Ross Stores, Inc. 10-K Summary (Fiscal Year Ended Jan 31, 2009)
Business Context and Reporting Period
This filing covers the fiscal year ended January 31, 2009 (Fiscal 2008). Ross Stores, Inc. operates two off-price retail chains: Ross Dress for Less (904 stores) and dd's DISCOUNTS (52 stores), totaling 956 locations. The company targets value-conscious consumers with first-quality, name-brand apparel and home accessories at discounts of 20% to 70% off regular prices. The company is headquartered in Pleasanton, California, and operates as a large accelerated filer.
Key Financial Metrics
| Metric | Fiscal 2008 | Fiscal 2007 |
|---|---|---|
| Sales | $6,486.1 million | $5,975.2 million |
| Net Earnings | $305.4 million | $261.1 million |
| Diluted EPS | $2.33 | $1.90 |
| Gross Margin | 23.6% | 22.7% |
| Operating Margin (Pre-tax) | 7.6% | 7.1% |
| Net Cash from Operations | $583.4 million | $353.6 million |
| Long-term Debt | $150.0 million | $150.0 million |
| Working Capital | $358.5 million | $387.4 million |
| Comparable Store Sales | +2.0% | +1.0% |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 8.6% year-over-year, driven by the opening of 66 net new stores and a 2% increase in comparable store sales.
- Margin Expansion: Cost of goods sold as a percentage of sales decreased by 90 basis points to 76.4%, primarily due to a 100 basis point improvement in merchandise gross margins and better distribution costs.
- Expense Pressure: Selling, general, and administrative (SG&A) expenses increased 30 basis points as a percentage of sales, driven by higher store operating costs and general administrative expenses.
- Store Count: Total stores increased from 890 to 956. The company opened 77 new stores and closed 11 during the fiscal year.
- Shareholder Returns: The company repurchased 9.3 million shares for approximately $300 million and increased the quarterly dividend to $0.11 per share.
Outlook, Risks, and Management Commentary
Outlook: Management expects macro-economic pressures to continue in 2009. The strategy focuses on maintaining tight controls over inventory levels and operating expenses to maximize profitability. Capital requirements for 2009 are forecast at approximately $190 million, funded by operating cash flows.
Risks: Key risks include the severity and duration of the recession, changes in consumer spending, competitive pressures, and supply chain disruptions. The company notes that 26% of its stores and two distribution centers are located in California, creating regional concentration risk.
Unusual Items: No material impairment charges were recorded for long-lived assets in fiscal 2008. The company adopted SFAS No. 157 and 159 regarding fair value measurements, which did not have a material impact on results.
Investor Verification Checklist
- Inventory Valuation: Verify the adequacy of the reserve for merchandise shortage and the valuation of "packaway" inventory, which constituted 38% of total inventory.
- Comparable Store Sales: Confirm the sustainability of the 2% comparable store sales growth given the challenging macro-economic environment.
- Debt Covenants: Review compliance with financial covenants on the $150 million senior notes and the $600 million revolving credit facility.
- Real Estate Exposure: Assess the impact of the high concentration of assets (headquarters, distribution centers, and stores) in California.
- Legal Contingencies: Monitor the status of pending class action lawsuits regarding wage and hour claims, though management does not expect a material adverse effect.