Ross Stores, Inc. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Ross Stores, Inc., covering the three and nine-month periods ended November 1, 1997. The company operates as an off-price retailer with 326 stores open at the end of the period, up from 313 in the prior year. The financial statements are unaudited but have been reviewed by independent accountants.
Key Financial Metrics
| Metric | 9 Months Ended Nov 1, 1997 | 9 Months Ended Nov 2, 1996 | 3 Months Ended Nov 1, 1997 | 3 Months Ended Nov 2, 1996 |
|---|---|---|---|---|
| Sales | $1,416,395,000 | $1,179,987,000 | $482,875,000 | $403,383,000 |
| Net Earnings | $76,806,000 | $48,938,000 | $25,055,000 | $16,354,000 |
| Diluted EPS | $1.52 | $0.95 | $0.50 | $0.32 |
| Operating Cash Flow | $40,845,000 | $65,926,000 | N/A | N/A |
| Long-Term Debt | $25,000,000 | $10,000,000 | N/A | N/A |
| Cash & Equivalents | $21,737,000 | $25,305,000 | N/A | N/A |
| Inventory | $467,947,000 | $401,813,000 | N/A | N/A |
Margins (9 Months): Net earnings margin improved to 5.4% from 4.1% in the prior year. Cost of goods sold and occupancy decreased to 69.6% of sales from 70.6%.
Material Changes vs. Prior Period
- Sales Growth: Sales increased 20% for the nine-month period, driven by a 12% increase in comparable store sales and the addition of new stores.
- Profitability: Net earnings rose 57% year-over-year for the nine-month period. This was aided by lower markdowns as a percentage of sales and better leverage on occupancy and administrative expenses.
- Inventory Build: Merchandise inventory increased 16% year-over-year due to store expansion and higher seasonal packaway levels.
- Debt and Liquidity: Long-term debt increased to $25 million from $10 million to fund stock repurchases. Cash and cash equivalents decreased by approximately $23 million during the nine-month period.
Outlook, Management Commentary, and Risks
- Capital Allocation: The company completed a $98 million stock repurchase program in November 1997, buying back 3 million shares. Primary cash uses were inventory, stock repurchases, and capital expenditures.
- Facilities: In September 1997, the company leased a 214,500 square foot warehouse in Newark, California, to replace third-party warehousing on the West Coast.
- Credit Facilities: A new $160 million revolving credit facility and a $30 million letter of credit facility were established in September 1997.
- Y2K Risk: The company is assessing necessary modifications to computer hardware and software to process information beyond 1999. Costs are currently unknown and will be expensed as incurred.
- Liquidity: Management believes internally generated cash, trade credit, and bank lines are sufficient to fund needs for the remainder of the fiscal year and the next 12 months.
Investor Verification Checklist
- Verify the sustainability of the 12% comparable store sales growth rate in a competitive retail environment.
- Monitor the impact of the $98 million stock repurchase on future liquidity and debt covenants.
- Assess the timeline and cost implications of the Y2K system modifications.
- Review the utilization of the new $160 million credit facility and the company's leverage ratios.
- Confirm the effectiveness of the new Newark warehouse in reducing third-party logistics costs.