10-QPeriod: Q1 FY2018

ROSS STORES, INC. Quarterly Report for Q1 Ended Apr 29, 2017

Filed June 7, 2017For Securities:ROST

Summary

Ross Stores, Inc. reported strong first-quarter fiscal 2017 results, demonstrating continued growth and profitability. Sales increased by 7.0% year-over-year to $3.3 billion, driven by both new store openings and a 3% increase in comparable store sales. Net earnings rose to $321.0 million, or $0.82 per diluted share, up from $290.6 million, or $0.73 per diluted share, in the prior year's comparable period. This growth reflects effective cost management, with cost of goods sold remaining stable as a percentage of sales, and slight improvements in merchandise margins, partially offset by increased freight costs. The company also benefited from a lower effective tax rate due to the adoption of a new accounting standard for stock-based compensation. Financially, Ross Stores maintained a robust liquidity position with an increase in cash and cash equivalents to $1.24 billion. Operating cash flows were strong, and the company continued to invest in its store base by opening 28 new stores during the quarter, bringing the total store count to 1,561. The company also actively returned capital to shareholders through a significant stock repurchase program and an increased dividend payout. Management expressed confidence in the company's strategy to navigate competitive pressures and anticipates continued performance aligned with its off-price retail model.

Financial Highlights

50 data points
Beta

Revenue

$3.31B

29.5% Gross Margin

Net Income

$321.02M

9.7% Net Margin

EPS (Diluted)

$0.82

Total Assets

$5.55B

Cash & Equivalents

$1.24B

Free Cash Flow

$444.89M

Financial Statements
Beta
Revenue$3.31B
Cost of Revenue$2.33B
Gross Profit$976.46M
SG&A Expenses$474.82M
Operating Expenses$2.81B
Interest Expense$4.64M
Net Income$321.02M
EPS (Basic)$0.83
EPS (Diluted)$0.82
Shares Outstanding (Basic)386.43M
Shares Outstanding (Diluted)389.73M

Key Highlights

  • 1Sales increased 7.0% to $3.3 billion for the first quarter ended April 29, 2017.
  • 2Comparable store sales grew by 3% during the quarter.
  • 3Net earnings increased to $321.0 million from $290.6 million in the prior year.
  • 4Diluted Earnings Per Share (EPS) rose to $0.82 from $0.73 in the prior year.
  • 5The company opened 28 new stores, expanding its total footprint to 1,561 locations.
  • 6Cash and cash equivalents increased to $1.24 billion at quarter-end.
  • 7Dividends per share increased to $0.1600 from $0.1350 in the prior year, reflecting shareholder returns.

Frequently Asked Questions

The 7.0% increase in sales to $3.3 billion was primarily driven by the opening of 88 net new stores between the prior year's first quarter and the current quarter, coupled with a 3% increase in comparable store sales.

The adoption of ASU 2016-09 in the first quarter of 2017 led to the recognition of $13.2 million in excess tax benefits from stock-based compensation. These benefits reduced the provision for income taxes, contributing to a lower effective tax rate (36% compared to 38% in the prior year) and positively impacting net earnings. Additionally, cash flows related to these benefits were reclassified to operating activities.

Ross Stores is actively returning capital to shareholders. In the first quarter, the company repurchased approximately $215 million of common stock under its stock repurchase program and paid $62.8 million in dividends. A new two-year, $1.75 billion stock repurchase program was approved in February 2017. The company also increased its quarterly dividend to $0.1600 per share.

The company aims to manage its inventory effectively by replenishing stores and liquidating slower-moving merchandise through markdowns. They also leverage 'packaway' inventory, which is purchased with the intent to store and release later, to maximize bargain offerings. While distribution and occupancy costs declined slightly, freight expenses saw an increase, contributing to a stable cost of goods sold percentage. The company emphasizes its ability to procure attractive brand-name merchandise at desirable discounts as a key strategy.