10-QPeriod: Q1 FY2016

ROSS STORES, INC. Quarterly Report for Q1 Ended May 2, 2015

Filed June 10, 2015For Securities:ROST

Summary

Ross Stores, Inc. (ROST) reported strong financial results for the first quarter ended May 2, 2015, demonstrating robust sales growth and improved profitability. Net sales increased by 9.6% year-over-year to $2.94 billion, driven by a 5% comparable store sales increase and the opening of 90 net new stores. This top-line growth translated into a significant improvement in earnings, with diluted earnings per share rising to $1.37 from $1.15 in the prior year period, a 19% increase. The company also showed improved operational efficiency, with cost of goods sold and selling, general, and administrative expenses decreasing as a percentage of sales. This led to a higher pre-tax margin of 15.6%. Ross Stores' strong cash flow generation allowed for continued investment in new stores, share repurchases, and dividend payments, signaling confidence in its business model and future prospects. The company also reiterated its guidance for the full fiscal year, indicating expectations for continued growth.

Financial Highlights

48 data points
Beta

Revenue

$2.94B

29.6% Gross Margin

Net Income

$282.20M

9.6% Net Margin

EPS (Diluted)

$0.69

Total Assets

$4.92B

Cash & Equivalents

$761.36M

Free Cash Flow

$307.06M

Financial Statements
Beta
Revenue$2.94B
Cost of Revenue$2.07B
Gross Profit$870.69M
SG&A Expenses$409.30M
Operating Expenses$2.48B
Interest Expense$4.64M
Net Income$282.20M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)407.65M
Shares Outstanding (Diluted)411.39M

Key Highlights

  • 1Net sales increased by 9.6% to $2.94 billion, exceeding the prior year's $2.68 billion.
  • 2Comparable store sales grew by 5%, indicating healthy demand in existing locations.
  • 3Diluted earnings per share rose to $1.37, a 19% increase from $1.15 in the prior year's comparable quarter.
  • 4Cost of goods sold as a percentage of sales decreased by 80 basis points, and SG&A expenses as a percentage of sales improved by 25 basis points, leading to improved margins.
  • 5The company opened 37 new stores during the quarter, expanding its retail footprint to 1,399 locations.
  • 6Net cash provided by operating activities was $414.0 million, though lower than the prior year ($504.6 million), still indicating strong operational cash generation.
  • 7The company repurchased approximately $175.8 million of common stock and paid $48.7 million in dividends, demonstrating commitment to shareholder returns.

Frequently Asked Questions

The primary drivers of the sales increase were the opening of 90 net new stores between May 3, 2014, and May 2, 2015, and a significant 5% increase in comparable store sales for existing locations.

Ross Stores effectively managed costs by decreasing cost of goods sold as a percentage of sales by approximately 80 basis points, due to improved merchandise margins and lower distribution costs. Selling, general, and administrative expenses also decreased as a percentage of sales by 25 basis points, primarily due to leverage from the comparable store sales increase.

Ross Stores continues to invest in growth through new store openings and capital expenditures, funded by operating cash flows. Simultaneously, the company actively returns capital to shareholders through a robust stock repurchase program, with $175.8 million repurchased in the quarter, and regular dividend payments, with $48.7 million paid during the period. A new two-year, $1.4 billion stock repurchase program was approved in February 2015.

Key risks and uncertainties include intense competitive pressures in the retail industry, unpredictable consumer spending and preferences, reliance on the availability of branded merchandise at discounts, macroeconomic factors impacting consumer confidence, potential data security breaches, supply chain disruptions, and the ability to manage inventory effectively to achieve gross margins. Adverse outcomes in legal, regulatory, or tax matters, as well as labor cost increases, are also identified risks.