Why Ross Stores Outperformance Over 2008 Recession Bodes Well For Its Outlook

Ross Stores (NASDAQ:ROST), a chain of discount department stores, has seen its stock decline by about 21% year-to-date, underperforming the broader indices, as it has had to temporarily shutter stores due to the coronavirus pandemic. That said, the stock could recover strongly as lockdowns in the U.S. ease, with customers potentially flocking to low-price retailers to save money as the broader economy remains soft. A detailed comparison of Ross Stores’ performance vis-à-vis the S&P 500 and its stock price performance compared to the 2008 crisis is available in our interactive dashboard analysis How Did Ross Stores Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Ross Stores stock lost 49% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown.  Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 43% over recent weeks (vs. ~30% gain in the S&P 500) to its current level of $91.

Ross Stock Fell Considerably Due To Closure Of Stores, And Lower Discretionary Spending Through Pandemic

Ross Stores have been closed since March 20 due to the pandemic, with a majority of its retail employees being furloughed. While the economy is opening up as of early May, the company could face headwinds in the near-term as consumers may forego apparel and other discretionary items and focus on buying necessities such as groceries and medicines.

We believe Ross’s upcoming Q1 results, likely due over the next few weeks, will confirm this reality with a drop in its total revenues. If signs of coronavirus containment aren’t clear by its August Q2 earnings timeframe, it’s likely Ross stock is going to see a continued drop if results confirm palpable reality.

Ross Remained Resilient Through The 2008 Downturn

Ross stores stock remained resilient through the great recession of 2008-2009. Between the pre-crisis market peak of October 2007 and the approximate market bottom in March 2009, the stock was actually up 15%, compared to the broader S&P which was down by about 51% over the same period. This was likely due to the fact that the company continued to grow its revenues through the downturn, as it attracted increasingly price-conscious shoppers with its strategy of offering quality department store brands at significantly lower prices.

Will Ross Stock Recover Strongly From The Current Crisis?

Keeping in mind the fact that ROST stock fell 48% from the market peak on February 19 to the low on March 23 compared to the increase in its stock price during the 2008 recession, it’s possible that the stock remains oversold at current levels. The stock could bounce back strongly as economic conditions begin to show signs of improvement. The company’s relatively strong financial performance in recent years (~7.5% annual revenue growth over the last 4 years) and its no-frills business model that focuses on passing on more savings to customers could bode well in the current environment.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

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