10-QPeriod: Q1 FY2012

ROSS STORES, INC. Quarterly Report for Q1 Ended Apr 30, 2011

Filed June 8, 2011For Securities:ROST

Summary

Ross Stores, Inc. reported strong top-line growth for the first quarter of fiscal year 2011, with sales increasing by 7.2% to $2.07 billion compared to the prior year period. This growth was driven by both new store openings and a 3% increase in comparable store sales. The company also demonstrated improved profitability, with net earnings rising to $173 million, a 21.5% increase year-over-year, leading to a diluted EPS of $1.48, up from $1.16. This performance reflects effective cost management, as evidenced by a decrease in the cost of goods sold as a percentage of sales, and improved merchandise gross margins. Financially, the company maintained a solid balance sheet with total assets of approximately $3.1 billion. While operating cash flow saw a significant decrease primarily due to strategic inventory purchases, particularly packaway merchandise, the company maintained adequate liquidity. Ross Stores also continued its capital allocation strategy, repurchasing approximately $112.5 million in common stock and declaring a quarterly dividend. The company's outlook remains positive, with management focused on leveraging its off-price model to deliver value to customers amidst a competitive retail landscape.

Financial Highlights

46 data points
Beta

Revenue

$2.07B

28.6% Gross Margin

Net Income

$172.97M

8.3% Net Margin

EPS (Diluted)

$0.37

Total Assets

$3.10B

Cash & Equivalents

$671.00M

Free Cash Flow

-$29.05M

Financial Statements
Beta
Revenue$2.07B
Cost of Revenue$1.48B
Gross Profit$593.37M
SG&A Expenses$309.16M
Operating Expenses$1.79B
Net Income$172.97M
EPS (Basic)$0.38
EPS (Diluted)$0.37
Shares Outstanding (Basic)459.06M
Shares Outstanding (Diluted)467.09M

Key Highlights

  • 1Sales increased by 7.2% to $2.07 billion for the first quarter of fiscal 2011, up from $1.93 billion in the prior year.
  • 2Net earnings grew by 21.5% to $173 million, compared to $142.3 million in the same period last year.
  • 3Diluted earnings per share (EPS) increased by 28% to $1.48, up from $1.16 in the prior year.
  • 4Comparable store sales increased by 3%, indicating healthy demand at existing locations.
  • 5Cost of goods sold as a percentage of sales decreased by 130 basis points, primarily driven by improved merchandise gross margin.
  • 6The company expanded its store base, ending the quarter with 1,068 stores, a net increase of 47 stores since the prior year period.
  • 7Significant stock repurchases continued, with $112.5 million spent on share buybacks during the quarter.

Frequently Asked Questions

Sales growth was driven by a combination of factors, including the opening of 47 net new stores between May 1, 2010, and April 30, 2011, and a 3% increase in comparable store sales. The company's off-price strategy continued to attract customers.

The decrease in operating cash flow was primarily due to increased investment in packaway merchandise. Ross Stores strategically purchased additional inventory for future sale, which temporarily impacted cash flow from operations but is expected to support future sales and customer bargains.

Ross Stores continues its expansion strategy by opening new stores based on market penetration, local demographics, competition, expected profitability, and the ability to leverage overhead. The company aims to grow its store base in opportunistic locations.

The company improved its cost of goods sold as a percentage of sales by 130 basis points, largely due to a 95 basis point increase in merchandise gross margin. This improvement was supported by better inventory management, lower shortage accruals, and efficiencies in occupancy and distribution costs, partially offset by higher freight costs.