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Ross Stores Stock Plummets As Retailer Likens Sector Struggles To 2008 Recession After Q1 Earnings Miss

"In terms of trade-down, the best proxy we would have, although every recession is different, would be 2008," said group president Michael Hartshorn.

Updated at 9:47 am EST

Ross Stores  (ROST) - Get Ross Stores Inc. Report shares plunged lower Friday as the budget-focused retailer became the latest victim of collapsing sector sentiment after a weaker-than-expected April quarter that one of its executives compared to the so-called 'great recession' of 2008. 

Ross Stores, which operates the 'Dress for Less' and 'dd's Discounts' brands, posted first quarter sales of $4.3 billion, missing Street forecasts, and cautioned that same-store sales for the three months ending in July would likely decline by as much as 6% when compared to last year's tally, which was supported by post-pandemic stimulus.

For the three months ending in April, Ross Stores posted net income of $338 million, or 97 cents per share, around 3 cents shy of the Street consensus forecast.

Full-year sales are also likely to decline, the company said, and rising input costs will likely add to the margin pressures retailers around the country are facing, clipping fiscal 2023 profits.

Retail stocks have been jolted this week by warnings from blue-chip retailers Target  (TGT) - Get Target Corporation Report and Walmart  (WMT) - Get Walmart Inc. Report that rising fuel and labor costs, as well as mis-timed inventory builds, will pressure near-term profit margins.

The country's two largest retailers each suffered their biggest single-day declines since 1987 this week, with Target losing around a quarter of its value in yesterday's carnage.

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Ross Stores' group president Michael Hartshorn said the impact of higher food and fuel costs for consumers is pinching discretionary budgets, noting the best proxy he sees for today's pullback would be 2008, "when the fall was very difficult and we started to see some improvement in the first half of 2009."

"We knew 2022 would be a difficult year to predict, especially the first half when we were facing last year's record levels of government stimulus and significant customer pent-up demand as COVID restrictions eased," CEO Barbara Rentler told investors on a conference call late Thursday. "The external environment has also proven extremely challenging as the Russia-Ukraine conflict has exacerbated inflationary pressures on the consumer not seen in 40 years. As a result of these factors, our first quarter results underperformed our expectations."

Ross Stores shares were marked 22% lower in early Friday trading to change hands at $71.22 each, a slump that extends the stock's year-to-date decline to around 36%.

U.S. retail sales growth steadied in April, data from the Commerce Department indicated earlier this week, as record high gas prices and surging inflation failed to deter spending in the world's biggest economy.

Inflationary pressures remain acute, however, even as the Commerce Department's headline April reading eased from a 40-year high to 8.1%, with so-called core inflation, which strips-out volatile components such as food and energy prices, rising 6.2%, near the highest since February of 1991.

"On average, the Ross customer has household income of between $60,000 to $65,000, and the dd's customer is south of that in the $40,000, $45,000 range," said Hartshorn. "But I would say the health of our customer, they're being squeezed to full -- food and fuel prices with inflation there, means they have less to spend on discretionary items."