10-QPeriod: Q1 FY2019

ROSS STORES, INC. Quarterly Report for Q1 Ended May 5, 2018

Filed June 13, 2018For Securities:ROST

Summary

Ross Stores, Inc. reported strong financial results for the first quarter of fiscal year 2018, with net sales increasing by 8.5% to $3.59 billion and diluted earnings per share (EPS) growing by 35% to $1.11. This EPS growth was significantly boosted by the new U.S. federal corporate income tax rate, which reduced the effective tax rate from 36% to 23%. Comparable store sales also saw a healthy 3% increase, indicating solid performance in existing locations. The company's robust sales growth was driven by both new store openings (90 net new stores added year-over-year) and consistent comparable store sales performance. Profitability improved, with net earnings as a percentage of sales increasing from 9.7% to 11.7%, largely due to tax benefits and a slight improvement in cost of goods sold margins. The company continued its strong capital return to shareholders, significantly increasing share repurchases and dividends paid compared to the prior year, underscoring confidence in its financial health and future prospects.

Financial Highlights

50 data points
Beta

Revenue

$3.59B

29.7% Gross Margin

Net Income

$418.25M

11.7% Net Margin

EPS (Diluted)

$1.11

Total Assets

$6.02B

Cash & Equivalents

$1.30B

Free Cash Flow

$392.26M

Financial Statements
Beta
Revenue$3.59B
Cost of Revenue$2.52B
Gross Profit$1.07B
SG&A Expenses$524.42M
Operating Expenses$3.05B
Interest Expense$4.64M
Net Income$418.25M
EPS (Basic)$1.12
EPS (Diluted)$1.11
Shares Outstanding (Basic)373.80M
Shares Outstanding (Diluted)377.06M

Key Highlights

  • 1Net sales increased by 8.5% to $3.59 billion, driven by both new store openings and comparable store sales growth.
  • 2Comparable store sales increased by 3%, demonstrating continued customer demand in existing locations.
  • 3Diluted EPS grew by 35% to $1.11, significantly benefiting from the reduction in the U.S. federal corporate income tax rate.
  • 4The effective tax rate decreased from 36% to 23% due to the Tax Cuts and Jobs Act of 2017.
  • 5Net earnings margin improved to 11.7% from 9.7% in the prior year period, reflecting operational efficiencies and tax benefits.
  • 6The company returned significant capital to shareholders, with a substantial increase in share repurchases and cash dividends paid.
  • 7Inventory levels increased year-over-year, with packaway inventory remaining at 49% of total inventory, managed to meet future demand.

Frequently Asked Questions

Net sales increased by 8.5% to $3.59 billion primarily due to the addition of 90 net new stores and a 3% increase in comparable store sales. This indicates that the company is successfully expanding its footprint while also seeing consistent performance in its existing stores.

The Tax Cuts and Jobs Act of 2017, which lowered the U.S. federal corporate income tax rate to 21%, significantly impacted Ross Stores' profitability. This led to a reduction in the company's effective tax rate from 36% in the prior year period to 23% in the current quarter, contributing substantially to the 35% increase in diluted Earnings Per Share (EPS).

Ross Stores actively manages its inventory, including 'packaway' inventory, which is merchandise purchased for later sale. As of May 5, 2018, packaway inventory represented 49% of total inventory. The company intends to continue leveraging packaway opportunities to maximize its ability to offer value to customers, with the timing of release to stores based on product mix, seasonality, and assortment plans. Changes in packaway levels can impact operating cash flow due to timing of receipts and payments.

Ross Stores is actively returning capital to shareholders through stock repurchases and cash dividends. In the first quarter of fiscal 2018, the company repurchased approximately $255.4 million of its common stock and paid $85.4 million in cash dividends, both representing increases compared to the prior year period. The company's Board also approved an increased stock repurchase authorization for fiscal year 2018.