01—Abstract
Summary
Summary of the 10-K filed March 31, 2009. Cited figures are marked; the original filing is the authoritative source.
Ross Stores (ROST) closed fiscal 2008 (year ended January 31, 2009) with record results despite a deteriorating macro backdrop.
Sales rose 8.6% to $6.49 billiona, driven by a net addition of 66 stores (956 year-end, 904 Ross and 52 dd's DISCOUNTS) and a 2% comparable store sales increase. Gross margin improvement was the main profit driver: cost of goods sold fell to 76.4% of sales from 77.3%, while SG&A rose to 16.0% from 15.7%. Net earnings grew about 17% to $305.4 million, and diluted EPS rose 23% to $2.33, helped by a roughly 4% reduction in diluted share count from buybacks.
Return on average equity was 31%. Balance sheet and cash flow were strong. Operating cash flow rose to $583.4 millionb from $353.6 million, largely due to inventory reduction: merchandise inventory fell 14% to $881 million.
Cash and equivalents increased to $321 millionc, the company has no borrowings under its $600 million revolver, and it carries $150 million of senior notes. Management repurchased $300 million of stock in fiscal 2008 and has a remaining $300 million to execute in fiscal 2009 under its $600 million two-year program. The quarterly dividend was raised to $0.11 per share.
Management's outlook is cautious. It expects macroeconomic pressure to persist through 2009 and plans to keep tight control over inventory and operating expenses. Capital spending is forecast at about $190 milliond in 2009, down from $224 million.
The company also flagged risks including concentration in California (26% of stores and its headquarters and two distribution centers), wage-and-hour class action litigation, and the planned rollout of merchandise planning systems through fiscal 2010. Its effective tax rate is expected to be 38% to 40%.
02—Key points
Key Highlights
- Net sales rose 8.6% to $6.49 billion, supported by 66 net new stores and 2% comparable store sales growth.
- Diluted EPS increased 23% to $2.33 (from $1.90), with net earnings up roughly 17% to $305.4 million and a 4% reduction in diluted shares.
- Gross margin expanded: cost of goods sold fell to 76.4% of sales from 77.3%, a roughly 90 basis point improvement, driven by a 100 basis point gain in merchandise margin.
- Operating cash flow nearly doubled to $583.4 million, aided by a 14% reduction in merchandise inventory to $881 million.
- Balance sheet is strong: $321 million cash, no borrowings under the $600 million revolver, and $150 million of senior notes; return on average equity was 31%.
- $300 million of stock was repurchased in fiscal 2008, with another $300 million planned for fiscal 2009; quarterly dividend raised to $0.11 per share.
- Management expects macroeconomic pressure to continue in 2009 and is prioritizing tight inventory and expense controls; capex is planned at about $190 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 31, 2009Financial Statements
| Revenue | $6.49B |
| Cost of Revenue | $4.96B |
| Gross Profit | $1.53B |
| SG&A Expenses | $1.03B |
| Operating Expenses | $5.99B |
| Net Income | $305.44M |
| EPS (Basic) | $0.59 |
| EPS (Diluted) | $0.58 |
| Shares Outstanding (Basic) | 516.94M |
| Shares Outstanding (Diluted) | 525.26M |
05—Questions
Frequently Asked Questions
How did Ross Stores perform in fiscal 2008 compared with the prior year?
Sales grew 8.6% to $6.49 billion and net earnings grew about 17% to $305.4 million. Diluted EPS was $2.33, up 23% from $1.90, with the extra lift coming from both higher earnings and a smaller share count after buybacks.
What drove the improvement in profitability?
Most of the gain came from merchandise gross margin, which improved about 100 basis points as a percentage of sales, and cost of goods sold fell to 76.4% of sales from 77.3%. Distribution costs also improved by about 20 basis points. These gains were partly offset by higher SG&A, which rose to 16.0% of sales from 15.7%, mainly from store operating costs tied to new stores.
How strong is the company's financial position and liquidity?
Strong. The company held $321 million in cash at year-end, had no borrowings under its $600 million revolving credit facility (expiring July 2011), and carried $150 million of fixed-rate senior notes. Operating cash flow of $583 million comfortably covered capital expenditures of $224 million, buybacks of $300 million, and dividends of about $50 million.
What is the outlook for 2009 and what are the main risks?
Management expects macroeconomic pressure to continue, so it plans to keep inventory and operating costs tightly controlled. Capital spending is forecast at about $190 million and the effective tax rate at 38% to 40%. Key risks include California concentration (26% of stores plus headquarters and two distribution centers), class action wage-and-hour litigation, competition from larger retailers, and execution risk on the merchandise planning system rollout through fiscal 2010.
How are the company's two store chains performing and expanding?
Ross Dress for Less, the core chain, ended the year with 904 stores in 27 states and Guam, after opening 72 and closing six. dd's DISCOUNTS, the moderate-income concept, had 52 stores in four states (California, Florida, Texas and Arizona), after opening five and closing five. Ross is planning expansion into states where it already operates to increase market penetration.
06—Continue