10-QPeriod: Q2 FY2021

ROSS STORES, INC. Quarterly Report for Q2 Ended Aug 1, 2020

Filed September 9, 2020For Securities:ROST

Summary

Ross Stores, Inc. (ROST) reported its fiscal second-quarter 2020 results on September 9, 2020, reflecting the significant impact of the COVID-19 pandemic. Sales for the quarter ended August 1, 2020, were $2.68 billion, a 32.5% decrease compared to the prior year, driven by temporary store closures and a decline in customer demand. Despite the substantial revenue drop and a net loss of $0.06 per diluted share for the quarter, the company demonstrated resilience through aggressive inventory management and strategic financial actions. Financially, ROST took proactive steps to bolster liquidity, borrowing $800 million under its revolving credit facility and completing a $2.0 billion public bond offering. The company also suspended dividends and share repurchases to conserve cash. While the interim period presented considerable challenges, the company reported a significant increase in its cash position to over $4.3 billion by the end of the quarter, highlighting its financial flexibility to navigate the ongoing economic uncertainties and prepare for a gradual recovery.

Financial Highlights

48 data points
Beta

Revenue

$2.68B

22.5% Gross Margin

Net Income

$22.05M

0.8% Net Margin

EPS (Diluted)

$0.06

Total Assets

$11.32B

Cash & Equivalents

$3.79B

Free Cash Flow

$1.12B

Financial Statements
Beta
Revenue$2.68B
Cost of Revenue$2.08B
Gross Profit$604.59M
SG&A Expenses$519.50M
Operating Expenses$2.63B
Net Income$22.05M
EPS (Basic)$0.06
EPS (Diluted)$0.06
Shares Outstanding (Basic)352.28M
Shares Outstanding (Diluted)354.23M

Key Highlights

  • 1Sales decreased by 32.5% year-over-year for the three months ended August 1, 2020, to $2.68 billion, primarily due to COVID-19 related store closures and reduced customer demand.
  • 2The company reported a net loss of $22.0 million ($0.06 per diluted share) for the three months ended August 1, 2020, a significant decline from a net income of $412.7 million ($1.14 per diluted share) in the prior year period.
  • 3Ross Stores took strong liquidity-preserving measures, including borrowing $800 million under its revolving credit facility and issuing $2.0 billion in senior notes, resulting in over $4.3 billion in liquidity by quarter-end.
  • 4The company suspended its stock repurchase program and quarterly dividends in response to the economic uncertainty caused by the pandemic.
  • 5An inventory valuation charge of $313 million was recorded in Q1 2020 due to aged merchandise, with a $174 million benefit recognized in Q2 2020 due to faster-than-expected inventory sell-through.
  • 6Store count remained stable at 1,832 locations, with reduced new store openings planned for fiscal 2020 compared to initial projections.

Frequently Asked Questions

The COVID-19 pandemic had a material adverse impact. Sales decreased by 32.5% due to temporary store closures and reduced customer demand. This led to a net loss of $22.0 million for the quarter, compared to a significant profit in the prior year. The company also incurred additional costs related to safety protocols and managed inventory challenges arising from store reopenings.

Ross Stores took proactive measures to strengthen its financial position. This included borrowing $800 million under its revolving credit facility, issuing $2.0 billion in senior notes, and entering into a new $500 million credit facility. Additionally, the company suspended stock repurchases and dividends to conserve cash. These actions resulted in over $4.3 billion in liquidity by the end of the quarter.

The company anticipates continued material adverse effects from the pandemic for the remainder of fiscal 2020. The duration and severity of the pandemic, consumer spending patterns, and potential for future store closures remain uncertain. Ross Stores is focused on managing its operations, inventory, and financial flexibility to navigate these challenges and adapt to evolving consumer behavior.

The company faced inventory challenges due to store closures and subsequent reopenings. A significant inventory valuation charge was taken in the first quarter, partially reversed in the second quarter due to faster-than-expected sell-through of aged inventory, driven by pent-up demand and aggressive markdowns. The company continues to manage inventory levels closely, adjusting receipts and utilizing packaway inventory.