. Ross
is expected to report a profit of $1 a
share, down from $1.28 in the year-
ago period, on sales of $4.3 billion,
off 3.3% year over year.
Longer term, however, the geo-
graphic exposure could create a “more
meaningful recovery in fiscal 2022,”
notes MKM Partners analyst Susan
Anderson. She has a Buy rating on
Ross and recently raised her price
target on the shares to $138 from $124,
and sees “off-price as among the best-
positioned segment to recover post-
pandemic, and to gain outsize share
in the retail landscape.”
There’s also evidence that shoppers
are eager to return to the in-person
treasure-hunt model that has fueled
the group’s yearslong gains. Accord-
ing to data from Placer.ai, off-price
retailers have seen an “impressive
recovery pattern,” both in terms of
foot traffic and sales, since the third
quarter. All three major players have
seen visits rebound to within 10% of
January 2020’s prepandemic levels,
while TJX’s T.J. Maxx has returned to
positive traffic growth.
“Americans always love a fantastic
deal,” says Julie Biel, portfolio manager
at Kayne Anderson Rudnick, speaking
of off-price and closeout retailers. “It’s
borderline entertainment, a real dop-
amine rush being in store that would be
hard to replicate online.”
And that’s one reason that Ross’
lack of an online business might not
be a problem. Off-price retailers can
offer deep discounts that name brands
don’t want widely publicized—which
is why you can find a luxury sweater
for 90% off at a Ross store but not on
an easily searched department-store
website. Ross doesn’t even have an
online store.
Ross’ lack of an online business
means that it doesn’t have the costs
that come with delivering clothes to
customers—who usually expect orders
to ship for free—or with processing
returns, which also bites into margins.
Department stores likeMacy’s(M),
for instance, saw online sales jump
53% in its second quarter, the first
full period during lockdowns, but still
swung to an 81 cent loss on revenue
that tumbled 36%.
“I don’t want to own any [retailer]
involved in e-commerce; all of the
benefits go to the consumer and not
the retailer,” says Biel.
By contrast, off-price retailers don’t
have the margin pressures that come
with last-mile delivery and free returns,
nor the investment costs involved in
creating a fully functional omnichannel
platform. Marketing costs are lower,
since discounters can’t advertise all of
their sales, unlike other stores. Ross, for
instance, had net margins of more than
10% before the pandemic, and there’s
no reason that it can’t approach that
level again next year. “The winners
pre-Covid are getting back to where
they were and keep compounding
higher,” says BMO Capital Markets
analyst Simeon Siegel, who likes all
three major off-price players.
Ross’ earnings per share are ex-
pected to rebound from $1.21 in fiscal
2020, which ended in January, to
$4.53 in fiscal 2021—a 274% increase
that isn’t far behind the big gains ex-
pected for its peers—while sales are
expected to rise 34% year over year to
$16.8 billion. But at 26 times 12-month
forward earnings, Ross’ stock valua-
tion is on par with TJX’s, and is
cheaper than Burlington’s, at 38 times.
Just trading at 30 times forward earn-
ings would put the stock at $136, a
16% gain. Or, it can simply grow faster
than the market expects. That’s how
Anderson, who forecasts a $5.10 per
share profit in fiscal 2022, arrives at
her target of $138, up 18% from Friday
afternoon’s price.
Either way, it’s time to get Ross
before the deal is gone.B
Ross Stores Is Ready
To Bag Some Gains
Ross was hit harder by Covid than rivals TJX Cos. and Burlington Stores.
But that also makes it the bigger bargain as off-price retail rebounds.
Buried Treasure
Rossstockhasroomtocatchuptothesharesofrivalretailers.
Source: FactSet
March ‘20 '
0
10
20% ■TJX Cos.■Burlington Stores■Ross Stores
By TERESA RIVAS
R
oss Storesoffers shop-
pers a chance to find over-
looked “treasures” among
a heap of discards. Ross’
stock could offer investors
the same opportunity.
The company (ticker:
ROST) has had a tough time during
the pandemic. Ross, with 1,869 stores
in 40 states, mostly sells high-end
clothes, accessories, and home goods
repurchased from other retailers at
big discounts. But with little online
presence, its stores shuttered by
Covid-19 restrictions, and weak con-
sumer appetite for nearly all clothing
outside of yoga pants, sales at Ross
were cut in half during its spring
quarter, and by a third during the
summer.
Ross competitorsTJX Cos.(TJX)
andBurlington Stores(BURL) suf-
fered from the same problems, but
Ross had more stores in some of the
hardest-hit regions, so its stock took a
bigger beating: At a recent $117, the
shares were down 2% during the past
12 months. In the same span, Burling-
ton and TJX gained 11% and 3%.
But that underperformance means
that Ross also has the most to gain,
as more vaccines are given—13.9% of
Americans have received at least one
dose—and reopening accelerates.
Make no mistake: Ross Stores,
which has a market value of $42 bil-
lion, is far from putting the pandemic
behind it. Visits to stores were up
6.5% in the fourth quarter, but they’re
still down by the mid- to high-single
digits from their prepandemic peak.
That’s probably a result of the Dublin,
Calif.–based company’s exposure to its
home state and others, such as Florida
and New Jersey, that have seen slower
in-store traffic recoveries. That geo-
Illustration by Adria Fruitosgraphic mix is still a near-term head-