ROSS stock | Financial strength

 

Financial Strength

With $4.6 billion in cash as of July 2023 against less than $2.5 billion in debt, Ross’s clean balance sheet affords considerable flexibility. We expect annual adjusted EBITDA to cover interest expense at least 32 times in any given year over the next decade. Combined with free cash flow to the firm averaging around 8% of sales over the long term, we anticipate Ross will fund its continued expansion goals internally.

We expect Ross to grow toward its 3,600-unit footprint target over the next 10 years (from 2,015 at the end of fiscal 2022). While expansion should remain its capital priority, it should continue to favor leasing stores. Capital expenditures should average around 4% of sales long term, near fiscal 2022’s mark.

We expect the firm will continue to look to return excess capital to shareholders via share buybacks and dividends. We assume Ross' dividend rises over time as cash generation increases, at a long-term payout ratio of around 30%, slightly higher than fiscal 2022’s 28% mark. We further expect Ross to use 60% of its annual operating cash flow to repurchase shares by the end of our explicit forecast. Alternatively, the firm could pursue acquisitions of regional chains or other concepts (including operations outside the United States) to accelerate its growth, though we do not incorporate any such purchases into our forecasts because of the uncertain timing and nature of any deal.