Ross Stores Financial Model

Ross Stores reports consolidated net sales, but models must build revenue from the ground up using store counts and comparable store sales.

• Segment name: Consolidated Net Sales.
• Revenue driver formula: (Beginning Store Count + New Stores - Closed Stores) x Average Sales per Store. Alternatively, modelled as: Prior Year Sales x (1 + Comparable Store Sales Growth) + Non-Comparable Sales from New Stores.
• Historical growth rate: 3% to 8% annually (Fiscal 2024 was 3%, Fiscal 2025 was 8% reaching $22.75 billion).
• Key growth levers and headwinds: The primary growth levers are new store openings (targeting 2,900 Ross and 700 dd's DISCOUNTS locations long-term) and driving foot traffic to increase comparable store sales. Headwinds include freight costs, wage inflation, and macroeconomic pressures on their core low-to-moderate income demographic.
• Pricing dynamics: Highly competitive. Ross prices merchandise 20% to 60% below department stores (up to 70% for dd's DISCOUNTS). Pricing power is limited by the need to maintain this strict value proposition.
• Revenue recognition notes: Revenue is recognised at the point of sale in stores. Returns are estimated and recorded as a reduction to revenue.
• Seasonality: The fourth quarter (holiday season) is historically the strongest, driving a disproportionate share of annual sales and operating profit.

• Total assets: Approximately $13 billion to $14 billion.
• Key asset categories: Merchandise Inventory, Operating Lease Right-of-Use Assets, and Property and Equipment.
• Goodwill & intangibles: Negligible. Ross grows organically, not through acquisitions.
• Working capital profile:
• Days Sales Outstanding (DSO): Near zero (retail cash/credit card business).
• Days Inventory Outstanding (DIO): 65 to 75 days. Inventory is elevated due to the "packaway" strategy where Ross buys excess inventory and stores it for later seasons (packaway is roughly 40% of total inventory).
• Days Payable Outstanding (DPO): 60 to 70 days.
• Net working capital: Typically negative or near zero, providing a source of cash as the business grows.
• PP&E: Consists of distribution centres, store fixtures, and IT equipment. Useful lives are typically 3 to 10 years for fixtures and up to 40 years for owned buildings.
• Right-of-use assets: Highly material. Ross leases almost all of its retail locations, resulting in billions of dollars in ROU assets and corresponding lease liabilities.

• Capex as % of revenue: 3.0% to 4.0%.
• Maintenance capex vs. growth capex: Approximately 40% maintenance (store remodels, IT upgrades) and 60% growth (new stores, new distribution centres).
• Major capex programmes: Building out the distribution network to support the long-term target of 3,600 total stores.
• Capitalised software: Minor relative to physical infrastructure.
• M&A pattern: Strictly organic growth. Zero M&A activity.

• Total debt: Approximately $2.4 billion in senior notes, plus significant operating lease liabilities.
• Debt/EBITDA ratio: Very low, typically under 1.0x (excluding operating leases).
• Credit rating: Investment grade (A- / Baa1 equivalent).
• Key debt instruments: Fixed-rate senior notes with staggered maturities.
• Maturity profile: Well-laddered over the next decade.
• Interest rate profile: Predominantly fixed rate.
• Covenants: Standard investment-grade financial covenants; highly compliant.
• Share repurchase programme: Highly active. The company repurchased $1.05 billion in fiscal 2025 and has a new $2.55 billion authorisation for fiscal 2026 and 2027.
• Dividend policy: Consistent dividend payer and grower. The quarterly dividend was recently raised 10% to $0.445 per share.

• Operating cash flow conversion: Very strong, typically 1.2x to 1.4x Net Income (Fiscal 2025 OCF was $3.03 billion on $2.15 billion Net Income).
• Free cash flow margin: 7.0% to 9.0% of sales.
• Major non-cash items: Depreciation and amortisation, stock-based compensation, and operating lease expense amortisation.
• Working capital cash flow impact: Favourable. Because DPO closely matches DIO and DSO is zero, new store inventory is largely funded by vendors.
• Capex intensity: Moderate (3% to 4% of sales).
• Cash tax rate: Closely mirrors the GAAP effective tax rate of approximately 23% to 25%.

1. Assumptions: Hardcoded drivers for store growth, comparable sales, margins, and working capital days.
2. Store Roll-Forward: Tracks beginning store count, openings, and closings separately for Ross Dress for Less and dd's DISCOUNTS.
3. Income Statement: Revenue built from store metrics, COGS (including occupancy), Gross Profit, SG&A, EBIT, Interest, Taxes, and Net Income.
4. Balance Sheet: Assets (Cash, Inventory, Other Current, PP&E, ROU Assets), Liabilities (Accounts Payable, Lease Liabilities, Long-Term Debt), and Equity.
5. Cash Flow Statement: Net Income, D&A, Working Capital changes, Capex, Dividends, Share Repurchases, and Debt issuance/repayment.
6. Debt Schedule: Tranches of senior notes, interest expense calculation, and debt paydown schedule.
7. Working Capital Schedule: Calculation of Inventory, Accounts Payable, and accrued expenses based on days outstanding.
8. DCF Valuation: Unlevered free cash flow build, WACC calculation, terminal value, and implied share price.

1. `Ross Stores EOP = Ross Stores BOP + Ross Stores Openings - Ross Stores Closings`
2. `dd's DISCOUNTS EOP = dd's DISCOUNTS BOP + dd's DISCOUNTS Openings - dd's DISCOUNTS Closings`
3. `Total Store Count = Ross Stores EOP + dd's DISCOUNTS EOP`
4. `Average Stores Open = (Total Store Count BOP + Total Store Count EOP) / 2`
5. `Consolidated Net Sales = Prior Year Net Sales x (1 + Comparable Store Sales Growth) + (New Stores x Average First Year Sales per Store)`
6. `Cost of Goods Sold = Consolidated Net Sales x (1 - Gross Margin %)`
7. `SG&A Expense = Consolidated Net Sales x SG&A Margin %`
8. `Operating Income (EBIT) = Consolidated Net Sales - Cost of Goods Sold - SG&A Expense`
9. `Ending Inventory = (Cost of Goods Sold / 365) x Days Inventory Outstanding`
10. `Ending Accounts Payable = (Cost of Goods Sold / 365) x Days Payable Outstanding`
11. `Interest Expense = Average Long-Term Debt x Weighted Average Interest Rate`
12. `Share Count = Prior Period Share Count - (Share Repurchase Amount / Average Share Price)`

• The Store Roll-Forward sheet dictates the revenue growth on the Income Statement.
• The Income Statement generates Net Income, which flows to the top of the Cash Flow Statement and feeds Retained Earnings on the Balance Sheet.
• The Working Capital Schedule uses COGS and Sales from the Income Statement to calculate balance sheet line items, and the period-over-period changes flow to the Cash Flow Statement.
• The Debt Schedule calculates Interest Expense for the Income Statement and ending debt balances for the Balance Sheet.
• The Cash Flow Statement calculates the ending cash balance, which serves as the plug to balance the Balance Sheet.

• Income Statement: Revenue is positive. Expenses (COGS, SG&A, Interest, Taxes) are negative.
• Balance Sheet: Assets are positive. Liabilities and Equity are positive.
• Cash Flow Statement: Cash inflows (Net Income, D&A, increases in liabilities) are positive. Cash outflows (Capex, dividends, share repurchases, increases in assets) are negative.
• Formulas: Gross Profit = Revenue + COGS (since COGS is negative). EBIT = Gross Profit + SG&A (since SG&A is negative).

1. Packaway Inventory Distortion: Ross holds roughly 40% of its inventory in "packaway" storage. This makes DIO look artificially high compared to peers. The model must maintain a high DIO assumption (65-75 days) rather than reverting to standard retail averages.
2. Occupancy in COGS: Ross includes store occupancy costs in COGS. If a builder models rent in SG&A, Gross Margin will be overstated by 400-500 basis points.
3. 53rd Week Adjustments: Fiscal 2023 had 53 weeks, adding $308 million in sales. Growth rates for Fiscal 2024 look artificially low unless adjusted for this extra week.
4. Operating Lease Liabilities: ROU assets and lease liabilities are massive. The model must ensure that the amortisation of ROU assets is handled correctly in the cash flow statement to avoid breaking the balance sheet.
5. Share Count Circularity: Share repurchases reduce the share count, which increases EPS, which impacts the share price, which dictates how many shares can be bought with a fixed dollar amount. Use a hardcoded average share price for the forecast to break the loop.
6. Store Count Mix: dd's DISCOUNTS stores generate lower average unit volumes than Ross Dress for Less stores. If the mix of new store openings skews heavily towards dd's, total revenue growth will lag total store count growth.
7. Freight Cost Volatility: Gross margin is highly sensitive to ocean freight rates. A static gross margin assumption might miss cyclical margin compression or expansion.
8. Cash Flow Plug: Because working capital is a source of cash, rapid store expansion generates cash rather than consuming it. Ensure the cash flow statement correctly captures the positive impact of Accounts Payable growth.

1. "Gross margin should be in the 26.0% to 29.0% range; flag if outside this band."
2. "Operating margin should be between 11.0% and 12.5%; flag if outside this band."
3. "Capex as a percentage of revenue should run between 3.0% and 4.0%."
4. "Total store count additions should not exceed 100-110 per year based on management guidance."
5. "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
6. "Free Cash Flow margin should be positive and in the 7.0% to 9.0% range."
7. "Effective tax rate should remain between 23.0% and 25.0%."
8. "Dividend payout ratio should remain between 25.0% and 30.0% of Net Income."

• Filings: SEC EDGAR (Form 10-K, 10-Q, 8-K) and the Ross Stores Investor Relations website (investors.rossstores.com).
• Key peers for benchmarking: The TJX Companies (TJX), Burlington Stores (BURL), Nordstrom Rack (JWN).
• Industry data sources: National Retail Federation (NRF) for apparel retail trends, Placer.ai for foot traffic data, and Freightos Baltic Index for ocean freight costs.
• Consensus estimates source: FactSet or Bloomberg for forward-looking EPS and comparable store sales estimates.

• Ross Stores Investor Relations: Fiscal 2025 Earnings Release (March 3, 2026)
• Ross Stores SEC Filings: Form 10-K for Fiscal 2024
• Retail Dive: Ross rounds out store openings for the year with 40 new locations (October 15, 2025)
• Investing.com: Ross Stores Gross Profit Margin
• Stock Titan: Ross Stores posts $22.8B sales, EPS $6.61 (March 30, 2026)
• Macrotrends: Ross Stores Gross Margin 2012-2026