Ross Stores, Inc. — FY2023 Form 10-K
Reporting-period note: The supplied filing is for the fiscal year ended February 3, 2024, which the company calls fiscal 2023. It was a 53-week year; fiscal 2022 was 52 weeks. This is not a filing for 2022 Q4, and the provided text does not give a separate Q4 results table.
Business context
Ross Stores operates Ross Dress for Less and dd’s DISCOUNTS, U.S. off-price apparel and home-fashion retailers. At year-end it had 2,109 stores: 1,764 Ross locations and 345 dd’s DISCOUNTS locations. The business relies on buying branded merchandise opportunistically and selling it at discounts.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $20.377 billion | $18.696 billion |
| Sales growth | 9.0% | (1.2)% |
| Comparable-store sales growth | 5% | (4)% |
| Cost of goods sold / sales | 72.7% | 74.6% |
| SG&A / sales | 16.0% | 14.8% |
| Earnings before taxes | $2.472 billion | $1.987 billion |
| Net earnings | $1.875 billion | $1.512 billion |
| Diluted EPS | $5.56 | $4.38 |
| Operating cash flow | $2.514 billion | $1.689 billion |
| Capital expenditures | $762.8 million | $654.1 million |
Gross margin, calculated as sales less cost of goods sold, was approximately 27.3% versus 25.4%. Net margin was approximately 9.2% versus 8.1%. Management attributed the lower cost-of-goods-sold ratio mainly to improved merchandise margin and lower freight costs, with some benefit from occupancy and distribution-cost leverage. SG&A rose faster than sales, reflecting higher incentive compensation, store wages, new stores, and the extra week.
Net interest income was $164.1 million, compared with net interest expense of $2.8 million in FY2022; higher interest income from higher rates was the primary driver. The effective tax rate was 24.2%, versus 23.9%.
Liquidity, debt and capital returns
Year-end cash and cash equivalents were $4.872 billion; cash plus restricted cash reported in the cash-flow statement was $4.935 billion. The company reported $2.461 billion of senior notes, including $249.7 million classified as current, and had no borrowings under its $1.3 billion revolving credit facility. Management said available cash, operating cash flow, credit facilities, and trade credit should cover operating needs and planned uses for at least 12 months.
FY2023 financing cash outflow was $1.428 billion, principally reflecting $950 million of share repurchases and $454.8 million of dividends. In March 2024, the board authorized a new repurchase program of up to $2.1 billion through FY2025. The quarterly dividend declared in March 2024 was $0.3675 per share.
Changes, outlook and risk factors
- Sales increased 9.0%, supported by 5% comparable-store growth, 94 net store additions, and the 53rd week. Diluted EPS included an estimated $0.20 benefit from the extra week.
- Stores increased from 2,015 to 2,109; management expected to open approximately 90 stores in FY2024.
- Management projected FY2024 capital expenditures of approximately $840 million, primarily for supply-chain capacity, distribution centers, technology, and store investments.
- Management expected lower merchandise margin as a percentage of sales in FY2024 as it planned to offer more sharply priced brands; lower incentive compensation, expected to return to target levels, was expected to partly offset this. The filing text does not provide clear full-year sales or EPS guidance.
- Management cited persistent pressure on lower- and moderate-income customers from elevated essential costs, while expressing confidence in value-focused execution and potential market-share gains. Inflation, interest rates, geopolitical events, competition, merchandise availability, labor costs, inventory markdowns, weather, supply-chain disruption, and cybersecurity are among the disclosed risks.
- Packaway inventory was approximately 40% of total inventory at year-end, unchanged from the prior year. Management notes that packaway levels can affect cash flow and mismatches with future demand could require markdowns.
- Pending wage-and-hour class or representative actions, primarily in California, and other ordinary-course proceedings remain unresolved. Management did not expect currently pending matters to have a material adverse effect. The company’s pandemic-related insurance-coverage lawsuit also remained ongoing and uncertain.
- The auditor gave unqualified opinions on the financial statements and internal controls; no critical audit matters were identified. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Separate Q4 performance and how the 53rd week affects comparisons; the supplied filing text is annual and does not isolate the quarter.
- Whether comparable-store momentum and the planned approximately 90 FY2024 openings are being achieved.
- Actual FY2024 merchandise margins, freight costs, wages, and incentive compensation versus management’s expectations.
- Cash conversion and inventory quality, including packaway levels, inventory turnover, and accounts-payable leverage, which fell to 89% from 99%.
- Debt repayment and refinancing timing, including the $250 million principal amount scheduled for 2024, alongside planned capital spending, dividends, and buybacks.
- Developments in California employment litigation, the insurance-coverage dispute, and material cyber, sourcing, or supply-chain incidents.