Ross Stores, Inc. — Form 10-Q Summary
Period: First quarter of fiscal 2022, three months ended April 30, 2022; compared with the three months ended May 1, 2021. The request metadata says “2021 Q1,” but the filing itself reports fiscal 2022 Q1.
Business context and financial results
Ross Stores operates Ross Dress for Less and dd’s DISCOUNTS, off-price apparel and home-fashion retailers. At quarter-end it had 1,951 stores: 1,648 Ross and 303 dd’s DISCOUNTS.
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Sales | $4.333 billion | $4.516 billion |
| Comparable-store sales | Down 7% | Up 13% versus Q1 FY2019 |
| Net earnings | $338.4 million | $476.5 million |
| Diluted EPS | $0.97 | $1.34 |
| Cost of goods sold / sales | 73.8% | 70.8% |
| SG&A / sales | 15.4% | 15.0% |
| Net margin | 7.8% | 10.6% |
| Operating cash flow | $(416.3) million | $752.8 million |
Financial position and cash flow
- Cash and cash equivalents were $4.016 billion at April 30, down from $4.922 billion at fiscal year-end; restricted cash was an additional $60.0 million.
- Merchandise inventory was $2.674 billion, up from $2.262 billion at fiscal year-end and $1.698 billion a year earlier. Packaway inventory represented 43% of total inventory, versus 40% at fiscal year-end.
- Long-term debt was $2.453 billion, consisting of unsecured senior notes; no current portion was reported. The company had no borrowings or standby letters of credit under its $1.3 billion revolving facility and was compliant with its leverage covenant.
- Operating cash outflow reflected higher inventory receipts and payments, shorter vendor payment terms, and payment of prior-year incentive bonuses. Investing cash outflow was $109.8 million, primarily capital expenditures; financing cash outflow was $380.7 million, including $239.6 million of share repurchases and $108.9 million of dividends.
- Capital expenditures for fiscal 2022 were projected at approximately $800 million. Management said cash, operating cash flows, the credit facility, and trade credit should cover operating needs and planned investments, repurchases, and dividends for at least 12 months.
Material changes and management commentary
Sales declined 4.1% year over year, primarily due to the 7% comparable-store sales decrease, partly offset by 85 net new stores opened since the prior-year period. The prior-year comparison benefited from government stimulus and pent-up demand as COVID-19 restrictions eased.
Cost of goods sold as a share of sales increased approximately 295 basis points. Management attributed this mainly to weaker merchandise margins, higher ocean and domestic freight costs, occupancy deleverage, and distribution expense; lower buying costs partly offset these pressures. SG&A as a share of sales rose 50 basis points, reflecting wage pressure and lower-sales deleverage. Diluted EPS included approximately $0.06 of favorable expense timing. The EPS decline was principally due to a 29% decrease in net earnings, partly offset by fewer diluted shares.
Outlook, risks, and contingencies
- Management expected higher freight, distribution, supply-chain, and wage costs to continue through fiscal 2022. It planned approximately 100 new stores for the year; no full-year EPS or sales guidance is stated in the provided filing text.
- Key uncertainties include inflation and reduced consumer disposable income, the Russia-Ukraine conflict, supply-chain congestion, COVID-19 developments, changing consumer demand, inventory and markdown execution, competition, and access to attractive branded merchandise.
- The company approved a new two-year authorization to repurchase up to $1.9 billion of stock through fiscal 2023. It declared a $0.310-per-share dividend payable June 30, 2022.
- Pending employment, consumer-protection, and other legal and regulatory matters were described as not expected by management to have a material adverse effect. Unrecognized tax benefits were $70.7 million; certain state tax matters could reduce that balance by up to $15.8 million over the next 12 months.
- Contractual obligations totaled $12.491 billion, including operating leases, senior notes, purchase obligations, and interest obligations. The filing reported no material off-balance-sheet arrangements apart from specified unrecorded obligations.
Investor facts to verify
- Confirm the reporting period: the filing covers fiscal 2022 Q1, notwithstanding the request’s “2021 Q1” label.
- Track whether comparable-store sales stabilize and whether inflation-driven freight, wage, and merchandise-margin pressure persists.
- Assess inventory growth, packaway levels, vendor payment terms, and the resulting effect on operating cash flow.
- Review execution of the $800 million capital-spending plan, store-opening target, and $1.9 billion repurchase authorization against liquidity and operating needs.
- Monitor consumer demand, COVID-19 and geopolitical developments, and the resolution of legal and tax matters.