10-KPeriod: FY2011

ROSS STORES, INC. Annual Report, Year Ended Jan 29, 2011

Filed March 29, 2011For Securities:ROST

Summary

Ross Stores, Inc. (ROST) reported strong performance in its fiscal year ended January 29, 2011, continuing a positive trend from previous years. The company operates two off-price retail concepts: Ross Dress for Less and dd's DISCOUNTS, catering to value-conscious consumers across a wide range of income levels. The business model thrives on offering brand-name and designer merchandise at significant discounts, achieved through opportunistic buying strategies like close-outs and packaways. Financially, ROST demonstrated robust sales growth and improving profitability. The company expanded its store base, opening 56 new locations across both brands during the fiscal year, bringing the total to 1,055 stores. This growth was accompanied by a 5% increase in comparable store sales. Key financial metrics indicate a healthy operational performance, with net earnings and diluted EPS showing substantial year-over-year increases. The company also actively returned capital to shareholders through dividends and a significant stock repurchase program, signaling confidence in its ongoing financial strength and future prospects.

Financial Highlights

25 data points
Beta

Revenue

$7.87B

27.2% Gross Margin

Net Income

$554.80M

7.1% Net Margin

EPS (Diluted)

$1.16

Free Cash Flow

$474.42M

Financial Statements
Beta
Revenue$7.87B
Cost of Revenue$5.73B
Gross Profit$2.14B
SG&A Expenses$1.23B
Operating Expenses$6.97B
Net Income$554.80M
EPS (Basic)$1.18
EPS (Diluted)$1.16
Shares Outstanding (Basic)471.28M
Shares Outstanding (Diluted)479.61M

Key Highlights

  • 1Total store count reached 1,055 by the end of fiscal year 2010, with 988 Ross Dress for Less and 67 dd's DISCOUNTS locations, reflecting continued store network expansion.
  • 2Sales for fiscal 2010 increased by 9.5% to $7.87 billion, driven by both new store openings and a 5% comparable store sales growth.
  • 3Diluted earnings per share (EPS) grew significantly by 31% to $4.63 in fiscal 2010, up from $3.54 in the prior year.
  • 4The company demonstrated strong cost management, with cost of goods sold as a percentage of sales decreasing by 130 basis points, and SG&A as a percentage of sales also seeing a slight decrease.
  • 5Ross Stores continued to return capital to shareholders, declaring a quarterly cash dividend of $0.22 per share and approving a new $900 million stock repurchase program for fiscal years 2011-2012.
  • 6Packaway inventory, a key sourcing strategy, represented a significant portion of total inventories (47% as of January 29, 2011), indicating successful opportunistic purchasing.
  • 7The company's stock performance significantly outperformed the S&P 500 and S&P Retailing Group over the preceding five years, highlighting strong shareholder value creation.

Frequently Asked Questions

Ross Stores operates as an off-price retailer, offering first-quality, in-season, name-brand and designer apparel, accessories, footwear, and home fashions at significant discounts (20-60% off department store prices). Its competitive advantage stems from opportunistic buying strategies, including purchasing manufacturer overruns, canceled orders, close-outs, and 'packaway' merchandise. This allows them to offer compelling value to customers and maintain an organized, easy-to-shop store environment that encourages a 'treasure hunt' shopping experience.

In fiscal year 2010, Ross Stores reported a 9.5% increase in sales, reaching $7.87 billion, supported by a 5% increase in comparable store sales and the opening of 56 net new stores. Net earnings rose to $554.8 million, and diluted EPS increased by 31% to $4.63. The company also improved its profitability metrics, with net earnings as a percentage of sales increasing from 6.2% in fiscal 2009 to 7.1% in fiscal 2010, driven by lower cost of goods sold and SG&A expenses as a percentage of sales.

Ross Stores faces several risks, including intense competition from various retail formats, changes in consumer spending and preferences, macroeconomic factors such as recession and inflation, unseasonable weather, disruptions in the supply chain, and potential difficulties in securing attractive brand-name merchandise at desirable discounts. Operational risks include attracting and retaining talent, effectively managing information systems, improving merchandising capabilities, achieving profitability in new markets, and managing inventory and operating costs.

Ross Stores employs a sophisticated off-price buying strategy. They purchase merchandise later in the buying cycle to take advantage of market imbalances. A significant portion of their inventory (47% in FY2010) comes from 'packaway' purchases, where merchandise is bought for later sale, often basic fashion items less susceptible to trend shifts. They maintain a large network of approximately 7,800 vendors and receive new merchandise 3-6 times per week to ensure fresh assortments and respond to selling trends.