Ross Stores Inc. has concerns about the holidays.
In a Nutshell: “In the third quarter, in the fourth quarter, we actually see a deceleration… We think the fourth quarter could be a very promotional holiday season,” Michael Hartshorn, group president and chief operating officer, told investors during a conference call on Thursday.
Cosmetics and accessories performed well in the quarter, with the company-leading shoes and home categories outperforming the chain average. “Apparel trailed the chain [average], although it performed above our plan and improved versus Q1,” Hartshorn said.
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Inventories were down 15 percent in the quarter, reflecting higher in-transit merchandise a year ago and packaway goods that came in early.
CEO Barbara Rentler said that along with easing inflationary pressures, customers responded well to improved value offerings.
“We are really striving to offer better branded value for the customer. Our [shopper] is a low to moderate income customer and the merchant has been out there really chasing the business, buying closeout, really looking for compelling values and bargains and that’s across all areas in the company [and] because of the amount of availability of the market we’ve been able to do that,” Rentler said. “So, if we do a good, better, best strategy and we have incredible values, we have more of an opportunity to gain more customers.”
With a large juniors business, the off-price retailer views Shein and Primark as competitors that merchants study up on to understand “what Ross can offer,” Rentler said. “I think it’s just our job to be able to offer assortments that satisfy the customer….I think one of the best parts about being in off price is that we have a unique opportunity to satisfy all types of customers. This is why we want the [assortments] to be broad. This is why we want the values to be strong,” she said.
Though the CEO sees “a lot of growth left” in the ” broad-base” home category, it would be hard for it to measure how much business it picks up from Bed, Bath & Beyond bankruptcy and shutdown.
The company plans to open 100 stores this year, including 25 for the DD’s discount banner.
Executive vice president and chief financial officer Adam Orvos said the company is planning its business cautiously because consumers continue to face “persistently higher costs on necessities.”
He noted that merchandise margin will continue to be driven by ocean freight benefits.
Net Sales: For the three months ended July 29, net sales rose 7.7 percent to $4.93 billion from $4.58 billion a year ago. Comparable store sales rose 5 percent, versus down 7 percent in the year-ago quarter.
For the six months, net sales were up 5.8 percent to $9.42 billion from $8.92 billion.
Earnings: Net income rose 16.1 percent to $446.3 million, or $1.32 a diluted share, from $384.5 million, or $1.11, in the year-ago quarter.
The company raised its second half outlook based on improved second quarter results, and now expects third quarter earnings per share (EPS) in the range of $1.16 to $1.21 on a comparable store sales gain of 2 percent to 3 percent. For the fourth quarter, the company guided the EPS range to $1.58 to $1.64, on a comp gain of 1 percent to 2 percent.
For the full year ending Feb. 3, 2024, including a 53rd week, EPS is expected in the range of $5.15 to $5.26 on a comp gain of 2 percent to 3 percent.
For the six months, net income was up 13 percent to $817.5 million, or $2.41 a diluted share, from $723 million, or $2.08, in the year-ago period.
CEO’s Take: “While we are pleased with the above-plan results in the second quarter, the macro-economic, geopolitical and retail environments remain uncertain. Moving forward, we remain keenly focused on delivering the most compelling bargains possible as our customer is more motivated than ever to seek the best branded value as prolonged inflation remains an issue,” Rentler said. “We’ll also carefully manage our expense and inventory to maximize their potential for both sales and earnings.”
