03:58 PM EDT, 05/23/2025 (MT Newswires) -- Ross Stores' ( ROST ) fiscal first-quarter earnings beat was overshadowed by its withdrawn full-year outlook and relative comparable sales "underperformance," Morgan Stanley said in a note e-mailed Friday.

The discount retailer late Thursday posted earnings of $1.47 a share for the quarter through May 3, up from $1.46 a year earlier. Wall Street was looking for $1.45, according to Morgan Stanley. The company pulled its annual financial outlook amid tariffs-related macro uncertainty.

"While we directly import only a small portion of our merchandise, more than half of the goods we sell originate from China," Ross Stores ( ROST ) Chief Executive Jim Conroy said in a statement. "As such, we expect pressure on our profitability, if tariffs remain at elevated levels."

The company's shares were down 10% ahead of market close on Friday.

US President Donald Trump declared a 90-day pause on certain tariffs for countries that didn't retaliate to his reciprocal duties announced in April. Recently, the US and China agreed to suspend most levies on each other's goods for 90 days, while Washington reached a trade deal with the UK.

Ross Stores' ( ROST ) first-quarter comparable store sales were flat versus a year earlier. This compares with 2% growth at rival TJX's (TJX) Marmaxx, which includes TJ Maxx, Marshalls, and Sierra.

Although Ross Stores' ( ROST ) metric topped the Street's views for a 1% drop, it was below the company's typical algorithm indicating low- to mid-single digit growth and represented the retailer's worst quarterly performance since 2022, Morgan Stanley said.

The company's outlook withdrawal compares negatively against TJX, which earlier this week maintained its full-year guidance, according to Morgan Stanley. Burlington Stores ( BURL ) is also expected to reiterate its guidance on Thursday.

Compared with its peers, Ross Stores ( ROST ) faces "greater idiosyncratic challenges" that may be contributing to its relative comparable sales underperformance and the outlook withdrawal, the brokerage said. These challenges include a gross margin-dilutive strategy and an "outsized" Hispanic consumer exposure, according to the note.

Ross Stores' ( ROST ) latest results left Morgan Stanley "incrementally convicted" in its negatively tilted equal-weight rating on the stock, the brokerage said, as it lowered its price target to $126 from $128. Ross Stores ( ROST ) remains Morgan Stanley's "least preferred" off-price retailer, according to the note.

The brokerage cut its full-year EPS outlook to $6.10 from $6.35.

"Looking ahead, we do model some (second-half) improvement in fundamentals as (Ross Stores' ( ROST )) mitigation strategies will likely be effective in partially offsetting tariffs," the brokerage wrote. "That said, we do not assume comp inflects above (1% to 2% growth) given (the company's) customer base likely remains acutely impacted under a Trump administration."

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