Business context and reporting period
Ross Stores, Inc. operates Ross Dress for Less and dd’s DISCOUNTS, off-price apparel and home-fashion retailers. This 10-K covers fiscal 2013, ended February 1, 2014—not fiscal 2012 Q4 as the request metadata suggests. Fiscal 2013 had 52 weeks; fiscal 2012 had 53 weeks. The company ended the year with 1,276 stores: 1,146 Ross and 130 dd’s DISCOUNTS.
Financial performance
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Sales | $10.230 billion | $9.721 billion |
| Comparable-store sales growth, 52-week basis | 3% | 6% |
| Net earnings | $837.3 million | $786.8 million |
| Diluted EPS | $3.88 | $3.53 |
| Cost of goods sold / sales | 72.0% | 72.1% |
| SG&A / sales | 14.9% | 14.8% |
| Net earnings / sales | 8.2% | 8.1% |
| Cash from operating activities | $1.022 billion | $979.6 million |
| Capital expenditures | $550.5 million | $424.4 million |
Fiscal 2013 sales increased 5.2%; growth reflected 77 net new stores and 3% comparable-store growth. Net earnings rose about 6.4%, while diluted EPS increased 10%, helped by a 4% reduction in weighted-average diluted shares from repurchases. Gross margin improved about 15 basis points overall, mainly from stronger merchandise margin, partly offset by higher occupancy, distribution, and buying costs. SG&A as a share of sales increased about 15 basis points, including data-center relocation costs.
For the quarter ended February 1, 2014, sales were $2.741 billion, net earnings were $218.0 million, and diluted EPS was $1.02. The comparable prior-year quarter reported sales of $2.761 billion, net earnings of $236.6 million, and diluted EPS of $1.07, but it comprised 14 weeks versus 13 weeks in the current year; the figures are therefore not directly comparable.
Financial position, liquidity, and capital allocation
Cash and cash equivalents were $423.2 million, down from $646.8 million; working capital was $474.1 million and the current ratio was 1.3:1. Merchandise inventory was $1.257 billion, up from $1.209 billion, with packaway inventory representing 49% of total inventory versus 47% a year earlier. Operating cash flow was $1.022 billion; investing activities used $563.8 million and financing activities used $681.8 million, producing a $223.6 million decrease in cash.
Long-term debt was $150 million: $85 million of notes due in 2018 at 6.38% and $65 million due in 2021 at 6.53%. The $600 million revolving credit facility was undrawn and available; the company reported covenant compliance. Management said cash, operating cash flow, bank and trade credit were adequate for operating needs and planned investments, repurchases, and dividends for at least the next 12 months.
Fiscal 2013 included $550 million of common-stock repurchases and $147.9 million of dividends paid. The board had authorized a two-year $1.1 billion repurchase program for fiscal 2013 and 2014. The quarterly dividend was increased to $0.20 per share in February 2014.
Outlook, risks, contingencies, and unusual items
- For fiscal 2014, management expected approximately $800 million in capital expenditures, including construction of two distribution centers and the planned purchase of the New York buying-office building for $222 million. The purchase was subject to closing conditions; management planned to finance it.
- Management planned further incremental reductions in average store inventory, continued expense controls, and additional store growth. It expected an approximately 38% effective tax rate in fiscal 2014.
- Key risks include intense retail competition; changes in consumer demand and economic conditions; weather; access to attractive branded merchandise at suitable discounts; supply-chain, information-system, and cybersecurity disruptions; store and distribution-center expansion execution; and inventory markdowns or shortages. The company noted geographic concentration: 25% of stores and several major facilities were in California.
- Pending wage-and-hour and other employment class actions, along with other ordinary-course legal matters, were not expected by management to materially adversely affect financial condition, results, or cash flows. The company reported $104.9 million of unrecognized tax-benefit liabilities, including interest and penalties; up to $4.8 million could be released within 12 months if statutes of limitation lapse.
- Purchase obligations totaled approximately $1.812 billion, primarily merchandise orders and construction, store, and technology commitments. Operating lease commitments totaled $2.287 billion. These are contractual commitments, not reported debt.
- Fiscal 2012’s extra week contributed approximately $149 million of sales, affecting year-over-year comparisons. Fiscal 2013 capital spending also included the $70 million purchase of the Perris distribution-center property and about $60 million for the new corporate headquarters.
Important facts for investors to verify
- Confirm that comparisons account for fiscal 2012’s 53rd week, particularly for quarterly results and sales growth.
- Track comparable-store sales and margins as growth moderated to 3% from 6%, and assess whether inventory and the 49% packaway mix convert as expected.
- Monitor execution and funding of the planned $800 million fiscal 2014 capital program and New York building purchase, alongside repurchases and dividends.
- Review the status of employment litigation, tax examinations, and the $104.9 million unrecognized tax-benefit liability.
- Assess liquidity and commitments in context: cash declined, while substantial lease and merchandise-purchase obligations remain; the revolving facility was undrawn at year-end.