Ross Stores, Inc. — Form 10-Q Summary
Reporting period: The quarter ended May 4, 2024, compared with the three months ended April 29, 2023. This is fiscal 2024’s first quarter; the filing notes fiscal 2024 is a 52-week year. Ross Stores operates Ross Dress for Less and dd’s DISCOUNTS.
Financial performance
- Sales: $4.858 billion, up 8.1% from $4.495 billion. Comparable-store sales increased 3%. Management attributed growth to the comparable-sales increase and 93 net store additions since the prior-year comparison period.
- Earnings: Net earnings were $488.0 million, up 31% from $371.2 million. Diluted EPS was $1.46 versus $1.09; weighted-average diluted shares fell 1.9% to 333.7 million, primarily reflecting repurchases.
- Margins and costs: Earnings before taxes were 13.1% of sales versus 10.8%; net earnings were 10.0% versus 8.3%. Cost of goods sold declined to 71.9% of sales from 73.3%, and SG&A declined to 15.9% from 16.6%. Net interest income was $46.0 million, up from $31.4 million.
- Cash flow: Operating cash flow was $368.9 million, down from $413.2 million. Capital expenditures were $136.2 million, compared with $167.3 million. Financing used $450.0 million, mainly for share repurchases and dividends; cash, cash equivalents, and restricted cash decreased $217.4 million.
- Liquidity and debt: The company had $4.654 billion of unrestricted cash at May 4 and a $1.3 billion undrawn revolving credit facility. Senior Notes totaled approximately $2.462 billion, including $948.6 million classified as current. The company reported compliance with its credit-facility covenant.
- Other balance-sheet items: Merchandise inventory was $2.462 billion, up from $2.192 billion at February 3, 2024. Packaway inventory was 41% of total inventory versus 40% at fiscal year-end.
Changes, outlook, and risks
- Cost of goods sold as a share of sales improved about 140 basis points, reflecting lower distribution, buying, and domestic freight costs. Management expects merchandise margin pressure to continue during fiscal 2024 as it offers more sharply priced brands, with lower distribution and freight costs and incentive compensation expected to offset that pressure.
- Management expects approximately 90 new stores in fiscal 2024; 18 opened in the first quarter. Projected fiscal-year capital expenditures are approximately $840 million, primarily for supply-chain investments, new stores, technology, and existing facilities.
- The board authorized a new two-year repurchase program of up to $2.1 billion through fiscal 2025. The company repurchased 1.9 million shares for $262.5 million, excluding excise tax, during the quarter. A quarterly dividend of $0.3675 per share was declared after quarter-end, payable June 28, 2024.
- Management believes cash, operating cash flow, available credit, and trade credit can fund operating needs, planned investments, debt repayments, repurchases, and dividends for at least 12 months. It cited persistent inflationary pressure on low-to-moderate-income customers and ongoing macroeconomic and geopolitical uncertainty.
- Key stated risks include changes in consumer spending and preferences, competition, inventory and markdown management, merchandise availability and supply-chain disruption, freight costs, weather, cybersecurity and systems disruptions, store-site availability, and legal, regulatory, and tax matters. Wage-and-hour class or representative actions and other proceedings were pending; management did not expect their resolution to materially adversely affect the company.
- Deloitte performed a review, not an audit, of the interim financial information and reported that it was not aware of material modifications needed for GAAP conformity. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether comparable-store sales and customer demand remain resilient amid inflation and pressure on the company’s lower-to-moderate-income customer base.
- Whether expected merchandise-margin declines are offset by distribution, freight, and incentive-cost savings as management anticipates.
- Progress against the approximately 90-store opening plan and $840 million capital-expenditure projection, including supply-chain project spending.
- Cash flow and inventory trends, including packaway levels and accounts-payable leverage, which was 86% versus 92% a year earlier.
- Debt repayment timing: $948.6 million of Senior Notes was current at quarter-end. Also monitor the pace and funding of the $2.1 billion repurchase authorization and dividend payments.