Ross Stores, Inc. — Form 10-K Summary
Reporting period: Fiscal 2021, the 52 weeks ended January 29, 2022. Although the request metadata refers to 2020 Q4, this filing covers fiscal 2021. Ross operates Ross Dress for Less and dd’s DISCOUNTS; at year-end it had 1,923 stores across the two chains.
Financial performance
| Metric | FY2021 | FY2020 | FY2019 |
|---|---|---|---|
| Sales | $18.916 billion | $12.532 billion | $16.039 billion |
| Sales growth | 50.9% | (21.9)% | 7.0% |
| Comparable-store sales | Up 13% vs. FY2019 | Not meaningful | Up 3% vs. FY2018 |
| Net earnings | $1.723 billion | $85.4 million | $1.661 billion |
| Diluted EPS | $4.87 | $0.24 | $4.60 |
| Cost of goods sold / sales | 72.5% | 78.5% | 71.9% |
| Net earnings / sales | 9.1% | 0.7% | 10.4% |
| Operating cash flow | $1.739 billion | $2.246 billion | $2.172 billion |
| Capital expenditures | $557.8 million | $405.4 million | $555.5 million |
FY2021 earnings rebounded sharply from pandemic-affected FY2020, when stores were closed for a significant portion of the spring and later faced operating restrictions. Compared with FY2019, FY2021 sales rose 17.9% and diluted EPS rose 6%, but net margin was lower. Cost of goods sold was 72.5% of sales, implying a 27.5% gross margin, versus 28.1% in FY2019. Management attributed cost pressure to domestic freight costs, distribution expenses, wages, and pandemic-related operating costs.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $4.922 billion at year-end, compared with $4.819 billion a year earlier. Management said available cash, operating cash flow, credit facilities, and trade credit were adequate for operating needs and planned investment for at least 12 months.
- Long-term debt was $2.452 billion; no amount was classified as current at year-end. The company had no revolving-credit borrowings outstanding. A new $1.3 billion unsecured revolving facility was entered into in February 2022, replacing the prior $800 million facility.
- Operating lease liabilities totaled $3.170 billion, including $631 million current. Total contractual obligations were reported as $12.515 billion, including $5.041 billion of purchase obligations, primarily merchandise orders.
- Operating cash flow declined from FY2020, mainly because inventory receipts increased and accounts-payable leverage fell to 105% from 150%. Inventory was $2.262 billion, up from $1.509 billion; packaway inventory was 40% of total inventory, versus 38% a year earlier.
- The company repurchased $650 million of common stock and paid $405 million in dividends in FY2021. In March 2022, the board authorized a new $1.9 billion repurchase program through FY2023 and declared a quarterly dividend of $0.31 per share.
Outlook, commentary, and risks
- Management expected to resume its historical pace of approximately 100 new store openings in fiscal 2022 and planned capital expenditures of approximately $800 million. Beyond FY2022, it expected store openings to exceed that historical pace. These are plans, not earnings or sales guidance; the filing provides no clear numerical FY2022 sales or EPS forecast.
- Management expected higher freight and distribution costs, higher wages, and COVID-related operating costs to continue in FY2022. It cited ongoing supply-chain congestion, inflation, and uncertainty about consumer behavior and pandemic developments.
- FY2021 benefited from government stimulus, pent-up demand, fewer restrictions, and strong merchandising execution; management cautioned that these benefits might not persist. Omicron-related effects weakened in-person shopping during the holiday period.
- Principal risks include renewed pandemic disruption, inflation and reduced consumer spending, freight and supply-chain constraints, merchandise availability and inventory markdowns, intense retail and online competition, labor availability and costs, cybersecurity, and concentration of stores and distribution facilities in California, Texas, and Florida.
- Pending class and representative actions, primarily in California, allege wage-and-hour and consumer-protection violations. The company also sued insurers over coverage for pandemic-related business interruption and other losses; that case was in early stages. Management believed pending legal matters would not have a material adverse effect, but outcomes remain uncertain.
- FY2020 included approximately $240 million of debt-refinancing costs and a $240 million loss on early debt extinguishment. The company issued debt during FY2020, repaid its $800 million revolving-credit borrowing in October 2020, and repaid $65 million of notes at maturity in December 2021.
Important facts for investors to verify
- Whether sales growth and comparable-store gains can be sustained without the FY2021 stimulus and pent-up-demand tailwinds.
- Whether freight, distribution, wage, and other cost inflation continues to pressure gross and operating margins.
- Inventory quality, packaway levels, markdowns, and the effect of inventory investment on operating cash flow.
- Execution and returns on the planned $800 million FY2022 capital program and accelerated store expansion.
- Debt, lease, and purchase commitments alongside planned dividends and stock repurchases; assess the effect of buybacks on per-share results.
- Developments in the California employment litigation and the company’s pandemic-related insurance coverage suit.