S&P Global Ratings raised its debt ratings on Ross Stores, Inc., citing its continued strong performance and expectations that it will gain market share.

S&P noted that Ross Stores’ revenue grew 7.7 percent in 2025 despite low consumer confidence and elevated supply chain costs. The rating agency said it expects Ross Stores to continue to see profitable growth by opening new stores and taking market share while maintaining S&P Global Ratings-adjusted leverage below 0.5x.

As a result, S&P raised its issuer credit rating on Ross Stores and issue-level rating on its unsecured notes to ‘A-’ from ‘BBB+’. The stable outlook reflects S&P’s expectation that Ross Stores will maintain S&P Global Ratings-adjusted leverage well below 1.5x while executing its growth strategy of increasing its store count.

S&P said in an analysis, “The upgrade reflects Ross Stores’ continued revenue and profit growth in 2025, despite low consumer confidence and elevated supply chain costs. In our view, the company is well-positioned for growth over the next two years, supported by its resilient off-price model. While we think Ross Stores would benefit from stronger consumer confidence and higher discretionary spending, we believe it will also perform well if uncertainties from the macroeconomic environment or geopolitical tensions rise.

In our view, consumer trade-down behavior will continue to drive traffic, supported by the company’s affordable offerings. We expect revenue growth momentum to continue, increasing 6.5 percent in 2026 and 6.6 percent in 2027.

“The company’s reported revenue grew 7.7 percent in fiscal 2025, up from 3.7 percent in the prior year, due to comparable sales growth and 81 net new stores. A stronger branded assortment, enhanced store experience and new marketing campaign contributed to a 9 percent increase in comparable sales in the fourth quarter and 5 percent during fiscal 2025.

“We believe Ross Stores will continue to take market share of department stores and other specialty retailers. We expect value-oriented customers will continue to migrate from full-price retail to the off-price channel in the next few years, providing Ross Stores with an advantage. This is supported by its “treasure hunt” shopping experience, aggressive pricing supported by opportunistic buying, and fast inventory turnover, offering a compelling value proposition.

“Ross Stores is not focusing on establishing an e-commerce channel, but we believe consumers are willing to shop at physical stores for the treasure hunt, and brands are willing to use the off-price channels to clear inventory and preserve brand equity. In addition, the company has demonstrated good execution of its growth initiatives by opening new stores. It has revised its store opening plan to 110 gross new stores this year, including 85 Ross Dress for Less and 25 dd’s Discounts stores, increasing capital expenditure (capex) to $1.1 billion compared with $819 million in the prior year.

“We expect its strong liquidity position, consistent cash from operations generation of $3.1 billion in 2026, and a manageable dividend will leave more than enough of a cushion to fund its growth initiatives without weakening its credit metrics.

“We expect profitability will continue to improve, as Ross Stores sustains healthy comparable sales growth. We forecast its S&P Global Ratings-adjusted EBITDA margin will improve to 18.9 percent in 2026 and 19 percent in 2027, partially due to higher merchandise margins, lower distribution costs, and operating leverage.

“Its adjusted EBITDA margin remained roughly the same at 18.7 percent in 2025. Fixed cost leverage, lower occupancy costs, and domestic freight costs were offset by elevated tariffs and new distribution center costs. The company mitigated the impact of elevated supply chain costs stemming from tariffs, particularly in its direct business.

“Its S&P Global Ratings-adjusted EBITDA increased 8.1 percent to $4.2 billion in 2025 compared with the prior year and increased more than 30 percent compared with pre-COVID-19 pandemic levels, which demonstrates good execution and a track record of profitable growth.

“Excess inventory within the sector due to supply chain disruptions creates opportunities for Ross Stores. We anticipate continued efficient inventory turnover as the home category improves. Inventory growth was almost 8 percent, aligned with revenue growth in 2025, and packaway inventory represented 37 percent of the merchandise. The company has sustained inventory turnover at 6x-7x in the last three years, and supply chain stresses provide opportunities for the company to purchase close-out inventory. While this could temporarily elevate working capital investment, we believe it provides the company with low-cost inventory and a runway for growth.

“We expect Ross Stores will maintain solid credit protection metrics. This is supported by consistent free operating cash flow (FOCF) generation, debt repayment, and a high cash balance. We expect FOCF generation of $2 billion in 2026, a decline compared with $2.2 billion in the prior year due to higher capex spending, particularly in new store openings and distribution centers.

“Our base case assumes the company will use its cash to repay $500 million in unsecured notes maturing in 2026 and $242 million in unsecured notes maturing in 2027. In addition, we expect shareholders’ returns of $1.8 billion-$2.2 billion, which will reduce the company’s net cash position.

“Despite expected declines in cash, we continue to view the company’s liquidity position as strong. In our view, Ross Stores’ low leverage, high cash, and strong FOCF generation will provide it with good operational and financial flexibility. Its S&P Global Ratings-adjusted leverage was below 0.5x in fiscal 2025, reflecting its conservative financial policy supported by lower debt, high margins, and cash balance of $4.6 billion as of Jan. 31, 2026.

“We compare our rating on Ross Stores with the main off-price players, TJX Cos. and Burlington Stores. Our ‘A’ rating on TJX Cos. reflects its larger scale, which includes a strong international presence and multiple banners, contrasting with Ross Stores’ domestically focused and more geographically concentrated operations under two banners. TJX Cos. generates 2.7x and 2.5x more revenue and S&P Global Ratings-adjusted EBITDA than Ross Stores, respectively, but operates at a slightly higher leverage.

“Compared with Burlington Stores, Ross Stores is 2x and 2.2x larger in terms of revenue and S&P Global Ratings-adjusted EBITDA, respectively. Burlington Stores is also domestically focused and operates only one banner. In addition, our ‘BB+’ rating on Burlington Stores reflects its higher leverage, which is more than 2 turns higher than Ross Stores.”

“The stable outlook reflects our expectation for Ross Stores to maintain S&P Global Ratings-adjusted leverage well below 1.5x while executing on its strategy to increase its store count.”

Image courtesy Ross Stores