This summary is based on the second quarter fiscal 2007 earnings call conducted by Ross Stores, Inc. (ROST) on August 22, 2007.
Vice Chairman, President, CEO: Michael Balmuth
CFO: John Call
CAO: Michael O''Sullivan
COO: Gary Cribb
IR: Kelly Loughnot
Key Investors Issues
- EPS were 37 cents per share compared to 32 cents per share last year.
- Net income was $50.9 million compared to $45.4 million a year earlier.
- Revenue was $1.44 billion compared to $1.31 billion a year ago.
Second Quarter Highlights
Earnings per share were 37 cents per share, up 16% compared to 32 cents per share for the 13 weeks ended July 29 2006.
- Net earnings were $50.9 million compared to $45.4 million for the prior year period.
- Sales were $1.445 billion, up 10% over the second quarter of fiscal 2006.
Comparable store sales grew 2% on top of a 4% gain in the prior year period.
- The strongest regions were the Northwest and Mid-Atlantic with same-store sales gains in the high single and mid single-digits respectively.
- California comparable store sales rose 2% while Florida trailed the chain with a low single-digit decline versus last year.
- The best-performing merchandise departments were dresses with comparable store sales gains of more than 20% and home with high single-digits percentage increases.
Operating margin grew by about 20 basis points to 5.8%, driven by a 20 basis point improvement in selling, general and administrative expenses.
- Cost of goods sold as a percent of sales was unchanged from the prior year.
- Merchandise gross margin increased about 10 basis points over the prior year benefiting mainly from a lower shrink accrual.
- Although merchant margin was flat, markdowns were higher than planned.
- The company entered the second quarter with a higher clearance level due to the sales shortfall in April.
- While selling store inventories throughout the quarter were down from last year, the company believes there are opportunities for additional reductions in inventory levels to drive faster turns and improve markdown activity going forward.
Higher distribution expenses were offset by improved occupancy costs as a percent of sales.
Occupancy benefited mainly from a lower than planned pre-opening rent expense for some of new locations. The increase in distribution costs was due to a timing issue related to packaway levels and actual productivity improved.
Favorable year-over-year trends in general and administrative expenses more than offset higher store operating costs that are being driven mainly by minimum wage increases.
- General and administrative costs benefited from a combination of strict expense control on corporate overhead, insurance proceeds related to a fire loss at one of stores and lower legal expenses compared to the prior year.
- Total consolidated inventories were up about 12% driven mainly by the growth in new stores.
- Packaway was about 34% of total inventories at the end of the period compared to 38% in the prior year.
- Average in-store levels were down about 1% from the prior year at quarter end.
The company remains on track with expansion plans.
The company added 21 net new Ross locations. The company is on schedule with plan to double the number of dd''s DISCOUNTS locations this year. The company opened 11 dd''s in the second quarter for 19 new locations year to date. This growth included entry into Texas and expansion in California and Florida.
The company ended the second quarter with $164 million in cash and short-term investments and $150 million in long-term debt.
The company continues to return capital to stockholders through both repurchase and dividend programs. The company ended the second quarter with 137.3 million shares of common stock issued and outstanding.
Year-to-Date Financial Highlights
