Ross Stores Reports First Quarter Results and Forecasts Quarterly EPS Expectations for Fiscal 2004
NEWARK, Calif., May 19 /PRNewswire-FirstCall/ -- Ross Stores, Inc. (ROST) today reported earnings per share for the 13 weeks ended May 1, 2004 of $.32, compared to $.32 for the 13 weeks ended May 3, 2003. Net earnings in the first quarter of 2004 were $48.5 million, compared to $49.3 million in the prior year period. Sales for the first quarter ended May 1, 2004 increased 13% to $992 million, from $879 million for the quarter ended May 3, 2003. Comparable store sales for the same period grew 3% from the prior year.
Michael Balmuth, Vice Chairman and Chief Executive Officer, commented, "First quarter earnings per share were, as anticipated, even with the prior year despite an interruption in our distribution capacity due to weather and a partial roof collapse at our South Carolina facility in January 2004. Higher distribution costs related to that incident, as well as ramp-up expenses associated with the retrofit of our Pennsylvania center and the start-up phase of our Southwest facility, contributed to a 138 basis point decline in gross margin during the quarter. This was partially offset by a 23 basis point reduction in selling, general and administrative expenses as a percentage of sales, primarily reflecting leverage on store operating costs. As a result, operating margin for the first quarter declined to 8.0% from 9.2% in the prior year."
Mr. Balmuth continued, "As previously reported, during April we went live with our new Core Merchandising System. While this technology is expected to improve our ability to plan, buy and allocate merchandise more precisely, we have been experiencing longer-than-expected delays in producing information on current merchandise trends during the start-up period of the systems. We have made some progress over the past two weeks, resulting in improved visibility into buying and allocation data, and we currently expect these information systems issues to be fully remedied during the second quarter. Information we are now receiving from the new system does indicate, however, that temporary in-store inventory imbalances have developed that we believe will adversely impact sales and margins over the near term. It appears that we are beginning to see the effect of this situation, with same store sales month-to-date in May now down 1% from the prior year."
"As a result of these variables, we believe it is prudent to adopt a more conservative outlook for the second and third quarters. We now estimate that comparable store sales for the 13 weeks ending July 31, 2004 will be flat to down 2% and that earnings per share will be in the range of $.31 to $.34, compared to $.35 for the 13 weeks ended August 2, 2003. For the third quarter ending October 30, 2004, we now expect that same store sales will increase 1% to 2% and that earnings per share will be in the range of $.33 to $.35, compared to $.33 for the 13 weeks ended November 1, 2003. We also are maintaining our previous forecast for same store sales to grow 2% to 3% for the 13 weeks ending January 29, 2005 and believe that earnings per share for the fourth quarter will be in the range of $.52 to $.54, compared to $.48 for the 13 weeks ended January 31, 2004."
Commenting on the Company's expansion plans, Mr. Balmuth said, "The long-term fundamentals of our business and growth strategy remain strong and healthy. We are on track with our goal of 12% unit expansion for Ross, or about 70 new locations during 2004. In addition, we still expect to open the first of ten dd's DISCOUNTS(SM) locations in the third quarter. The initial six stores are projected to open in August, with two locations each in the San Francisco Bay Area, Sacramento and Fresno, California. We remain very excited about this new business opportunity and the additional growth potential it offers the Company."
Mr. Balmuth concluded, "We remain committed to returning capital to stockholders through our stock repurchase and dividend programs. During the first three months of 2004, we repurchased 2.0 million shares of common stock for an aggregate of $59.0 million under the two-year $350 million program authorized by our Board of Directors in early 2004."
As previously reported, the Company is currently evaluating continuing uses for or the potential sale of its Newark, California headquarters and distribution center once the facility is fully vacated following the planned corporate office relocation to Pleasanton, California in July 2004. As part of this process, the Company expects to obtain independent, third-party market valuations of the Newark facility. Management believes it will complete this evaluation process by the end of the second quarter of 2004. Depending on the Company's decision as to future use or disposition of the Newark facility, a write-down to adjust the facility's net book value, which is approximately $35 million, to its current fair market value may be required. This potential non-cash charge is not included in today's earnings guidance.
The Company will provide additional details concerning its first quarter results and business outlook for the second quarter of 2004 on a conference call to be held on Wednesday, May 19, 2004 at 11:00 a.m. Eastern daylight time. Participants may listen to a real time audio webcast of the conference call by visiting the Company's website located at www.rossstores.com. A recorded version of the call will also be available until the end of June at the website address and via a telephone recording through Thursday, June 3, 2004 at 402-220-5900, PIN #2342.
Forward-Looking Statements: This press release contains forward-looking statements regarding expected sales and earnings levels and new store growth, and forward-looking statements regarding the time needed to remedy ongoing difficulties with new core merchandise information systems and the severity, duration and financial impact of resulting in-store inventory imbalances, all of which are subject to risks and uncertainties that could cause the Company's actual results to differ materially from management's current expectations. The Company is continuing to assess the new information systems, and cannot be certain that all problems have currently been discovered or that their scope is understood. The words "plan," "expect," "anticipate," "estimate," "believe," "forecast," "project," "guidance" and similar expressions identify forward-looking statements. Risk factors for Ross Stores and dd's DISCOUNTS(SM) include the Company's ability to successfully implement and correct difficulties in various new supply chain and merchandising systems, including generation of all necessary information in a timely and cost effective manner, obtaining acceptable new store locations, competitive pressures in the apparel industry, changes in the level of consumer spending on or preferences for apparel or home-related merchandise, changes in geopolitical and general economic conditions, and unseasonable weather trends, lower than planned gross margin, greater than planned operating costs, and a potential non-cash, non-recurring charge to write-down the value of the Company's Newark headquarters and distribution center to its current fair market value. Other risk factors are detailed in the Company's Form 10-K for fiscal 2003. 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 the Company's outlook at any other point in time. The Company does not undertake to update or revise these forward- looking statements.
Ross Stores, Inc. operates a national chain of off-price retail stores offering first quality, in-season, branded apparel and apparel-related merchandise for the entire family at prices that average 20% to 60% less than department and specialty stores, as well as merchandise for the home at similar savings. The Company had 599 stores in operation at May 1, 2004, compared to 530 stores at the end of the same period last year. Additional information on the Company is available on the Company's website at www.rossstores.com.
ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended May 1, May 3, ($000, except per share data, unaudited) 2004 2003 Sales $991,892 $879,284 Costs and Expenses Cost of goods sold, including related buying, distribution and occupancy costs 750,622 653,248 Selling, general and administrative 161,431 145,139 Interest expense (income), net 170 (70) Total costs and expenses 912,223 798,317 Earnings before income taxes 79,669 80,967 Provision for taxes on earnings 31,151 31,658 Net earnings $48,518 $49,309 Earnings per share Basic $0.32 $0.32 Diluted $0.32 $0.32 Weighted average shares outstanding (000) Basic 149,890 154,104 Diluted 153,371 156,508 Stores open end of period 599 530 ROSS STORES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS May 1, May 3, ($000, unaudited) 2004 2003 Current Assets Cash and cash equivalents $184,951 $116,544 Accounts receivable 32,242 23,260 Merchandise inventory 859,379 756,002 Prepaid expenses and other 35,477 48,563 Deferred income taxes 22,742 16,645 Total Current Assets $1,134,791 $961,014 Property and equipment, net 490,462 415,552 Other long-term assets 58,126 39,833 Total Assets $1,683,379 $1,416,399 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable, accrued expenses and other $707,744 $591,635 Income taxes payable 20,981 30,580 Total Current Liabilities $728,725 $622,215 Long-term debt 50,000 50,000 Other liabilities 65,041 45,302 Deferred income taxes 82,119 41,666 Stockholders' Equity 757,494 657,216 Total Liabilities and Stockholders' Equity $1,683,379 $1,416,399 ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended May 1, May 3, ($000, unaudited) 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $48,518 $49,309 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 20,092 17,614 Change in assets and liabilities: Merchandise inventory (17,888) (39,484) Other current assets, net (12,960) (16,570) Accounts payable 21,967 3,493 Other current liabilities 1,340 (2,921) Other 1,871 120 Net cash provided by operating activities 62,940 11,561 CASH FLOWS USED IN INVESTING ACTIVITIES Additions to property and equipment (23,065) (27,419) Net cash used in investing activities (23,065) (27,419) CASH FLOWS USED IN FINANCING ACTIVITIES Issuance of common stock related to stock plans, net 8,939 1,879 Proceeds from long-term debt -- 25,000 Repurchase of common stock (58,988) (40,677) Dividends paid (6,421) (4,449) Net cash used in financing activities (56,470) (18,247) Net decrease in cash and cash equivalents (16,595) (34,105) Cash and cash equivalents: Beginning of period 201,546 150,649 End of period $184,951 $116,544
SOURCE Ross Stores, Inc.
CONTACT: John G. Call, Senior Vice President, Chief Financial Officer,
+1-510-505-4315, or Katie Loughnot, Vice President, Investor Relations,
+1-510-505-4509, or email@example.com, both of Ross Stores, Inc./