Will Tariff Pressures Disrupt Ross Stores' Sourcing Advantage?

Ross Stores, Inc. ROST operates a chain of off-price retail apparel and home accessories stores, leveraging a proven business model that delivers a strong value proposition to cost-conscious consumers. Its micro-merchandising approach, tailored to local market preferences, enhances product-allocation efficiency and boosts margins.

Despite its strengths, the company is exposed to a tough macroeconomic and geopolitical environment, including the tariff-related pressures. Ross Stores faces mounting cost pressures as it contends with shifting trade policies, persistent inflationary trends and heightened duties on China-sourced merchandise. The company noted that numerous external uncertainties continue to limit visibility into the second half of fiscal 2025. 

Management has withdrawn fiscal 2025 sales and earnings guidance and offered a more limited outlook for the fiscal second quarter owing to the lack of visibility and unpredictable nature of tariff developments. The second-quarter fiscal 2025 earnings per share (EPS) view has been negatively impacted by tariff-related pressures.

Although the company directly imports a small portion of its merchandise, more than half of the products it sells originate from China, making it vulnerable to escalating tariff-related costs. As a result, Ross Stores is approaching the near-term with caution amid ongoing macroeconomic and geopolitical uncertainties, anticipating potential impacts on profitability and margins if current tariff levels persist. 

While mitigation strategies like sourcing shifts, supply-chain diversification and vendor negotiations are underway, these measures may not fully neutralize the financial strain. Its off-price business model, flexible sourcing and disciplined pricing might offer further aid.

ROST’s Price Performance, Valuation and Estimates

Ross Stores’ shares have lost 15.7% year to date against the industry’s 2.3% growth.

From a valuation standpoint, ROST trades at a forward price-to-earnings ratio of 19.66X compared with the industry’s average of 31.86X.

The Zacks Consensus Estimate for ROST’s fiscal 2025 EPS indicates year-over-year drop of 1.4% while that for fiscal 2026 EPS implies growth of 9%. The company’s EPS estimate for 2025 and 2026 has moved northward in the past 30 days. 

Ross Stores currently carries a Zacks Rank #4 (Sell).

Key Picks in Retail

We have highlighted three better-ranked stocks, namely Urban Outfitters URBN, Canada Goose GOOS and Dollar Tree DLTR.

Urban Outfitters, a lifestyle specialty retailer that offers fashion apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales indicates growth of 8.5% from the year-ago figure. URBN delivered an average earnings surprise of 29% in the last four quarters.

Canada Goose, a global outerwear brand, currently sports a Zacks Rank of 1. GOOS delivered an average earnings surprise of 57.2% in the trailing four quarters.

The Zacks Consensus Estimate for Canada Goose’s current financial-year sales indicates growth of 2.9% from the year-ago figure. 

Dollar Tree, an operator of discount variety stores offering merchandise and other assortments, currently has a Zacks Rank #2 (Buy). DLTR delivered an average negative earnings surprise of 6.9% in the trailing four quarters.

The Zacks Consensus Estimate for DLTR’s current financial-year EPS indicates growth of 6.5% from the year-ago figure.

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This article originally published on Zacks Investment Research (zacks.com).

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