How did Ross Stores perform financially in fiscal 1995?

Ross reported sales of $1.426 billion, up from $1.263 billion, and net earnings of $43.3 million, or $1.73 per fully-diluted share, versus $36.8 million, or $1.49, in 1994. Fiscal 1995 contained 53 weeks versus 52 in prior years, which contributed to the increase. Comparable store sales rose 2% on a 52-week basis.

Is Ross's balance sheet healthy?

Yes. Total debt was reduced to $9.8 million, representing 3% of total capitalization, down from 15% a year earlier. Working capital was $121.6 million with a current ratio of 1.5:1, and stockholders' equity rose to $291.5 million. Management stated that cash flow from operations and credit lines are adequate to fund planned capital needs, repurchases, and dividends.

What are the main risks to the investment thesis?

Key risks include heavy geographic concentration in California, intensifying competition from the combined TJX/Marshalls entity, industry over-capacity in apparel, and a warehouse network nearing capacity. The business is also highly seasonal, with the fourth quarter contributing a significant share of annual profit. Management noted that the gross margin improvement may not continue.

How is Ross returning capital to shareholders?

Ross raised its quarterly dividend to $0.07 per share from $0.06, a 17% increase, payable around April 1, 1996. It repurchased 756,000 shares in 1995 at an average price of $16.05 and, in February 1996, authorized two million additional shares for repurchase, for a total authorization of five million shares since February 1993.

What is Ross's store growth strategy?

Ross plans to open 12 to 18 stores annually through 1997, focusing mainly on existing markets to increase penetration and reduce overhead and advertising as a percentage of sales. The company opened 21 stores in 1995 and closed four, ending the year with 292 stores. Growth is expected to be funded primarily from operating cash flow and available credit facilities.

ROST 10-K FY1996 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 29, 1996. Cited figures are marked; the original filing is the authoritative source.

Ross Stores, Inc. (ROST) reported fiscal 1995 (53-week year ended February 3, 1996) net earnings of $43.3 million^a, or $1.73 per fully-diluted share, up from $36.8 million, or $1.49, in fiscal 1994.

Sales rose 13% to $1.426 billion^b, driven by 21 new stores (292 at year-end, up from 275), a 2% comparable store sales increase, and the extra 53rd week. Gross margin after occupancy improved modestly, with cost of goods sold and occupancy falling to 72.3% of sales from 72.9%, which management attributed to more opportunistic and in-season buying. Selling, general and administrative expenses held at 20.5% of sales, and interest expense fell to $2.7 million as the company paid down all bank borrowings by year-end.

The balance sheet strengthened considerably. Total debt dropped to $9.8 million^c (3% of total capitalization) from $46.1 million, inventory rose to $296 million, and stockholders' equity grew to $291.5 million, or $11.85 per share. Management cited improved inventory turnover and vendor terms as key drivers of the stronger cash flow, with operating cash flow reaching $88 million versus $45 million the prior year.

The board raised the quarterly dividend 17% to $0.07^d and authorized an additional two million share repurchase, bringing the total authorization to five million shares. Investors should weigh several risks. The company is heavily concentrated in California, which houses its headquarters, one of its two distribution centers, and 46% of its stores.

The filing also flags intensifying off-price competition following TJX's acquisition of Marshalls, persistent apparel industry over-capacity, and a warehouse network that is approaching capacity. Management acknowledged that the 1995 margin improvement may not persist, and the business remains highly seasonal, with the fourth quarter generating a significant share of annual profit.

02—Key points

Key Highlights

Net earnings rose 17.5% to $43.3 million ($1.73 per fully-diluted share) from $36.8 million ($1.49) in fiscal 1994, helped by a 53rd week in fiscal 1995.
Sales grew 13% to $1.426 billion, with 21 new stores opened and 292 stores in operation across 18 states at year-end, and comparable store sales up 2%.
Cost of goods sold and occupancy improved to 72.3% of sales from 72.9%, reflecting greater use of opportunistic and in-season purchasing.
Total debt fell to $9.8 million from $46.1 million as the company repaid all bank borrowings, and interest expense dropped to $2.7 million from $3.5 million.
Operating cash flow nearly doubled to $88 million from $45 million, supported by tighter inventory control and improved inventory turnover.
The board raised the quarterly dividend 17% to $0.07 per share and expanded the stock repurchase authorization by two million shares to five million total since 1993.
Concentration risk: 46% of stores, the headquarters, and one of two distribution centers are located in California, and the warehouse network is approaching capacity.

03—Questions

Frequently Asked Questions

How did Ross Stores perform financially in fiscal 1995?
Ross reported sales of $1.426 billion, up from $1.263 billion, and net earnings of $43.3 million, or $1.73 per fully-diluted share, versus $36.8 million, or $1.49, in 1994. Fiscal 1995 contained 53 weeks versus 52 in prior years, which contributed to the increase. Comparable store sales rose 2% on a 52-week basis.
Is Ross's balance sheet healthy?
Yes. Total debt was reduced to $9.8 million, representing 3% of total capitalization, down from 15% a year earlier. Working capital was $121.6 million with a current ratio of 1.5:1, and stockholders' equity rose to $291.5 million. Management stated that cash flow from operations and credit lines are adequate to fund planned capital needs, repurchases, and dividends.
What are the main risks to the investment thesis?
Key risks include heavy geographic concentration in California, intensifying competition from the combined TJX/Marshalls entity, industry over-capacity in apparel, and a warehouse network nearing capacity. The business is also highly seasonal, with the fourth quarter contributing a significant share of annual profit. Management noted that the gross margin improvement may not continue.
How is Ross returning capital to shareholders?
Ross raised its quarterly dividend to $0.07 per share from $0.06, a 17% increase, payable around April 1, 1996. It repurchased 756,000 shares in 1995 at an average price of $16.05 and, in February 1996, authorized two million additional shares for repurchase, for a total authorization of five million shares since February 1993.
What is Ross's store growth strategy?
Ross plans to open 12 to 18 stores annually through 1997, focusing mainly on existing markets to increase penetration and reduce overhead and advertising as a percentage of sales. The company opened 21 stores in 1995 and closed four, ending the year with 292 stores. Growth is expected to be funded primarily from operating cash flow and available credit facilities.

04—Continue

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