10-QPeriod: Q2 FY2013

ROSS STORES, INC. Quarterly Report for Q2 Ended Jul 28, 2012

Filed September 5, 2012For Securities:ROST

Summary

Ross Stores, Inc. (ROST) reported robust performance for the second quarter and first half of fiscal year 2012, demonstrating strong sales growth driven by both new store openings and significant increases in comparable store sales. For the three months ended July 28, 2012, total sales increased by 12.0% to $2.34 billion, with comparable store sales growing 7%. This momentum carried into the six-month period, with sales up 12.8% to $4.70 billion and comparable store sales increasing by 8%. Net earnings per diluted share saw a substantial jump of 27% for the quarter and 26% for the first half, signaling effective cost management and favorable merchandise margins despite increased operating expenses from store expansion. The company's financial condition remains strong, supported by healthy operating cash flows. While investing activities showed slightly higher capital expenditures for store growth and system improvements, financing activities were marked by significant stock repurchases and increased dividend payments, reflecting a commitment to shareholder returns. Ross Stores continues its strategic expansion, with 1,174 stores operating by the end of the period, and remains confident in its ability to fund planned capital expenditures, stock buybacks, and dividends through existing cash and operational cash flows.

Financial Highlights

47 data points
Beta

Revenue

$2.34B

27.8% Gross Margin

Net Income

$182.02M

7.8% Net Margin

EPS (Diluted)

$0.41

Total Assets

$3.56B

Cash & Equivalents

$721.05M

Free Cash Flow

$112.72M

Financial Statements
Beta
Revenue$2.34B
Cost of Revenue$1.69B
Gross Profit$651.21M
SG&A Expenses$352.09M
Operating Expenses$2.04B
Net Income$182.02M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)440.13M
Shares Outstanding (Diluted)447.21M

Key Highlights

  • 1Total sales for the three months ended July 28, 2012, rose 12.0% to $2.34 billion, driven by 83 net new stores and a 7% increase in comparable store sales.
  • 2For the six months ended July 28, 2012, total sales grew 12.8% to $4.70 billion, with comparable store sales up 8%.
  • 3Diluted earnings per share increased significantly by 27% for the quarter ($0.81 vs. $0.64) and 26% for the first half ($1.74 vs. $1.38), benefiting from higher net earnings and a reduced share count due to buybacks.
  • 4Cost of goods sold as a percentage of sales decreased by approximately 80 basis points for the quarter and 45 basis points for the six months, primarily due to improved merchandise gross margins and better leverage of occupancy and distribution costs.
  • 5Selling, general, and administrative expenses as a percentage of sales decreased due to leverage from strong comparable store sales gains, despite overall increases due to new store openings.
  • 6Operating cash flow for the six months improved significantly to $504.2 million from $161.7 million in the prior year, largely due to increased accounts payable leverage.
  • 7The company repurchased approximately $223.7 million of common stock in the first six months of fiscal 2012 as part of its ongoing $900 million repurchase program.

Frequently Asked Questions

The 12% increase in sales for the three months ended July 28, 2012, was driven by two key factors: the opening of 83 net new stores between the comparable periods and a strong 7% increase in comparable store sales. This 7% comp sales growth was achieved on top of a 5% gain in the prior year, indicating continued customer demand and effective merchandising.

Ross Stores demonstrated effective cost management. Cost of goods sold as a percentage of sales decreased due to an improved merchandise gross margin and better leverage of occupancy and distribution costs. While selling, general, and administrative expenses increased in absolute terms due to new store openings, they decreased as a percentage of sales, primarily due to leverage from strong comparable store sales gains.

The company's liquidity and capital resources appear strong. Operating cash flow for the first six months of the year more than tripled compared to the prior year, driven by improved accounts payable leverage. Ross Stores expects to fund its planned capital expenditures, stock repurchases, and dividend payments using existing cash balances and future cash flows from operations. They have an undrawn $600 million revolving credit facility available, expiring in 2017.

The stock repurchase program has had a positive impact on earnings per share. The reduction in weighted average diluted shares outstanding due to repurchases contributed to the significant year-over-year increases in diluted earnings per share for both the quarter (3% reduction) and the first half (3% reduction). The company repurchased approximately $223.7 million worth of stock in the first six months of fiscal 2012 under its $900 million program.