Ross Stores, Inc. is the largest off-price apparel and home fashion chain in the United States, operating under the brands Ross Dress for Less and dd’s DISCOUNTS. The company offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at significant savings off regular prices . As of February 3, 2024, Ross had 1,764 locations across 43 states, the District of Columbia, and Guam, while dd’s DISCOUNTS had 345 stores in 22 states, providing a more moderately-priced assortment . Ross Stores targets value-conscious customers, with Ross focusing on middle-income households and dd’s DISCOUNTS targeting households with more moderate incomes .
- Home Accents and Bed and Bath - Offers a wide range of home décor items and essentials for the bedroom and bathroom, catering to diverse tastes and styles.
- Ladies' Apparel - Provides a variety of fashionable clothing options for women, including casual, formal, and seasonal wear.
- Men's Apparel - Features a selection of men's clothing, from everyday casual wear to more formal attire.
- Accessories, Lingerie, Fine Jewelry, and Cosmetics - Includes a diverse array of accessories, intimate wear, jewelry, and beauty products to complement any outfit.
- Shoes - Offers footwear for all occasions, including casual, athletic, and formal styles for the entire family.
- Children's Apparel - Provides clothing options for children, ranging from infants to teenagers, with a focus on comfort and style.
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What went well
- Strong value offering is resonating with customers, leading to potential market share gains as Ross continues to enhance its value strategy in response to customers dealing with high costs in necessities.
- Investments in automation and operational efficiencies are driving higher productivity and cost savings, especially in distribution centers, helping to offset merchandise margin pressures and improve margins.
- Significant growth potential within the U.S., with plans to expand from the current 2,100 stores to 2,900 Ross stores and 700 dd's DISCOUNTS stores, indicating strong long-term growth prospects without the need to expand internationally.
What went wrong
- Merchandise margin dropped by 80 basis points and the company expects this pressure to increase in the second half of the year due to its branded strategy, potentially impacting gross margins. ,
- Shrink (retail theft) is a growing concern, with guidance assuming some deterioration from last year, which could negatively affect profitability.
- The company acknowledges uncertainty regarding future inflationary pressures, especially in fuel rates and wages, which could impact long-term operating margins without outsized comparable sales gains.
Q&A Summary
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Merchandise Margin Outlook
Q: How much will merchandise margins decline in H2?
A: We expect merchandise margin pressure to step up in the second half, with declines higher than the 80 basis points reported in Q2. This is due to our branded strategy increasing penetration. Offsets will include domestic freight benefits and distribution center improvements. -
Cost Savings and Efficiencies
Q: What are the cost savings initiatives impacting guidance?
A: We are leveraging automation in distribution centers, such as automated vehicles and robots, and implementing efficiencies like self-checkout and new handheld devices in stores. These initiatives have yielded additional expense savings, and we expect some will continue into next year ,. -
Comp and EPS Guidance
Q: Any key changes to outlook after Q2 beat?
A: We flowed through the $0.10 EPS beat from Q2 to raise our full-year guidance by $0.15. There are no significant changes to our operating outlook for the back half; we plan to continue expense initiatives and cost savings. -
Ladies Apparel Performance
Q: Is ladies apparel improving as planned?
A: While apparel is now in line with the chain average, ladies is still below. We expect to see more progress in apparel through the year as we build on learnings and adjust our assortments to include more branded products and value offerings. -
Shrink and Retail Theft
Q: How is shrink affecting your business?
A: We are facing a very difficult retail theft environment and are not immune to it. We continue to invest in loss prevention initiatives but expect some deterioration in shrink compared to last year. -
Impact of Branded Strategy on Margins
Q: How does the branded strategy affect margins?
A: The merchandise margin pressure is related to our branded strategy, which increases penetration of branded products with slightly higher AURs. This strategy has led to an 80 basis point decline in merchandise margin in Q2, with more pressure expected in the second half ,. -
Consumer Behavior and Promotions
Q: Are customer behaviors changing amid promotions?
A: We haven't seen significant changes in customer behavior or traffic patterns. As the retail environment becomes more promotional, we're focused on pricing as sharply as possible to offer great value and drive market share gains. -
Inventory and Vendor Relationships
Q: How is inventory availability and vendor base?
A: Inventory availability remains favorable and broad-based. Vendors are looking to build relationships and do more business with us, and we are expanding our vendor base, which supports our value strategy. -
Long-term Operating Margin Potential
Q: What's the outlook for long-term margins?
A: We still believe an additional point of comp gives 10 to 15 basis points of margin expansion. Long-term margin growth depends on delivering outsized comp sales and managing inflationary pressures like fuel rates and wages. -
U.S. Store Growth vs. International Expansion
Q: Any plans for international expansion?
A: We have no current plans for international expansion. With 2,100 stores, we see potential to grow to 2,900 Ross stores and 700 dd's Discounts in the U.S., and we're focused on growing our domestic store base profitably.
- Given the ongoing challenges with retail theft and the expected deterioration in shrink from last year, what specific loss prevention initiatives are you implementing to hold shrink at bay, and how do you anticipate this will impact your margins moving forward?
- With increased wage pressures due to statutory increases and a tight labor market, how are you balancing the need to adjust wages to retain staff while managing overall wage inflation, and what is the anticipated impact on your operating expenses?
- As you continue to intensify your value offerings to gain market share in a highly promotional environment, how do you plan to maintain merchandise margins, especially considering the 80 basis point drop in merchandise margin and the expectation of increased pressure in the second half?
- Considering your strategy focuses on domestic growth with plans to expand to 2,900 Ross stores and 700 dd's DISCOUNTS, how do you address concerns about potential market saturation in the U.S., and what are your plans for growth once you reach these store counts?
- With the addition of new vendors and expansion of your vendor base, how are you ensuring that the quality of inventory remains high and aligns with customer expectations, and are the new vendor partnerships contributing to better mark-on rates for margins?
Q2 2025 Earnings Call
- Issued Period: Q2 2025
- Guided Period: Q3 2024, Q4 2024, FY 2024
Guidance:
- Comparable Sales Growth:
- Q3 2024 and Q4 2024: 2% to 3% .
- Earnings Per Share (EPS):
- Q3 2024: $1.35 to $1.41 .
- Q4 2024: $1.60 to $1.67 .
- FY 2024: $6 to $6.13 .
- Total Sales Growth:
- Q3 2024: 3% to 5% .
- Operating Margin:
- Q3 2024: 10.9% to 11.2% .
- Net Interest Income:
- Q3 2024: $39 million .
- Tax Rate:
- Q3 2024: 24% to 25% .
- Diluted Shares Outstanding:
- Q3 2024: 331 million .
- Store Openings:
- Q3 2024: 47 stores (43 Ross and 4 dd's) .
Q1 2025 Earnings Call
- Issued Period: Q1 2025
- Guided Period: Q2 2024, FY 2024
Guidance:
- Comparable Store Sales:
- Q2 2024: 2% to 3% .
- FY 2024: 2% to 3% .
- Earnings Per Share (EPS):
- Q2 2024: $1.43 to $1.49 .
- FY 2024: $5.79 to $5.98 .
- Total Sales:
- Q2 2024: 5% to 7% .
- Operating Margin:
- Q2 2024: 11.5% to 11.8% .
- Net Interest Income:
- Q2 2024: $37 million .
- Tax Rate:
- Q2 2024: 25% .
- Diluted Shares Outstanding:
- Q2 2024: 332 million .
- Store Openings:
- Q2 2024: 24 locations (21 Ross and 3 dd's) .
- FY 2024: 90 new stores (75 Ross and 15 dd's) .
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: FY 2024
Guidance:
- Comparable Store Sales:
- Q1 2024: 2% to 3% .
- FY 2024: 2% to 3% .
- Earnings Per Share (EPS):
- Q1 2024: $1.29 to $1.35 .
- FY 2024: $5.64 to $5.89 .
- Total Sales Growth:
- Q1 2024: 6% to 8% .
- FY 2024: 2% to 4% .
- Operating Margin:
- Q1 2024: 11.1% to 11.4% .
- FY 2024: 11.2% to 11.5% .
- Net Interest Income:
- Q1 2024: $44 million .
- FY 2024: $143 million .
- Tax Rate:
- Q1 2024 and FY 2024: 24% to 25% .
- Diluted Shares Outstanding:
- Q1 2024: 335 million .
- FY 2024: 332 million .
- Capital Expenditures:
- FY 2024: $840 million .
- Store Openings:
- Q1 2024: 18 new stores (11 Ross and 7 dd's) .
- FY 2024: 90 new locations (75 Ross and 15 dd's) .
- Depreciation and Amortization Expense:
- FY 2024: $610 million .
Q3 2025 Earnings Call
- Issued Period: Q3 2025
- Guided Period: N/A
Guidance: The documents do not provide the guidance for the Q3 2025 earnings call. They only contain information up to the Q2 2025 earnings call.
Recent developments and announcements about ROST.
Financial Reporting
- Earnings Per Share (EPS): The company reported an EPS of $1.48 for the 13 weeks ended November 2, 2024, which is an increase from $1.33 per share for the same period in 2023.
- Net Income: Net income rose to $489 million, up from $447 million in the previous year.
- Sales: Sales for the third quarter of 2024 were $5.1 billion, compared to $4.9 billion in the prior year, marking a comparable store sales gain of 1%.
- Year-to-Date Performance: For the nine months ended November 2, 2024, EPS was $4.53 on net earnings of $1.5 billion, compared to $3.74 per share on net income of $1.3 billion for the same period in 2023. Sales for the first nine months of 2024 were $15.2 billion, with a 3% increase in comparable store sales over the prior year.
- The company faced challenges in the third quarter due to high costs on necessities affecting discretionary spending among low-to-moderate income customers. Additionally, severe weather and unseasonably warm temperatures negatively impacted sales.
- Despite these challenges, the operating margin improved to 11.9% from 11.2% last year, due to lower incentive, freight, and distribution costs.
- Ross Stores repurchased 1.8 million shares of common stock for $262 million during the third quarter and is on track to repurchase $1.05 billion in common stock during fiscal 2024 under its two-year $2.1 billion repurchase program.
- The company projects a 2% to 3% increase in comparable store sales for the fourth quarter ending February 1, 2025.
- EPS for the fourth quarter is expected to be between $1.57 and $1.64, compared to $1.82 for the 14 weeks ended February 3, 2024. The guidance includes a $0.03 per share unfavorable impact from the timing of packaway-related expenses.
- For the full fiscal year ending February 1, 2025, EPS is expected to be in the range of $6.10 to $6.17, up from $5.56 last year.
Earnings Report
Ross Stores, Inc. (ROST) Third Quarter Earnings Report
On November 21, 2024, Ross Stores, Inc. released its financial results for the fiscal quarter ended November 2, 2024. Here are the key highlights from the earnings report:
Operational Insights:
Fourth Quarter Guidance:
Ross Stores remains focused on delivering compelling values to maximize potential for profitable growth .
Corporate Leadership
CEO Change
Barbara Rentler, the current CEO of Ross Stores, Inc., will step down from her role effective February 1, 2025. James G. Conroy has been appointed as the next CEO, effective February 2, 2025. Conroy will join the company as CEO-Elect on December 2, 2024, and will report to the Executive Chairman until he assumes the CEO position .