10-QPeriod: Q3 FY2009

ROSS STORES, INC. Quarterly Report for Q3 Ended Nov 1, 2008

Filed December 10, 2008For Securities:ROST

Summary

Ross Stores, Inc. (ROST) reported a solid third quarter of fiscal year 2008, demonstrating resilience amidst a challenging economic environment. Net earnings increased by 17.6% to $57.3 million, or $0.44 per diluted share, up from $48.7 million, or $0.36 per diluted share, in the prior year's comparable period. This growth was primarily driven by a 5.9% increase in total sales to $1.56 billion, fueled by the addition of new stores. Notably, comparable store sales remained flat, indicating that sales growth was entirely attributable to store expansion rather than increased traffic or average transaction value at existing locations. Despite the overall sales increase, the company faced increased selling, general, and administrative expenses as a percentage of sales, largely due to new store openings. However, improvements in the cost of goods sold, particularly an increase in merchandise gross margin, helped to offset some of these increased costs. The company maintained a strong liquidity position, with significant cash flow from operations and an undrawn revolving credit facility, allowing for continued investment in new stores and robust share repurchase activity.

Key Highlights

  • 1Net earnings increased by 17.6% to $57.3 million for the third quarter of fiscal 2008.
  • 2Diluted earnings per share (EPS) rose 22.2% to $0.44 compared to $0.36 in the prior year's third quarter.
  • 3Total sales grew 5.9% to $1.56 billion, primarily driven by the opening of 70 net new stores.
  • 4Comparable store sales remained flat for the third quarter, indicating growth was solely from new store additions.
  • 5Cost of goods sold as a percentage of sales decreased by approximately 130 basis points due to improved merchandise gross margin.
  • 6The company repurchased approximately $231.4 million of its common stock during the first nine months of the fiscal year.
  • 7Ross Stores maintained a strong liquidity position with $231.2 million in cash and cash equivalents and an undrawn $600 million revolving credit facility.

Frequently Asked Questions

Sales growth in the third quarter of fiscal 2008 was primarily driven by the opening of new stores. The company added 70 net new stores between November 3, 2007, and November 1, 2008, contributing to the 5.9% increase in total sales. Comparable store sales remained flat, indicating that existing stores did not experience an increase in sales during the period.

Ross Stores demonstrated effective cost management, particularly in the cost of goods sold, which decreased as a percentage of sales by approximately 130 basis points. This improvement was largely due to a higher merchandise gross margin. While selling, general, and administrative expenses as a percentage of sales increased due to new store openings, the company's overall cost control measures supported earnings growth.

The company maintains a strong financial position. As of November 1, 2008, Ross Stores had $231.2 million in cash and cash equivalents. Furthermore, it had a fully available $600 million revolving credit facility, providing significant financial flexibility. The company generated strong cash flow from operations, enabling it to fund capital expenditures for new stores, repurchase stock, and pay dividends.

Ross Stores is involved in class-action lawsuits concerning wage and hour claims, as well as other legal proceedings arising in the normal course of business. However, management is of the opinion that the resolution of these matters is not expected to have a material adverse effect on the company's financial condition or results of operations.