Ross Stores, Inc. - 10-Q Filing Summary
Business Context and Reporting Period
This filing covers the quarterly period ended October 31, 2009 (Fiscal Q3 2009) and the nine-month period ended October 31, 2009. Ross Stores, Inc. operates as the second-largest off-price apparel and home goods retailer in the United States, operating under the banners "Ross Dress for Less" and "dd's DISCOUNTS." As of the period end, the company operated 1,008 stores (955 Ross and 53 dd's DISCOUNTS) across 27 states and Guam.
Key Financial Metrics
| Metric ($000s) | 3 Months Ended Oct 31, 2009 | 9 Months Ended Oct 31, 2009 |
|---|---|---|
| Sales | $1,744,139 | $5,204,374 |
| Net Earnings | $105,080 | $299,874 |
| Diluted EPS | $0.84 | $2.39 |
| Operating Cash Flow | N/A | $583,882 |
| Cash & Equivalents | $576,162 | $576,162 |
| Long-Term Debt | $150,000 | $150,000 |
| Merchandise Inventory | $1,014,638 | $1,014,638 |
Margins (9 Months): Gross margin improved to approximately 25.7% (Cost of Goods Sold was 74.3% of sales). Net earnings margin was 5.8%.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 12.1% in the quarter and 9.5% for the nine-month period compared to the prior year. This was driven by the addition of 45 net new stores and an 8% increase in comparable store sales for the quarter (5% for the nine months).
- Profitability: Net earnings surged 83% in the quarter and 44% for the nine-month period. Diluted EPS rose 91% for the quarter and 52% for the nine months.
- Cost Efficiency: Cost of goods sold as a percentage of sales decreased by 340 basis points in the quarter and 225 basis points for the nine months. Improvements were driven by higher merchandise gross margins, lower shortage, and reduced freight and distribution costs.
- Liquidity: Cash and cash equivalents increased significantly from $321.4 million at the start of the fiscal year to $576.2 million, driven by strong operating cash flows of $583.9 million.
Guidance, Outlook, and Risks
- Capital Expenditures: The company forecasts approximately $165 million in capital expenditures for fiscal year 2009, funded by cash flows from operations.
- Dividends: The Board declared a quarterly cash dividend of $0.11 per share, payable December 31, 2009.
- Stock Repurchases: The company repurchased 5.8 million shares for approximately $229.8 million during the nine-month period. As of October 31, 2009, approximately $70 million remained available under the $600 million repurchase program.
- Risks: Key risks include economic downturns affecting consumer spending, competitive pressures, supply chain disruptions, and the availability of attractive brand-name merchandise. The company notes that 26% of its stores are located in California, creating regional concentration risk.
- Legal: The company is involved in class action litigation regarding wage and hour claims, though management does not expect a material adverse effect on financial condition.
Investor Verification Checklist
- Comparable Store Sales Sustainability: Verify if the 8% comparable store sales growth can be maintained given the competitive off-price retail environment.
- Inventory Levels: Review the $1.01 billion inventory balance against sales velocity to ensure no excess stock buildup.
- Debt Covenants: Confirm continued compliance with financial covenants on the $150 million senior notes and the $600 million revolving credit facility.
- Capital Allocation: Assess the balance between the $165 million planned CapEx, ongoing stock repurchases, and dividend payments.
- Legal Exposure: Monitor the status of pending wage and hour class action lawsuits for potential future liabilities.