10-QPeriod: Q2 FY2011

ROSS STORES, INC. Quarterly Report for Q2 Ended Jul 31, 2010

Filed September 8, 2010For Securities:ROST

Summary

Ross Stores, Inc. reported a strong second quarter for fiscal year 2010, demonstrating robust sales growth and significant improvements in profitability. Net sales increased by 8.1% for the quarter and 11.2% for the first six months, driven by both new store openings and a healthy 4% comparable store sales growth for the quarter (7% for the six months). This top-line performance translated into substantial bottom-line gains, with diluted EPS rising 30% to $1.07 for the quarter and 45% to $2.24 for the first six months. The company also saw improved gross margins and SG&A leverage, contributing to its enhanced profitability. Ross Stores maintained a strong balance sheet, with significant cash on hand and effective management of inventory and payables.

Financial Highlights

46 data points
Beta

Revenue

$1.91B

27.0% Gross Margin

Net Income

$129.28M

6.8% Net Margin

EPS (Diluted)

$0.27

Total Assets

$2.85B

Cash & Equivalents

$772.67M

Free Cash Flow

$63.05M

Financial Statements
Beta
Revenue$1.91B
Cost of Revenue$1.40B
Gross Profit$515.98M
SG&A Expenses$303.40M
Operating Expenses$1.70B
Net Income$129.28M
EPS (Basic)$0.27
EPS (Diluted)$0.27
Shares Outstanding (Basic)474.46M
Shares Outstanding (Diluted)482.25M

Key Highlights

  • 1Net sales increased by 8.1% to $1.91 billion for the third quarter and 11.2% to $3.85 billion for the first six months, driven by new store openings and comparable store sales growth.
  • 2Comparable store sales increased by 4% for the quarter and 7% for the six-month period, indicating strong customer demand.
  • 3Diluted Earnings Per Share (EPS) rose significantly by 30% to $1.07 for the quarter and 45% to $2.24 for the six months, demonstrating improved profitability.
  • 4Gross profit margins improved due to better merchandise margins and lower shortage accruals, alongside distribution and occupancy expense leverage.
  • 5Selling, general, and administrative (SG&A) expenses as a percentage of sales decreased, reflecting leverage on both store and corporate expenses.
  • 6The company repurchased approximately $193 million of common stock in the six-month period, alongside paying dividends of $39.1 million, returning value to shareholders.
  • 7Ross Stores ended the period with a strong cash and cash equivalents balance of $772.7 million, up from $520.4 million in the prior year, providing ample liquidity.

Frequently Asked Questions

Sales growth was driven by two primary factors: the opening of 46 net new stores between August 1, 2009, and July 31, 2010, and a 4% increase in comparable store sales for the quarter. This comparable store sales growth was particularly strong as it built upon a 3% gain in the prior year's quarter.

Profitability improved significantly, with diluted EPS increasing by 30% for the quarter. Key drivers included an 8.1% increase in net sales, a 110 basis point decrease in cost of goods sold as a percentage of sales (driven by higher merchandise gross margin and lower shortage accrual), and a 30 basis point decrease in SG&A expenses as a percentage of sales due to leverage from strong comparable store sales gains.

Ross Stores is forecasting approximately $215 million in capital expenditures for fiscal year 2010. These expenditures are planned for opening new stores, upgrading existing ones, and investing in store and merchandising systems, buildings, and equipment. The company expects to fund these investments through its available cash and cash flows from operations.

The company is returning value to shareholders through a combination of stock repurchases and dividend payments. In the six-month period ended July 31, 2010, Ross Stores repurchased approximately $193 million of common stock under its $750 million stock repurchase program and paid dividends totaling $39.1 million.