Ross Stores, Inc. (ROST)
Q2 2011 Earnings Call Transcript
August 18, 2011 11:00 a.m. ET

Executives

Norman Ferber – Chairman of the Board
Michael O''Sullivan - President and Chief Operating Officer
Michael Balmuth - Vice Chairman and Chief Executive Officer
Gary Cribb – Executive Vice President, Stores and Loss Prevention
John Call – Senior Vice President and Chief Financial Officer
Bobbi Chaville - Senior Director of Investor Relations.

Analysts

Evren Kopelman - Wells Fargo Securities, LLC
Paul Lejuez - Nomura Securities Co. Ltd
Jeffery Stein - Ticonderoga Securities
Brian Tunick - JP Morgan Chase & Co
Jeff Black - Citigroup Inc
Rick Patel - BofA Merrill Lynch
Kimberly Greenberger - Morgan Stanley
Stacy Pak - Barclays Capital
Laura Champine - Cowen and Company
Marni Shapiro - The Retail Tracker
Richard Jaffe - Stifel, Nicolaus & Co., Inc
David Mann - Johnson Rice & Company
Omar Saad - ISI Group
Pamela Quintiliano - Oppenheimer & Co.
Rob Wilson - Tiburon Research Group
Mark Montagna - Avondale Partners
Dana Telsey - Telsey Advisory Group

Presentation

Operator

Good morning, and welcome to the Ross Stores Second Quarter 2011 Earnings Release Confe-rence Call. The call will begin with prepared comments by management, followed by a question-and-answer session. All lines have been placed on mute to prevent any background noise. During the question-and-answer session you may ask a question by pressing star then the number one on your telephone key pad. If you would to withdraw your question, press the pound key.

Bobbi Chaville

Before we get started, on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, and other matters that are based on the company''s current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from his-torical performance or current expectations. Risk factors are included in today''s press release and the company''s fiscal 2010 Form 10-K and 2011 Form 10-Q, and 8-Ks on file with the SEC.

Now I''d like to turn the call over to Michael Balmuth, Vice Chairman and Chief Executive Of-ficer.

Michael Balmuth

Good morning. Thank you for joining us today. Also on our call are Norman Ferber, Chairman of the Board; Michael O''Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Senior Vice President and Chief Financial Officer; and Bobbi Chaville, Senior Director of Investor Relations.

We''ll begin with a brief review of our second quarter performance, followed by our outlook for the remainder of the year. Afterwards, we''ll be happy to respond to any questions you may have.

We are pleased with our better-than-expected performance for both the second quarter and first 6 months of 2011. Our ability to increase the percentage of fresh name-brand bargains our cus-tomers see, while also strictly controlling inventories and expenses, has enabled us to capitalize on our favorable position as a value retailer.

Second quarter earnings per share grew to $1.28, up from $1.07 for the same period last year. These results represent a 20% increase on top of exceptional gains of 30% and 52% in the second quarters of 2010 and 2009, respectively. Net earnings for the current year quarter grew 15% to $148.3 million, up from $129.3 million last year.

Second quarter 2011 sales increased 9% to $2.089 billion, with comparable store sales up 5% on top of a 4% gain in the prior year.

For the 6 months ended July 30, 2011, earnings per share were $2.76, up from $2.24 in the first half of 2010. These results represent a 23% increase on top of outstanding earnings per share growth of 45% and 37% for the first half of 2010 and 2009, respectively. Net earnings for the first 6 months rose 18% to $321.2 million, up from $271.6 million last year.

Sales for the first 6 months of 2011 increased 8% to $4.164billion with comparable store sales up 4%, which was on top of robust 7% growth for the first 6 months of 2010. Merchandise and geographic trends were broad-based in the second quarter. Dresses was the top performing mer-chandise category with double-digit percentage gains in same-store sales while Accessories and Shoes saw high single-digit increases. Florida and Texas remain the strongest regions, posting high single to low double-digit gains in comparable store sales.

Operating margin in the second quarter grew about 55 basis points to 11.7%, driven primarily by a 50 basis point improvement in selling, general and administrative costs as a percent of sales. Cost of goods sold declined by about 5 basis points as higher merchandise gross margin and le-verage on occupancy expenses were partially offset by an expected increase in packaway related distribution costs as a percent of sales. John will provide some additional details in a few mi-nutes.