10-QPeriod: Q2 FY2014

ROSS STORES, INC. Quarterly Report for Q2 Ended Aug 3, 2013

Filed September 11, 2013For Securities:ROST

Summary

Ross Stores, Inc. reported strong performance for the quarter and six months ended August 3, 2013, demonstrating robust sales growth driven by both new store openings and comparable store sales increases. Net earnings and diluted earnings per share saw significant year-over-year improvements, reflecting effective cost management and improved merchandise margins. The company continues to execute its expansion strategy, with a notable increase in capital expenditures focused on new distribution centers and store improvements, signaling a commitment to long-term growth and operational efficiency. Financially, the company maintains a healthy liquidity position, supported by strong operating cash flows and an undrawn revolving credit facility. The significant buyback of common stock and consistent dividend payments underscore the company's commitment to returning value to shareholders. While facing a competitive retail landscape, Ross Stores appears well-positioned to leverage its off-price model, with management expressing confidence in their ability to meet financial obligations and fund future investments.

Financial Highlights

47 data points
Beta

Revenue

$2.55B

28.5% Gross Margin

Net Income

$213.12M

8.4% Net Margin

EPS (Diluted)

$0.49

Total Assets

$3.91B

Cash & Equivalents

$550.57M

Free Cash Flow

$5.33M

Financial Statements
Beta
Revenue$2.55B
Cost of Revenue$1.82B
Gross Profit$727.50M
SG&A Expenses$381.19M
Operating Expenses$2.20B
Net Income$213.12M
EPS (Basic)$0.50
EPS (Diluted)$0.49
Shares Outstanding (Basic)427.67M
Shares Outstanding (Diluted)433.23M

Key Highlights

  • 1Sales increased by 9.0% to $2.55 billion for the three months ended August 3, 2013, driven by a 4% comparable store sales growth and new store openings.
  • 2Net earnings rose by 17.0% to $213.1 million ($0.98 diluted EPS) for the three months ended August 3, 2013, compared to $182.0 million ($0.81 diluted EPS) in the prior year.
  • 3Cost of goods sold as a percentage of sales decreased by approximately 70 basis points, primarily due to an 80 basis point increase in merchandise margin.
  • 4Selling, general, and administrative expenses as a percentage of sales decreased by 10 basis points, benefiting from leverage on store operating costs.
  • 5The company's store count grew to 1,253, with 27 new stores opened during the quarter.
  • 6Capital expenditures significantly increased to $271.7 million for the six months ended August 3, 2013, reflecting investments in new distribution centers and store upgrades.
  • 7The company repurchased approximately $276.6 million of common stock during the six-month period, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

Sales growth was driven by a combination of factors, including the opening of 79 net new stores between July 28, 2012, and August 3, 2013, and a 4% increase in comparable store sales for the three-month period, and a 3% increase for the six-month period.

The cost of goods sold as a percentage of sales decreased by approximately 70 basis points for the three-month period and 55 basis points for the six-month period. This improvement was primarily driven by an increase in merchandise margin, which offset increases in distribution costs and buying/incentive costs.

Ross Stores is focused on expanding its store footprint and investing in infrastructure, including new distribution centers and data centers, as evidenced by a significant increase in capital expenditures. The company also continues to return value to shareholders through substantial common stock repurchases and consistent dividend payments.

The company acknowledges being named in class action lawsuits related to wage and hour and other employment laws, as well as various other legal and regulatory proceedings. However, management stated that the resolution of these matters is not expected to have a material adverse effect on the company's financial condition, results of operations, or cash flows.