$78.91
$172.30
bear $78.91
base $134.17
bull $172.30
margin of safety $75.00
market price* $236.89
Ross Stores runs about 2,270 off-price apparel and home stores (1,904 Ross Dress for Less and 363 dd's DISCOUNTS at January 2026), buying brand-name overstock opportunistically and selling it below department-store prices. It owns almost nothing but inventory and leases nearly every store, so what matters is how much cash the stores generate after the money needed to keep them running. We measure that as owner earnings: operating cash flow, with timing swings in inventory, payables and taxes stripped out, less stock-based pay (a real cost) and the capital spending needed to maintain stores and distribution centers. On that basis owner earnings were about $1.15 billion in fiscal 2016, $1.58 billion in fiscal 2023, $1.78 billion in fiscal 2024 and $1.96 billion in fiscal 2025 (year ended January 2026); the pandemic-closure year (fiscal 2020) collapsed to about $0.3 billion, and the fiscal 2022 freight-and-weak-consumer squeeze cut the figure by roughly a fifth. Adding back about $55-85 million a year of cash interest gives the cash the business throws off before its lenders: $1.66 billion, $1.86 billion and $2.02 billion in fiscal 2023-2025. Sales and results in the latest two quarters are covered below. What we use as the normal level. We take $1.86 billion a year (the middle of fiscal 2023-2025). Fiscal 2020-2022 are left out as distorted years (shutdown, stimulus-era inventory swings, and the 2022 freight spike), and earlier years describe a smaller business. Fiscal 2025 actual growth in this cash flow was about 8.6%; our base case starts at 4% in year one, below that, because only store growth is credited (see below). Owner earnings per share rose from $2.91 to $6.05 over the decade, but roughly a quarter of that per-share gain came from a steadily shrinking share count (395 million diluted shares to 324 million, now about 319 million); we value the business in total dollars and divide by today's share count so buybacks are not double counted. The latest quarters. The first half of fiscal 2026 was very strong: sales $12.3 billion, up 17% (second quarter $6.26 billion, up 13%), diluted earnings $4.69 a share versus $3.03. First-quarter operating margin rose to 13.4% from 12.2%, which looks like genuine strength. The second quarter is different: operating income was $1.10 billion against $0.64 billion a year ago, an operating margin of 17.6% against 11.9% for all of fiscal 2025, because cost of goods fell to 66% of sales from 72%. We could not reconcile this from the filings available to us. The most likely cause is recovery of tariffs paid in 2025 after the Supreme Court's February 20, 2026 ruling that those tariffs were unauthorized (the annual report says the amount and timing of recoveries were still being evaluated), but that is our inference, not a disclosed fact. We treat it as non-recurring and do not lift the normal level. We also do not credit the unusually fast sales growth of the past two quarters, which may partly reflect timing and tax-refund effects; one genuinely good quarter is not enough to move the level. Debt and cash. In April 2026 Ross repaid its $500 million 0.875% notes. Remaining borrowings are about $1.02 billion of senior notes: $241 million at 4.70% due 2027, $133 million at 4.80% due 2030, $497 million at 1.875% due 2031 and $147 million at 5.45% due 2050. Because most of this is fixed well below current rates, we reduce the debt figure by about $105 million. Cash was $4.29 billion at August 1, 2026; we count $2.79 billion as excess after setting aside $1.5 billion for operations (Ross funds inventory heavily with supplier payables, so the cash cushion matters in a slump). Net of debt that is about $1.87 billion, or $5.87 a share, added to every case. Store leases (about $3.7 billion of commitments) are ordinary occupancy cost already deducted in operating cash flow and are not treated as borrowings. Base case, $134 a share. Business value about $41.0 billion, less debt of $0.9 billion, plus excess cash of $2.8 billion. Cash flow grows from $1.86 billion at 4% a year for five years and 3% for the next five, reaching about $2.6 billion in year ten, then stays flat. The only growth credited is new stores: the store count grew 3.7% in each of the last two years (2,109, 2,186, 2,267), 90 stores were opened in fiscal 2025, and about 110 (5%) are planned for fiscal 2026, all paid for out of cash year after year, and recently including new markets such as Puerto Rico and the New York metro area. We do not credit same-store sales growth (5%, 3% and 5% in the last three years) because it depends on the consumer and on share gains, nor margin gains, the faster 5% planned store pace, or any further tariff recoveries. After year ten we assume the existing store base keeps earning what it earned in year ten with no further growth, since a four-decade record of profitable stores and renewable leases supports continuity but nothing in the filings evidences expansion room beyond the next decade. Year-one cash flow of about $1.94 billion is below the fiscal 2025 actual of $2.02 billion; that is deliberate conservatism, not a forecast of decline. Bear case, $79 a share. Business value about $23.3 billion, less debt of $0.9 billion, plus excess cash of $2.8 billion. The story: a repeat of the fiscal 2022 squeeze, when freight and packaway inventory costs and a stretched lower-income shopper cut cash flow by about 20%, hits at once and lasts three years, with capital spending staying near the $1.1 billion planned for fiscal 2026 (about $150 million a year above our normal level) as new distribution centers are built. That puts cash flow at about $1.34 billion for three years. A recession year then cuts it by half to about $0.67 billion (the fiscal 2020 closures cut it by about 75%; a full repeat is beyond a one-in-ten outcome), it recovers to $1.34 billion the next year as it did after 2020, and then grows only 2% a year as store openings slow, to about $1.48 billion in year ten and flat after. Even at the trough, cash flow is more than ten times the roughly $55 million annual interest bill, and the first maturity ($241 million, due in 2027) is covered many times by cash, so debt does not impair shareholders in this case. Bull case, $172 a share. Business value about $53.2 billion, less debt of $0.9 billion, plus excess cash of $2.8 billion. It starts from the fiscal 2025 level of $2.02 billion, which the business has already reached, and grows 6.5% a year for five years and 5% for the next five (the planned 5% store growth plus modest same-store gains of the kind Ross has posted in each of the last three years), reaching about $3.5 billion, then flat. The 10-year compound growth in this cash flow has been about 6% a year, so this is at the top of what has actually been sustained. What could make this wrong. Our biggest uncertainties are the level of normal earnings (the fiscal 2022 and 2020 results show how quickly it can fall), whether the elevated capital spending and new distribution centers earn adequate returns, wage-and-hour class actions pending against Ross, primarily in California (its largest state with 491 stores), and the true size and timing of tariff recoveries, which we have given no credit. We are fairly confident in the store-growth engine and the strength of the balance sheet, and much less sure that the fiscal 2025 profit level is the new floor. Figures from our earlier estimate (bear $72, base $137, bull $223) used a different method and are not comparable; what has changed in the business is that the $500 million note has been repaid and second-quarter results have now been reported. Margin-of-safety price, $75. We are quite sure of the broad earnings level: every year in the last decade produced positive owner earnings, even during the 2020 closures, and the business has no debt-service risk. The worst plausible outcomes are a repeat of 2020 or 2022 on top of heavy new-store and distribution-center spending, or a fall in the cash available from supplier terms; the balance sheet would survive either, but earnings could fall 20-75% for a year or more. If we are wrong about the normal level by 10%, the shares would be worth roughly $121; if store growth stopped entirely and cash flow stayed flat at $1.86 billion, roughly $103; the bear case is about $79. The price assumes a holding period of five to seven years, during which Ross pays about $1.78 a share in dividends and spends roughly $1.2 billion a year repurchasing shares. At $75 the shares are priced at about 12 times normal business cash flow after setting aside the $5.87 a share of excess cash, a cash yield of roughly 8.4%; with about 4% a year of store-driven growth the business itself would produce about 12% a year (the 2.4% dividend is part of that cash yield), and the remaining eight points of a 20% annual return would have to come from the price moving toward the value of those cash flows as it grows over those years. We regard $75 as the price where that is realistic, and it sits just under the bear-case value. The margin-of-safety price is $75.