10-QPeriod: Q1 FY2022

ROSS STORES, INC. Quarterly Report for Q1 Ended May 1, 2021

Filed June 9, 2021For Securities:ROST

Summary

Ross Stores, Inc. reported a significant financial recovery in the first quarter of fiscal 2021, driven by a surge in sales and a return to profitability. Sales for the three months ended May 1, 2021, increased by 145.1% year-over-year to $4.52 billion, largely due to the full reopening of stores compared to the prior year's pandemic-induced closures. Net earnings reached $476.5 million, or $1.34 per diluted share, a substantial improvement from a net loss of $305.8 million in the same period last year. The company benefited from a favorable economic environment, including government stimulus payments, vaccine rollouts, and pent-up consumer demand. Despite experiencing some expense pressures from higher freight and wages, Ross Stores demonstrated strong operational execution, with cost of goods sold and SG&A expenses as a percentage of sales largely in line with or better than pre-pandemic levels (compared to Q1 2019). Looking ahead, while management acknowledges the difficulty in predicting the lasting impact of stimulus and potential future COVID-19 disruptions, they remain optimistic about the remainder of fiscal 2021, buoyed by recent performance and improving macro-economic conditions. The company also announced a new $1.5 billion stock repurchase program, signaling confidence in its future financial health.

Financial Highlights

48 data points
Beta

Revenue

$4.52B

29.2% Gross Margin

Net Income

$476.48M

10.6% Net Margin

EPS (Diluted)

$1.34

Total Assets

$13.40B

Cash & Equivalents

$5.37B

Free Cash Flow

$615.88M

Financial Statements
Beta
Revenue$4.52B
Cost of Revenue$3.20B
Gross Profit$1.32B
SG&A Expenses$675.05M
Operating Expenses$3.89B
Net Income$476.48M
EPS (Basic)$1.35
EPS (Diluted)$1.34
Shares Outstanding (Basic)352.99M
Shares Outstanding (Diluted)355.37M

Key Highlights

  • 1Sales surged by 145.1% to $4.52 billion in Q1 FY2021, a strong recovery from the pandemic-impacted Q1 FY2020. This performance also exceeded Q1 FY2019 sales by 18.9%.
  • 2Net earnings turned positive at $476.5 million ($1.34 per diluted share) in Q1 FY2021, a significant turnaround from a net loss of $305.8 million (-$0.87 per diluted share) in Q1 FY2020.
  • 3Comparable store sales showed robust growth, increasing by 13.0% compared to Q1 FY2019, indicating strong underlying demand and effective merchandising.
  • 4The company's balance sheet remains strong with cash and cash equivalents of $5.37 billion as of May 1, 2021. Total assets grew to $13.4 billion.
  • 5Operational efficiency improved, with Cost of Goods Sold as a percentage of sales decreasing compared to Q1 FY2019, driven by merchandise margin and occupancy leverage, though partially offset by increased freight and distribution costs.
  • 6The company repaid its $800 million revolving credit facility in October 2020 and has no outstanding borrowings under this facility as of May 1, 2021, maintaining financial flexibility.
  • 7A new stock repurchase program of up to $1.5 billion was authorized through fiscal 2022, demonstrating management's confidence and commitment to returning capital to shareholders.

Frequently Asked Questions

The substantial increase in sales and profitability was primarily driven by the full reopening of all store locations, which had been significantly impacted by closures in Q1 2020. Additionally, the company benefited from a favorable macroeconomic environment, including government stimulus payments, ongoing vaccine rollouts, easing COVID-19 restrictions, and pent-up consumer demand. Strong execution of merchandising strategies also contributed to the improved performance.

Financially, Ross Stores appears to be performing strongly compared to Q1 2019. Sales in Q1 2021 exceeded Q1 2019 levels by 18.9%, and comparable store sales were up 13.0% versus Q1 2019. Net earnings as a percentage of sales (10.6%) were slightly below Q1 2019 (11.1%), but this was primarily due to higher interest expense and SG&A, partially offset by lower cost of goods sold. The balance sheet remains robust with a significant cash position.

Ross Stores has demonstrated a commitment to returning capital to shareholders. They resumed quarterly cash dividends of $0.285 per share in March 2021 after a temporary suspension. Furthermore, on May 19, 2021, the Board authorized a new stock repurchase program of up to $1.5 billion through fiscal 2022, with plans to buy back $650 million in fiscal 2021 and $850 million in fiscal 2022. This indicates management's confidence in the company's financial health and future prospects.

The company highlights several risks and uncertainties, primarily related to the ongoing COVID-19 pandemic, including potential recurrences of business disruptions and their impact on consumer demand. Other significant risks include unexpected changes in consumer spending or preferences, macroeconomic conditions, competitive pressures, supply chain disruptions (including rising freight costs), and the ability to effectively manage inventory and source desirable merchandise at discounts. They also note potential adverse outcomes in legal, regulatory, or tax matters.