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ROSS STORES, INC. Annual Report, Year Ended Feb 2, 2008

Filing Date
Filed April 1, 2008
Period End
February 2, 2008
Security
ROST
In the record · 2016–202610-K1110-Q338-K97

ROST filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 97 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K filed April 1, 2008. Cited figures are marked; the original filing is the authoritative source.

Ross Stores (ROST) closed fiscal 2007 (ended February 2, 2008) with sales of $5.98 billiona, up 7.3% year over year, and net earnings of $261.1 million, up 8.0%.

Diluted EPS rose 12% to $1.90b, helped by a 3% reduction in weighted average diluted shares from buybacks. Comparable store sales grew only 1%, down from 4% in fiscal 2006, so the growth came mainly from a net 93 new stores (890 stores at year-end, versus 797). Gross margin improved about 20 basis points, mostly from lower markdowns and shortage, while SG&A deleveraged about 15 basis points on store operating costs and minimum wage increases.

The balance sheet remains conservative. Long-term debt is $150 millionc in senior notes, the $600 million revolver is undrawn, and stockholders' equity reached $970.6 million. Operating cash flow fell to $353.6 million from $506.9 million, largely because of accounts payable timing tied to the 53-week fiscal 2006, and cash and equivalents declined $109.8 million.

Management projects roughly $250 milliond in 2008 capital spending and expects an effective tax rate of 38% to 40%. The board also approved a new two-year $600 million buyback for fiscal 2008 and 2009 and raised the quarterly dividend to $0.095 from $0.075.

For investors, the key questions are whether the store-growth engine can keep delivering sales gains with comparable sales growth slowing to 1%, and whether margins can hold given wage pressure and the company's concentration in California, where its headquarters, two distribution centers, and 26% of its stores are located. The filing itself flags these risks, along with the potential for consumer spending to weaken amid mortgage credit uncertainty and higher fuel costs.

02—Key points

Key Highlights

  1. Fiscal 2007 sales rose 7.3% to $5.975 billion, driven mainly by 93 net new stores; comparable store sales grew only 1%, versus 4% in fiscal 2006.
  2. Net earnings grew 8.0% to $261.1 million; diluted EPS rose 12% to $1.90, aided by a roughly 3% reduction in diluted share count from buybacks.
  3. Gross margin (COGS as a percent of sales) improved to 77.3% from 77.5%, driven by lower markdowns and shrink, while SG&A rose to 15.7% of sales from 15.5% on store operating cost pressures.
  4. Operating cash flow fell to $353.6 million from $506.9 million, largely due to accounts payable timing tied to the 53-week fiscal 2006; cash and equivalents declined $109.8 million.
  5. Balance sheet remains conservative: $150 million of senior notes outstanding, an undrawn $600 million revolver, and stockholders' equity of $970.6 million.
  6. Capital return continues: $200 million repurchased in fiscal 2007, a new two-year $600 million buyback approved for fiscal 2008-2009, and the quarterly dividend raised to $0.095 from $0.075.
  7. Store footprint reached 890 stores (838 Ross, 52 dd's DISCOUNTS), with 2008 capital spending planned at about $250 million and a 38%-40% effective tax rate expected.

03—Questions

Frequently Asked Questions

  1. How did Ross Stores perform in fiscal 2007?

    Sales grew 7.3% to $5.98 billion and net earnings rose 8.0% to $261.1 million. Diluted EPS increased 12% to $1.90, supported by both earnings growth and a roughly 3% lower diluted share count from repurchases. Growth came mostly from new stores, since comparable store sales rose only 1%.

  2. Why did operating cash flow decline in fiscal 2007?

    Operating cash flow fell to $353.6 million from $506.9 million. The filing attributes the drop mainly to accounts payable timing, which was boosted in fiscal 2006 by the 53rd week, and to lower accounts payable at the end of fiscal 2007 (a $63.2 million outflow versus a $221.6 million inflow the prior year).

  3. What is Ross's exposure to California and to other risks?

    The company's corporate headquarters, two distribution centers, and 26% of its stores are in California, so a downturn or natural disaster there could materially affect results. The filing also cites risks from competition, changes in consumer spending (including mortgage credit uncertainty and higher gas prices), wage and hour class actions, and dependence on a steady supply of brand-name merchandise at discounts.

  4. What are the capital allocation plans for fiscal 2008?

    Management forecasts about $250 million in 2008 capital expenditures for new stores, store upgrades, and distribution and systems investments. The board approved a new two-year $600 million share repurchase program for fiscal 2008 and 2009 and raised the quarterly dividend to $0.095 per share. Cash flow from operations and existing credit facilities are expected to fund these plans.

04—Continue

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