10-QPeriod: Q1 FY2021

ROSS STORES, INC. Quarterly Report for Q1 Ended May 2, 2020

Filed June 10, 2020For Securities:ROST

Summary

Ross Stores, Inc. reported a significant net loss of $305.8 million for the first quarter of fiscal 2020, a stark contrast to the $421.1 million net income in the prior year's first quarter. This downturn was primarily driven by the unprecedented impact of the COVID-19 pandemic, which led to the temporary closure of all store locations from March 20, 2020, through the end of the quarter. This resulted in a 51.5% decline in sales, from $3.8 billion to $1.8 billion. The company also incurred a substantial $313 million inventory valuation charge due to expected sales below cost for aged and seasonal merchandise. In response to the pandemic and to bolster liquidity, Ross Stores significantly increased its debt, drawing $800 million from its revolving credit facility and issuing $2.0 billion in senior notes. The company also suspended its stock repurchase program and quarterly dividends. While stores have begun a phased reopening, management anticipates continued material adverse effects from the pandemic throughout fiscal 2020 due to ongoing uncertainties regarding consumer demand and potential resurgences of the virus.

Financial Highlights

48 data points
Beta

Revenue

$1.84B

-2.6% Gross Margin

Net Income

-$305.84M

-16.6% Net Margin

EPS (Diluted)

$-0.87

Total Assets

$10.73B

Cash & Equivalents

$2.67B

Free Cash Flow

-$1.20B

Financial Statements
Beta
Revenue$1.84B
Cost of Revenue$1.89B
Gross Profit-$47.32M
SG&A Expenses$415.31M
Operating Expenses$2.31B
Net Income-$305.84M
EPS (Basic)$-0.87
EPS (Diluted)$-0.87
Shares Outstanding (Basic)352.20M
Shares Outstanding (Diluted)352.20M

Key Highlights

  • 1Net loss of $305.8 million ($0.87 per share) for the quarter, a significant reversal from a net income of $421.1 million ($1.15 per share) in the prior year.
  • 2Sales decreased by 51.5% to $1.84 billion, primarily due to the temporary closure of all stores from March 20, 2020, due to COVID-19.
  • 3A substantial $313 million inventory valuation charge was recorded for inventory expected to be sold below cost.
  • 4The company significantly increased its financial flexibility by borrowing $800 million under its revolving credit facility and issuing $2.0 billion in senior notes.
  • 5Operating cash flow turned negative, showing $1.06 billion used in operations compared to $509 million provided in the prior year.
  • 6Store count increased to 1,832 locations at the end of the period, up from 1,745 a year prior, despite reduced new store opening plans for fiscal 2020.
  • 7Stock repurchase program and quarterly dividends were suspended in response to the pandemic's economic impact.

Frequently Asked Questions

The primary reason for the significant drop in revenue and profitability was the COVID-19 pandemic, which led to the temporary closure of all Ross Stores' locations from March 20, 2020, through the end of the fiscal first quarter. This closure directly impacted sales and necessitated an inventory valuation charge.

Ross Stores took several steps to preserve financial liquidity and enhance flexibility. This included borrowing $800 million under its revolving credit facility, issuing $2.0 billion in unsecured senior notes, and entering into a new $500 million 364-day senior revolving credit facility. They also suspended their stock repurchase program and quarterly dividends.

The $313 million inventory valuation charge reflects the company's estimate of the portion of inventory held as of May 2, 2020, that they now expect to sell below its original cost. This is largely due to the temporary store closures leading to aged and out-of-season merchandise.

Management anticipates that material adverse effects from the pandemic will continue for an extended period, throughout fiscal 2020. They expect consumer demand to be suppressed and that results for interim periods will not be comparable to prior year periods. While stores are reopening, there is ongoing uncertainty regarding customer behavior, potential resurgences of the virus, and the overall economic impact.