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Ross Stores Has More Upside; Wedbush Raises Target To $67

Ross Stores Has More Upside; Wedbush Raises Target To $67 - Ross Stores, Inc. NASDAQ:ROST

Following a “rare execution misstep” in Q1, Ross Stores, Inc. ROST 3.47% reported an acceleration in Q2.

Wedbush’s Morry Brown maintains an Outperform rating on the company, while raising the price target from $65 to $67.

Rebound In Q2

Brown mentioned that the Q2 acceleration reinforces a positive view on Ross Stores and off-price, while expecting continued beat and raise from the company in H2:16.

The company’s results rebounded in Q2, with a return to comps at 4 percent. Ross Stores believes there is still room for improvement in the execution in its women’s department, although the category made sequential progress.

“This provides potential upside opportunity in H2, beyond the company’s typical conservative guidance,” Brown stated, while adding, “With comps back on track, market share gains continuing, gross margins moving higher, and still room for execution improvement in 2H, we remain constructive on ROST’s near-term and long-term outlook.”

Labor Costs

The analyst noted labor costs were fully accounted for in Ross Stores’ H2 guidance, explaining that rising wages continues to be a key concern for investors.

“Executives noted they had done a good job offsetting the pressure so far, and would continue to find offsets, but acknowledged offsets will become increasingly difficult to find if wage pressure remains an ongoing issue,” according to the Wedbush report.

The analyst also stated that while the company ended Q2 with in-store inventory down 1 percent, the inventory and positive buying environment boded well for gross margins in Q3.

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