10-QPeriod: Q2 FY2023

ROSS STORES, INC. Quarterly Report for Q2 Ended Jul 30, 2022

Filed September 7, 2022For Securities:ROST

Summary

Ross Stores, Inc. reported a decrease in sales and net earnings for the second quarter and first half of fiscal year 2022 compared to the prior year. This decline was primarily attributed to a 7% decrease in comparable store sales, influenced by ongoing inflationary pressures on consumers and a more promotional retail environment. Higher freight costs and increased markdowns also impacted profitability. Despite these headwinds, the company continued its store expansion, opening 29 new stores in the quarter, bringing the total to 1,980. Financially, the company maintained a strong liquidity position, ending the quarter with $3.9 billion in unrestricted cash and $1.3 billion available under its revolving credit facility. Shareholder returns remained a focus, with significant repurchases of common stock and consistent dividend payments. Management anticipates continued pressures from freight costs and markdowns through the remainder of fiscal year 2022 but remains confident in its ability to manage liquidity and fund operations and investments.

Financial Highlights

47 data points
Beta

Revenue

$4.58B

25.8% Gross Margin

Net Income

$384.52M

8.4% Net Margin

EPS (Diluted)

$1.11

Total Assets

$13.18B

Cash & Equivalents

$3.96B

Free Cash Flow

$226.50M

Financial Statements
Beta
Revenue$4.58B
Cost of Revenue$3.40B
Gross Profit$1.18B
SG&A Expenses$667.06M
Operating Expenses$4.08B
Net Income$384.52M
EPS (Basic)$1.11
EPS (Diluted)$1.11
Shares Outstanding (Basic)344.88M
Shares Outstanding (Diluted)346.11M

Key Highlights

  • 1Total sales for the three months ended July 30, 2022, were $4.58 billion, a decrease of 4.6% compared to $4.80 billion in the prior year period.
  • 2Comparable store sales decreased by 7% for the three months ended July 30, 2022, compared to an 115% increase in the prior year period (relative to 2019).
  • 3Diluted earnings per share (EPS) for the three months ended July 30, 2022, were $1.11, down from $1.39 in the same period last year.
  • 4The company repurchased $475 million of common stock during the six-month period ended July 30, 2022, and declared quarterly cash dividends.
  • 5Inventory levels increased, with merchandise inventory at $2.717 billion as of July 30, 2022, up from $1.751 billion at the end of the prior year period.
  • 6Operating cash flow for the six months ended July 30, 2022, was negative at ($56.3 million), a significant decrease from $1.345 billion provided in the prior year period, largely due to inventory build-up and payment of prior year bonuses.
  • 7The company opened 29 new stores in the second quarter of fiscal 2022 and anticipates opening approximately 100 new stores for the full year.

Frequently Asked Questions

The decrease in sales and earnings was primarily driven by a 7% decline in comparable store sales. This was influenced by macroeconomic factors such as inflationary pressures on consumers, a more promotional retail environment, and higher freight costs. These factors led to lower merchandise margins and increased markdowns.

Merchandise inventory increased significantly in the period, reflecting a strategic decision to build packaway inventory and earlier than expected arrivals of merchandise. The company plans to continue taking advantage of packaway inventory opportunities. However, this build-up contributed to negative operating cash flow for the six-month period.

Management expects continued headwinds from higher freight costs and distribution expenses, along with increased merchandise markdowns, to persist through the third quarter and fiscal year 2022. There remains significant uncertainty in the macro-economic environment, including inflation and recession concerns.

Ross Stores is actively returning value through its stock repurchase program, having repurchased $475 million of common stock in the first half of fiscal 2022 under a new $1.9 billion program. The company also continued to pay regular quarterly cash dividends.