Ross Stores, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended October 27, 2012, and the nine months then ended. This differs from the request metadata, which labels the period “2011 Q3.” Financial amounts below are in U.S. dollars; statements are unaudited.
Business context and results
Ross Stores operates Ross Dress for Less and dd’s DISCOUNTS. At quarter-end it had 1,205 stores: 1,097 Ross and 108 dd’s DISCOUNTS. The company opened 82 stores and closed two during the first nine months.
| Metric | Three months ended Oct. 27, 2012 | Prior-year quarter | Nine months ended Oct. 27, 2012 | Prior-year nine months |
|---|---|---|---|---|
| Sales | $2,262.7 million | $2,046.4 million | $6,960.4 million | $6,210.4 million |
| Sales growth | 10.6% | 9.2% | 12.1% | 8.6% |
| Comparable-store sales growth | 6% | 5% | 7% | 5% |
| Net earnings | $159.5 million | $144.0 million | $550.2 million | $465.2 million |
| Diluted EPS | $0.72 | $0.63 | $2.46 | $2.01 |
| Net margin | 7.1% | 7.0% | 7.9% | 7.5% |
Financial position and cash flows
- For the nine months, operating cash flow was $646.3 million, investing cash outflow was $257.0 million, and financing cash outflow was $415.3 million. Cash declined $26.0 million to $623.8 million.
- Capital expenditures were $255.3 million. Inventory was $1,342.9 million at quarter-end, up from $1,233.6 million a year earlier; packaway inventory was 46% of total inventory.
- Quarter-end long-term debt was $150 million, consisting of senior notes; there were no borrowings or letters of credit under the $600 million revolving facility. The facility remained available through June 2017, and the company reported covenant compliance.
- Current assets were $2,150.9 million and current liabilities were $1,466.6 million. Restricted cash, cash equivalents, and investments totaled $68.7 million and collateralized insurance obligations.
Material changes, outlook, and risks
- Quarterly sales rose 10.6%, supported by 79 net new stores since the year-earlier date and 6% comparable-store growth. Diluted EPS increased 14%; management attributed the gain to higher earnings and a lower diluted share count from repurchases.
- For the nine months, cost of goods sold declined to 72.1% of sales from 72.4%, while SG&A declined to 15.1% from 15.5%. In the quarter, cost of goods sold rose slightly as a share of sales, to 72.9% from 72.8%; SG&A improved to 15.8% from 16.2%.
- Management forecast fiscal 2012 capital expenditures of approximately $430–$440 million and an effective tax rate of approximately 38%. It said existing cash, operating cash flows, credit lines, and trade credit should fund operating needs, planned investments, repurchases, and dividends for at least the next 12 months. The filing does not provide a specific sales or earnings forecast.
- The board declared a $0.14 per-share dividend payable December 28, 2012. The company repurchased 5.4 million shares for approximately $334.4 million during the nine months.
- Contractual obligations totaled approximately $4.0 billion, including $2.1 billion of operating-lease rent obligations and $1.6 billion of purchase obligations. Management intended to purchase the Perris distribution center when its synthetic lease expires in 2013; a residual-value guarantee could require payment of up to $56 million if the property were sold below the lease amount.
- Risks include retail competition and changes in consumer demand, merchandise availability, supply-chain and execution challenges, store expansion, and weather or economic disruptions. Employment-related class actions and other legal proceedings were pending; management did not expect them to materially affect financial condition, results, or cash flows. Unrecognized tax benefits were $60.3 million, and certain state tax returns were under audit.
Investor verification points
- Confirm the period discrepancy: the filing is for the quarter ended October 27, 2012, not 2011 Q3.
- Track comparable-store sales, merchandise margins, and the sustainability of recent sales growth.
- Assess inventory growth, packaway levels, and whether cash generation remains adequate as the company expands.
- Verify delivery of planned capital spending and the timing and funding of the distribution-center lease resolution.
- Monitor repurchases, dividends, pending litigation, and tax exposures.