Ross Stores Reports Improved Trends in Third Quarter Sales and Earnings

Ross Stores, Inc. (NASDAQ: ROST) today reported earnings for the 13 weeks ended October 31, 2020 of $0.37 per share versus $1.03 per share for the 13 weeks ended November 2, 2019. Net income was $131 million, compared to $371 million in the prior year period. These results include a one-time charge of $240 million or $0.65 per share impact to net earnings relating to the refinancing of $775 million in senior notes during the quarter. Third quarter 2020 sales declined 2% to $3.8 billion, with comparable store sales down 3%.

For the nine months ended October 31, 2020, the Company reported a per share loss of $(0.43) on a net loss of $153 million which includes the one-time debt refinancing costs. These results compare to net income of $1.2 billion or $3.32 per share for the same period in 2019. Sales year-to-date were $8.3 billion, down from $11.6 billion last year.

Barbara Rentler, Chief Executive Officer, commented, “Sales trends accelerated during the third quarter following a slower start in August, driven by an improvement in our merchandise assortments, a later back-to-school season, stronger performance in our larger markets, and our return to more normal store hours.”

Ms. Rentler continued, “Third quarter operating margin of 4.4% was down from 12.4% in 2019, and was negatively impacted by the one-time debt refinancing charge, which was equivalent to 640 basis points. In addition, the year-over-year margin decline reflects higher COVID-related operating costs in 2020 and the deleveraging effect on expenses throughout the business from the decline in same store sales.”

Ms. Rentler added, “Core business results improved during the quarter demonstrating consumers’ continued focus on value, and our ongoing ability to deliver the bargains our customers have come to expect from us.”

Ms. Rentler further commented, “We continue to maintain a strong financial position with over $5.2 billion of total liquidity. In addition to the refinancing of a portion of our senior notes during the third quarter which will significantly reduce the annual interest expense and total cash outlays over the life of the debt, we took other actions to lower our ongoing debt costs, including the repayment of the $800 million revolving credit facility and terminating the undrawn $500 million revolver.”

Ms. Rentler concluded, “As we enter the fourth quarter, our month-to-date comparable store sales in November are down mid-single-digits. In addition, there remains a high level of uncertainty related to the worsening health crisis and we are concerned with how the upsurge of this pandemic might impact consumer demand during what we expect to be a highly competitive holiday shopping season. Given the lack of visibility we have regarding these external risks and how they may evolve and impact our business, we will continue to manage our operations conservatively and will not be providing sales or earnings per share guidance for the fourth quarter.”

The Company will host a conference call on Thursday, November 19, 2020 at 4:15 p.m. Eastern time to provide additional details concerning its third quarter results. A real-time audio webcast of the conference call will be available in the Investors section of the Company’s website, located at www.rossstores.com. An audio playback will be available at 404-537-3406, PIN #3089432 until 8:00 p.m. Eastern time on November 27, 2020, as well as on the Company’s website.

Forward-Looking Statements: This press release contains forward-looking statements regarding new store growth, and other financial results in future periods that are subject to risks and uncertainties which could cause our actual results to differ materially from management’s current expectations. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “outlook,” “looking ahead,” and similar expressions identify forward-looking statements. Risk factors for Ross Dress for Less (“Ross”) and dd’s DISCOUNTS include without limitation, the uncertainties and potential for further significant business disruptions arising from the recent and ongoing COVID-19 pandemic, including potential distribution center and store closures and restrictions on customer access; changes in the level of consumer spending on or preferences for apparel and home-related merchandise; impacts from the macro-economic environment, financial and credit markets, geopolitical conditions, unemployment levels or public health issues (such as pandemics) that affect consumer confidence and consumer disposable income; our need to effectively manage our inventories, markdowns, and inventory shortage to achieve planned gross margin; competitive pressures in the apparel or home-related merchandise retailing industry; issues from selling and importing merchandise produced in other countries and from supply chain disruptions in other countries, including due to the COVID-19 closures; unseasonable weather that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise, and may result in temporary store closures and disruptions in deliveries of merchandise to our stores; market availability, quantity, and quality of attractive brand name merchandise at desirable discounts and our buyers’ ability to purchase merchandise that enables us to offer customers a wide assortment of merchandise at competitive prices; potential information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could result in theft or unauthorized disclosure of customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business; potential disruptions in our supply chain or information systems; issues involving the quality, safety, or authenticity of products we sell, which could harm our reputation, result in lost sales, and/or increase our costs; an adverse outcome in various legal, regulatory, or tax matters; damage to our corporate reputation or brands; our need to continually attract, train, and retain associates to execute our off-price strategies; effectively advertise and market our business; changes in U.S. tax, tariff, or trade policy regarding apparel and home-related merchandise produced in other countries that could adversely affect our business; volatility in revenues and earnings; an additional pandemic, natural or man-made disaster in California or in another region where we have a concentration of stores, offices, or a distribution center; unexpected issues or costs from expanding in existing markets and entering new geographic markets; obtaining acceptable new store sites with favorable consumer demographics; and maintaining sufficient liquidity to support our continuing operations, new store openings and reopenings, and ongoing capital expenditure plans. Other risk factors are set forth in our SEC filings including without limitation, the Form 10-K for fiscal 2019, and fiscal 2020 Form 10-Qs and 8-Ks on file with the SEC. The factors underlying our forecasts are dynamic and subject to change. As a result, our forecasts speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We do not undertake to update or revise these forward-looking statements.

Ross Stores, Inc. is an S&P 500, Fortune 500, and NASDAQ 100 (ROST) company headquartered in Dublin, California, with fiscal 2019 revenues of $16.0 billion. Currently, the Company operates Ross Dress for Less ("Ross"), the largest off-price apparel and home fashion chain in the United States with 1,594 locations in 40 states, the District of Columbia, and Guam. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. The Company also operates 275 dd's DISCOUNTS in 21 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Ross Stores, Inc.
Condensed Consolidated Statements of Operations
					Three Months Ended							Nine Months Ended
($000, except stores and per share data, unaudited)					October 31, 2020			November 2, 2019				October 31, 2020				November 2, 2019
Sales					$	3,754,509		$	3,849,117			$	8,281,894			$	11,625,628
Costs and Expenses
	Cost of goods sold					2,711,419			2,766,432				6,681,530				8,311,950
	Selling, general and administrative					877,857			604,605				1,812,657				1,754,825
	Interest expense (income), net					28,740			(4,402	)			64,261				(14,819	)
		Total costs and expenses				3,618,016			3,366,635				8,558,448				10,051,956
Earnings (loss) before taxes						136,493			482,482				(276,554	)			1,573,672
Provision (benefit) for taxes on earnings (loss)						5,296			111,550				(123,956	)			368,877
Net earnings (loss)					$	131,197		$	370,932			$	(152,598	)		$	1,204,795
Earnings (loss) per share
	Basic				$	0.37		$	1.04			$	(0.43	)		$	3.35
	Diluted				$	0.37		$	1.03			$	(0.43	)		$	3.32
Weighted average shares outstanding (000)
	Basic					352,481			356,879				352,320				359,919
	Diluted					354,457			359,299				352,320				362,455
Store count at end of period						1,869			1,810				1,869				1,810

Ross Stores, Inc.
Condensed Consolidated Balance Sheets
($000, unaudited)				October 31, 2020			November 2, 2019
Assets
Current Assets
	Cash and cash equivalents			$	4,416,124		$	1,142,709
	Accounts receivable				122,654			124,853
	Merchandise inventory				1,630,390			2,168,796
	Prepaid expenses and other				347,399			170,304
		Total current assets			6,516,567			3,606,662
Property and equipment, net					2,706,884			2,565,882
Operating lease assets					3,132,056			3,042,298
Other long-term assets					215,159			200,999
Total assets				$	12,570,666		$	9,415,841
Liabilities and Stockholders’ Equity
Current Liabilities
	Accounts payable			$	2,426,390		$	1,480,205
	Accrued expenses and other				655,408			496,623
	Current operating lease liabilities				590,122			559,433
	Accrued payroll and benefits				269,709			321,977
		Total current liabilities			3,941,629			2,858,238
Long-term debt					2,512,037			312,778
Non-current operating lease liabilities					2,672,139			2,601,372
Other long-term liabilities					290,795			225,934
Deferred income taxes					135,029			140,740
Commitments and contingencies
Stockholders’ Equity					3,019,037			3,276,779
Total liabilities and stockholders’ equity				$	12,570,666		$	9,415,841

Ross Stores, Inc.
Condensed Consolidated Statements of Cash Flows
				Nine Months Ended
($000, unaudited)				October 31, 2020				November 2, 2019
Cash Flows From Operating Activities
Net (loss) earnings				$	(152,598	)		$	1,204,795
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
	Depreciation and amortization				268,193				255,089
	Loss on early extinguishment of debt				239,769				-
	Stock-based compensation				74,267				70,600
	Deferred income taxes				(14,650	)			23,070
	Change in assets and liabilities:
		Merchandise inventory			201,949				(418,354	)
		Other current assets			(31,732	)			(46,161	)
		Accounts payable			1,126,574				305,648
		Other current liabilities			118,679				43,968
		Income taxes			(119,513	)			(42,619	)
		Operating lease assets and liabilities, net			8,979				12,911
		Other long-term, net			63,206				1,983
		Net cash provided by operating activities			1,783,123				1,410,930
Cash Flows From Investing Activities
Additions to property and equipment					(339,545	)			(401,251	)
Proceeds from investments					-				517
		Net cash used in investing activities			(339,545	)			(400,734	)
Cash Flows From Financing Activities
Net proceeds from issuance of short-term debt					805,601				-
Payments of short-term debt					(804,972	)			-
Net proceeds from issuance of long-term debt					2,965,115				-
Payments of long-term debt					(775,009	)			-
Payments of debt extinguishment and debt issuance costs					(232,000	)			-
Issuance of common stock related to stock plans					17,088				16,451
Treasury stock purchased					(45,091	)			(56,920	)
Repurchase of common stock					(132,467	)			(965,909	)
Dividends paid					(101,411	)			(278,370	)
		Net cash provided by (used in) financing activities			1,696,854				(1,284,748	)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents					3,140,432				(274,552	)
Cash, cash equivalents, and restricted cash and cash equivalents:
		Beginning of period			1,411,410				1,478,079
		End of period		$	4,551,842			$	1,203,527
Reconciliations:
	Cash and cash equivalents			$	4,416,124			$	1,142,709
	Restricted cash and cash equivalents included in prepaid expenses and other				85,322				10,947
	Restricted cash and cash equivalents included in other long-term assets				50,396				49,871
Total cash, cash equivalents, and restricted cash and cash equivalents:				$	4,551,842			$	1,203,527
Supplemental Cash Flow Disclosures
Interest paid				$	70,347			$	10,560
Income taxes paid				$	10,207			$	388,426

 

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