10-QPeriod: Q3 FY2010

ROSS STORES, INC. Quarterly Report for Q3 Ended Oct 31, 2009

Filed December 9, 2009For Securities:ROST

Summary

Ross Stores, Inc. reported a strong third quarter for fiscal year 2009, demonstrating robust sales growth and significant earnings improvement. Total sales increased by 12.1% year-over-year, driven by both an 8% rise in comparable store sales and the addition of new store locations. This top-line growth translated into substantial bottom-line performance, with net earnings more than doubling compared to the prior year quarter. The company's off-price model appears to be resonating well with consumers navigating the economic environment. Management highlighted improved merchandise gross margins, driven by factors such as lower freight costs and reduced inventory shortage. Despite increased selling, general, and administrative expenses due to store expansion, operating leverage was achieved. The company also continued its commitment to shareholder returns through stock repurchases and dividend payments, supported by healthy operating cash flows and a strong liquidity position.

Financial Highlights

46 data points
Beta

Revenue

$1.74B

26.3% Gross Margin

Net Income

$105.08M

6.0% Net Margin

EPS (Diluted)

$0.21

Total Assets

$2.74B

Cash & Equivalents

$576.16M

Free Cash Flow

$126.47M

Financial Statements
Beta
Revenue$1.74B
Cost of Revenue$1.28B
Gross Profit$459.29M
SG&A Expenses$286.51M
Operating Expenses$1.57B
Net Income$105.08M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)489.51M
Shares Outstanding (Diluted)498.59M

Key Highlights

  • 1Total sales increased by 12.1% to $1.74 billion in the third quarter of fiscal 2009 compared to the prior year period.
  • 2Comparable store sales grew by a strong 8% in the third quarter, indicating healthy customer demand.
  • 3Net earnings for the quarter surged by approximately 83% to $105.1 million, or $0.84 per diluted share, compared to $57.3 million, or $0.44 per diluted share, in the prior year.
  • 4Cost of goods sold as a percentage of sales decreased significantly, reflecting improved merchandise gross margins and operational efficiencies.
  • 5The company opened 18 net new stores during the third quarter, expanding its retail footprint.
  • 6Cash flows provided by operating activities were robust at $583.9 million for the first nine months of the fiscal year.
  • 7The company maintained a strong liquidity position with $576.2 million in cash and cash equivalents as of October 31, 2009, and an undrawn $600 million revolving credit facility.

Frequently Asked Questions

The significant increase in net earnings was primarily driven by a combination of strong sales growth, up 12.1% year-over-year, including an 8% increase in comparable store sales, and improved profitability. The company benefited from higher merchandise gross margins, lower freight and distribution costs, and better leverage of occupancy expenses. These factors, combined with disciplined expense management, led to a substantial rise in net income.

Ross Stores is managing costs effectively by leveraging occupancy expenses, reducing freight and distribution costs, and benefiting from lower inventory shortage. The company also reported an increase in merchandise gross margin. While expanding its store base, it has also focused on operational efficiencies. The company maintains a strong inventory replenishment process and liquidates slower-moving merchandise through markdowns to keep inventory current.

The company continues its expansion strategy, having opened 18 net new stores in the third quarter. For fiscal year 2009, the company forecasts approximately $165 million in capital expenditures, primarily for opening new stores, relocating or upgrading existing ones, and investing in store and merchandising systems. These expenditures are expected to be funded by cash flows from operations.

Ross Stores is returning capital to shareholders through both stock repurchases and dividend payments. During the nine months ended October 31, 2009, the company repurchased approximately $229.8 million of common stock under its existing program. The company also declared and paid quarterly cash dividends, with a dividend of $0.11 per common share declared in November 2009, payable in December 2009.