10-QPeriod: Q2 FY2012

ROSS STORES, INC. Quarterly Report for Q2 Ended Jul 30, 2011

Filed September 7, 2011For Securities:ROST

Summary

Ross Stores, Inc. reported strong performance for the second quarter and first half of fiscal year 2011, demonstrating robust sales growth and improved profitability. Net sales increased by 9% for the quarter and 8% for the six-month period, driven by new store openings and a 5% and 4% increase in comparable store sales, respectively. This growth outpaced the prior year's comparable store sales gains, indicating healthy underlying demand. The company effectively managed its cost of goods sold, leading to improved merchandise gross margins due to fewer markdowns and faster inventory turns, contributing to a 7.1% net earnings margin for the quarter, up from 6.8% in the prior year. Financially, the company maintained a strong liquidity position with significant cash flows from operations, although there was a planned increase in inventory for "packaway" opportunities. Capital expenditures were elevated due to new store openings and warehouse purchases, with a forecast for continued investment in fiscal year 2011. The company also actively returned capital to shareholders through share repurchases and a consistent dividend payout, underscoring a focus on shareholder value. Management expressed confidence in the company's ability to meet its liquidity needs and fund ongoing operations and growth initiatives.

Financial Highlights

46 data points
Beta

Revenue

$2.09B

27.0% Gross Margin

Net Income

$148.28M

7.1% Net Margin

EPS (Diluted)

$0.32

Total Assets

$3.06B

Cash & Equivalents

$512.72M

Free Cash Flow

$44.99M

Financial Statements
Beta
Revenue$2.09B
Cost of Revenue$1.52B
Gross Profit$565.10M
SG&A Expenses$320.88M
Operating Expenses$1.85B
Net Income$148.28M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)454.61M
Shares Outstanding (Diluted)462.35M

Key Highlights

  • 1Total sales increased by 9.3% to $2,089 million for the third quarter of fiscal 2011 compared to the same period in the prior year.
  • 2Comparable store sales increased by 5% for the third quarter of fiscal 2011, building on a 4% increase in the prior year.
  • 3Net earnings per diluted share rose 20% to $1.28 for the third quarter of fiscal 2011 compared to $1.07 in the prior year.
  • 4Cost of goods sold as a percentage of sales decreased, primarily driven by a 45 basis point increase in merchandise gross margin due to fewer markdowns and faster inventory turns.
  • 5Selling, general, and administrative expenses as a percentage of sales decreased by 50 basis points, reflecting leverage from comparable store sales increases.
  • 6The company repurchased approximately $230.2 million of common stock during the first six months of fiscal 2011, and paid dividends of $51.6 million.
  • 7Ross Stores opened 25 net new stores during the third quarter, bringing the total store count to 1,091.

Frequently Asked Questions

Ross Stores demonstrated strong sales growth, with total sales increasing by 9.3% to $2,089 million for the third quarter of fiscal 2011. This was supported by a 5% increase in comparable store sales. Net earnings per diluted share rose by 20% to $1.28, reflecting improved operational efficiency and margin expansion, with net earnings as a percentage of sales increasing to 7.1% from 6.8% in the prior year.

The company is actively taking advantage of 'packaway' inventory opportunities, which involves purchasing merchandise intended for storage and later sale. This strategy aims to secure compelling bargains for customers. Consequently, packaway inventory levels increased to 49% of total inventory by the end of Q2 2011. While this impacts operating cash flow due to increased inventory holdings, the company believes it allows them to continue offering a wide assortment of merchandise at competitive prices.

Ross Stores effectively managed its expenses. The cost of goods sold as a percentage of sales decreased due to improved merchandise gross margins driven by fewer markdowns and faster inventory turns. Selling, general, and administrative expenses also decreased as a percentage of sales, benefiting from leverage due to comparable store sales increases. Management anticipates that these favorable trends may not necessarily continue in the future.

The company is forecasting approximately $305 million to $315 million in capital expenditures for fiscal year 2011. These expenditures are planned for opening new stores, relocating or upgrading existing ones, investments in store and merchandising systems, building distribution centers, and other corporate expenditures. The company expects to fund these investments using available cash and cash flows from operations.