Ross Stores Up 7% On Q2 Results; Analyst Views Mixed

Ross Stores ROST shares gained more than seven percent Friday after beating second-quarter Street views, but analysts were divided on the company's outlook.

The nation's third-largest off-price apparel retailer is expanding its square footage even as sales growth slows, Credit Suisse's Michael Exstein said in a note maintaining a Hold and $75 target.

Moreover, Exstein said, the increasing popularity of so-called fast fashion, epitomized by inexpensive apparel purveyed by the likes of Forever 21, H&M and Zara will put further pressure on Ross's pricing.

Deutsche Bank's Mike Baker has an entirely different take.

Bulging inventories at traditional department stores recently led to heavy promotions that drove customers away from off-priced competition. Baker says those inventories are now trimmed to their lowest level in two years.

That should enable Ross and its larger competitor TJX, to raise prices and boost traffic at the same time, Baker said in a note Friday.

Baker rates the stock a Buy with a $78 target.

Citi's Oliver Chen praised Ross' recent performance, but maintained a Neutral rating based on the company's lack of international operations and online sales. Chen boosted his price target to $82 from $77.

Management's caution on continued slow traffic and promotional pricing pressures in the industry led Jefferies' Randal J. Konik to maintain a Hold rating and $70 target.

While Konik believes off-price apparel retailers will continue to gain market share, he's doubtful that Ross can continue to expand its margin on an expected same-store sales growth in the low single digits.

Ross traded Friday afternoon at $74.39, up 7.4 percent.