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As cash balances deflate for low-income consumers, Ross Stores could feel the squeeze: Wells Fargo

Ross Stores Inc. (ROST) was downgraded to equal weight from overweight at Wells Fargo, with analysts concerned that Ross' key "low-end consumer" will see their cash balances fall back to Earth in 2022. Wells Fargo cut its price target for Ross to $120 from $135. After benefiting from stimulus payments in 2021, lower-income consumers are now faced with possible challenges including the end of the student-loan debt moratorium, an end to higher SNAP payouts, and the potential end to child tax credits. "While the prior data points show a healthy consumer snapshot today, some leading indictors point to the artificial benefits from stimulus fading and the consumer facing a normalized environment going forward," Wells Fargo said. "Looking forward, external factors that could impact the consumer are abundant and tilt our sentiment negatively (especially for the low-end consumer)." Analysts are upbeat about the off-price sector, but prefer TJX Cos. (TJX) and Burlington Stores Inc. (BURL). They count Coach parent Tapestry Inc. (TPR), Signet Jewelers Ltd (SIG), online luxury retailer Farfetch Ltd. (FTCH) and secondhand retailer ThredUp Inc. (TDUP) among its "top picks." Structural improvements at consumer softline businesses, stronger balance sheets, and other factors contribute to Wells Fargo's overall optimism for the year ahead. "While we acknowledge that early 2022 likely will be challenging given the lapping of stimulus driven top-line compares and record margins (a tough catalyst path lies ahead through April), we see the market beginning to look past these concerns and bracing for a much improved 2H22 setup early in the year," analysts said. Ross Stores stock has fallen 7.7% for the past 12 months while the S&P 500 index has gained 27.5% for the period.

-Tonya Garcia


(END) Dow Jones Newswires

01-03-22 1443ET

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