Ross Stores, Inc. — Form 10-K Summary
Reporting period: Fiscal 2022, the 52 weeks ended January 28, 2023. The request metadata says “2021 Q4,” but the filing is an annual report for fiscal 2022, not a quarterly filing.
Business context
Ross operates Ross Dress for Less and dd’s DISCOUNTS, U.S. off-price retailers of apparel and home fashions. At year-end, it had 2,015 stores: 1,693 Ross stores and 322 dd’s DISCOUNTS stores. The company emphasizes opportunistic buying and everyday discounts; it reported one operating segment.
Financial highlights
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Sales | $18.696 billion | $18.916 billion |
| Comparable-store sales | Down 4% | Up 13% versus fiscal 2019 |
| Cost of goods sold as % of sales | 74.6% | 72.5% |
| SG&A as % of sales | 14.8% | 15.2% |
| Net earnings | $1.512 billion | $1.723 billion |
| Diluted EPS | $4.38 | $4.87 |
| Cash from operations | $1.689 billion | $1.739 billion |
| Capital expenditures | $654 million | $558 million |
Fiscal 2022 pretax margin was 10.6%, versus 11.9%; net margin was 8.1%, versus 9.1%. Gross margin, calculated as sales less cost of goods sold, was 25.4%, versus 27.5%.
Year-end cash and cash equivalents were $4.552 billion. Long-term debt was $2.457 billion, implying approximately $2.095 billion of cash in excess of recorded debt, before considering lease obligations. The $1.3 billion revolving credit facility was undrawn and available. Operating lease liabilities totaled $3.250 billion. The company paid $431 million in dividends and repurchased approximately $950 million of common stock during the year.
Material changes versus fiscal 2021
- Sales fell 1.2%, mainly because comparable-store sales declined amid inflation and the prior year’s stimulus-related and post-restriction demand; 92 net new stores partly offset the decline.
- Net earnings declined about 12% and diluted EPS fell from $4.87 to $4.38. Higher freight, distribution and markdown costs pressured merchandise margin; cost of goods sold rose to 74.6% of sales.
- SG&A declined in dollars and as a share of sales, primarily reflecting lower incentive compensation and COVID-related costs, partly offset by wage costs and weaker comparable sales.
- Operating cash flow decreased modestly. Cash declined by $370 million, as operating cash flow and other sources were outweighed by investment and financing outflows.
- The store base increased by 92 net locations, from 1,923 to 2,015. Packaway inventory remained 40% of total inventory, unchanged from fiscal 2021.
Outlook, risks and unusual items
- Management expected to open approximately 100 stores in fiscal 2023 and projected capital expenditures of approximately $810 million, funded from available cash.
- Management expected domestic and ocean freight costs to decrease, while incentive compensation expenses and SG&A were expected to return to target levels. It cautioned that the outlook remained uncertain and that its strategies may not produce sales or earnings growth.
- Management cited inflation, higher interest rates, potential recession, the Russia-Ukraine conflict, COVID-19 effects, supply-chain disruption, and changing consumer demand as ongoing risks. Other key exposures include competition, merchandise availability and markdowns, labor costs, cybersecurity, and concentration of stores and distribution capacity in California, Texas and Florida.
- Pending class and representative litigation, primarily concerning wage-and-hour and consumer-protection claims, and other proceedings were described as not expected by management to materially adversely affect financial condition, results or cash flows. A separate company lawsuit seeks insurance coverage for pandemic-related losses; its outcome remains uncertain.
- Fiscal 2022 net interest expense was only $2.8 million, compared with $74.3 million in fiscal 2021, principally due to higher interest income. The filing reports $77.7 million of interest income in fiscal 2022.
- The company reported effective internal controls over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls and reported no critical audit matters.
Key facts for investors to verify
- Whether comparable-store sales, customer demand and merchandise margins stabilize after the fiscal 2022 decline.
- Whether freight savings materialize and markdowns, wages and distribution costs behave as management anticipated.
- Progress on the planned store openings and $810 million capital-expenditure program, including new distribution-center investment.
- Cash generation and capital returns relative to debt maturities, lease commitments and the remaining share-repurchase authorization.
- Developments in pending litigation and the pandemic-related insurance coverage lawsuit.