10-QPeriod: Q3 FY2019

ROSS STORES, INC. Quarterly Report for Q3 Ended Nov 3, 2018

Filed December 12, 2018For Securities:ROST

Summary

Ross Stores, Inc. reported solid financial results for the nine months ended November 3, 2018, demonstrating continued growth in sales and net earnings. Sales increased by 8.0% to $10.88 billion, driven by both new store openings and a 3% increase in comparable store sales. Net earnings saw a significant boost, rising to $1.15 billion from $912 million in the prior year, largely attributable to a lower effective tax rate following the Tax Cuts and Jobs Act. The company's off-price model, offering value and branded merchandise, continues to resonate with consumers. The company maintained a strong financial position with substantial cash and cash equivalents. Management highlighted increased capital expenditures focused on store expansion and system improvements. Significant cash was also returned to shareholders through dividends and an aggressive share repurchase program, indicating confidence in future performance and a commitment to shareholder value. Despite some pressures on cost of goods sold, such as increased freight costs, the company's ability to manage margins and leverage its operating scale remains a key strength.

Financial Highlights

50 data points
Beta

Revenue

$3.55B

28.2% Gross Margin

Net Income

$338.11M

9.5% Net Margin

EPS (Diluted)

$0.91

Total Assets

$6.24B

Cash & Equivalents

$1.35B

Free Cash Flow

$321.16M

Financial Statements
Beta
Revenue$3.55B
Cost of Revenue$2.55B
Gross Profit$1.00B
SG&A Expenses$561.58M
Operating Expenses$3.11B
Interest Expense$4.65M
Net Income$338.11M
EPS (Basic)$0.92
EPS (Diluted)$0.91
Shares Outstanding (Basic)368.10M
Shares Outstanding (Diluted)371.06M

Key Highlights

  • 1Total sales for the nine months increased 8.0% to $10.88 billion, with comparable store sales growing by 3%.
  • 2Net earnings for the nine months surged by 25.6% to $1.15 billion, aided by a lower effective tax rate (24% vs. 37% in the prior year) following tax reforms.
  • 3Diluted EPS for the nine months increased to $3.06 from $2.36 in the prior year, benefiting from higher earnings and a reduction in shares outstanding due to buybacks.
  • 4The company opened 93 net new stores during the nine-month period, expanding its retail footprint to 1,720 locations.
  • 5Cash provided by operating activities increased to $1.45 billion for the nine months, indicating strong operational cash generation.
  • 6Capital expenditures increased to $293.4 million for the nine months, supporting planned store growth and investments in infrastructure.
  • 7The company repurchased $806.5 million of its common stock and paid $253.9 million in dividends during the nine-month period.

Frequently Asked Questions

The primary driver for the substantial increase in net earnings was the lower effective tax rate following the enactment of the Tax Cuts and Jobs Act, which reduced the U.S. federal corporate income tax rate from 35% to 21%. This resulted in an effective tax rate of 24% for the nine-month period ended November 3, 2018, compared to 37% in the prior year. Higher earnings from increased sales also contributed.

While freight and buying/distribution costs increased as a percentage of sales, Ross Stores managed to partially offset these by improvements in merchandise margin. For the nine-month period, merchandise margin improved by 20 basis points, and occupancy costs were 10 basis points lower, helping to mitigate some of the rising costs within COGS.

Ross Stores is investing in its future through capital expenditures totaling $293.4 million for the nine months, primarily for opening new stores, improving existing ones, and investing in IT systems and distribution centers. Concurrently, the company is actively returning capital to shareholders, with $806.5 million spent on share repurchases and $253.9 million on dividends during the nine-month period, demonstrating confidence in its financial strength and growth prospects.

Ross Stores continues its expansion strategy by opening new locations based on market penetration, demographic characteristics, and expected profitability. They opened 93 net new stores during the nine months ended November 3, 2018, bringing the total store count to 1,720, and have planned approximately $440 million in capital expenditures for fiscal year 2018 to support ongoing store growth and related infrastructure.