Ross Stores Shares Surge as Earnings Exceed Expectations Despite Inflationary Challenges

Key Takeaways:

Ross Stores shares rose Friday morning after the company reported third-quarter profits that surpassed expectations, despite a slight miss on sales.

CEO Barbara Rentler acknowledged that inflation continues to weigh on customers’ spending.

Boot Barn CEO James Conroy will succeed Rentler as CEO in February, following her planned retirement.

Ross Stores (NASDAQ: ROST) shares climbed on Friday morning as the discount retailer posted better-than-expected third-quarter profits. The company reported $488.8 million in net income on $5.07 billion in revenue, surpassing analysts' profit expectations of $459.8 million. However, sales came in slightly below the projected $5.14 billion, according to Visible Alpha.

Inflation Pressures Sales, but Profits Remain Strong

While the profit beat provided a boost, Ross's CEO Barbara Rentler expressed disappointment over the sales shortfall. She attributed the decline to continued inflationary pressures on low- to moderate-income customers.

“We are disappointed with our third-quarter sales results as business slowed from the solid gains reported in the first half of 2024," Rentler said. "Although our customers continue to face persistently high costs on necessities, we believe we could have better executed some of our merchandising initiatives.”

Comparable store sales rose by 1% year-over-year, falling short of analysts’ expectations of 2.2%. The company cited unseasonably warm weather and hurricanes in the southern U.S. as factors that weighed on performance during the quarter.

Outlook Remains Positive Amid Challenges

Looking ahead, Ross Stores expects comparable sales to grow between 2% and 3% in the fourth quarter. The company also raised its full-year earnings per share (EPS) guidance to a range of $6.10 to $6.17, up from its previous estimate of $6.00 to $6.13.

Leadership Transition on the Horizon

In October, Ross announced that James Conroy, CEO of Boot Barn, will take over as CEO following Rentler’s retirement on February 2, 2025. Rentler will remain with the company in an advisory role through March 2027. At Boot Barn, Chief Digital Officer John Hazen has been named interim CEO while the company searches for Conroy’s permanent replacement.

Ross Stores' strong profit performance, despite ongoing macroeconomic challenges, reflects its ability to adapt to evolving consumer behaviors while navigating external pressures. As the company transitions to new leadership, it remains focused on driving growth and improving execution in the months ahead.