Ross Stores Inc.

06/11/2025 | Press release | Distributed by Public on 06/11/2025 04:00

Quarterly Report for Quarter Ending May 03, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption "Forward-Looking Statements" and also those in Part II, Item 1A (Risk Factors) of this Form 10-Q, and Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for fiscal 2024. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for fiscal 2024. All information is based on our fiscal calendar.
Overview
Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores-Ross Dress for Less®("Ross") and dd's DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States, with 1,847 locations in 44 states, the District of Columbia, and Guam, as of May 3, 2025. 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. We also operate 358 dd's DISCOUNTS stores in 22 states as of May 3, 2025 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.
Heightened macroeconomic pressures and geopolitical uncertainties, most notably prolonged inflation and evolving trade policies, continue to impact both consumer confidence and discretionary spending. Trade policy remains unpredictable, and although we directly import only a small portion of our merchandise, more than half of the goods we sell originate from China. If elevated tariff levels persist, it is possible we will see pressure on our level of profitability. We expect modest but broad-based inflationary pressures across the retail industry. However, we remain focused on maintaining a pricing umbrella below traditional retailers in order to continue delivering high quality, branded merchandise at great values to our customers.
Through these ongoing pressures and uncertainty, we continue to remain focused on offering our customers a wide assortment of quality branded bargains. We will continue to make necessary adjustments with our flexible off-price business model to navigate through this uncertain environment and believe we are well-positioned to gain market share while minimizing the impact from tariffs. Despite prolonged inflation, deteriorating consumer sentiment, and fluctuating tariff levels, we believe that our merchandising and operational strategies enable us to deliver the values our customers have come to expect from us.
Results of Operations
The following table summarizes our financial results for the three month periods ended May 3, 2025 and May 4, 2024:
Three Months Ended
May 3, 2025 May 4, 2024
Sales
Sales (millions) $ 4,985 $ 4,858
Sales growth 3 % 8 %
Comparable store sales growth1
- % 3 %
Costs and expenses (as a percent of sales)
Cost of goods sold 71.8 % 71.9 %
Selling, general and administrative 16.0 % 15.9 %
Operating income (as a percent of sales) 12.2 % 12.2 %
Interest income, net (as a percent of sales) (0.7 %) (0.9 %)
Net earnings (as a percent of sales) 9.6 % 10.0 %
1 Comparable stores are stores open for more than 14 complete months.
Stores. Our long-term strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria. We continue to believe that consumers' focus on value and convenience provide opportunities for us to gain market share.
We opened 19 new stores in the first quarter of fiscal 2025 and expect to open a total of approximately 90 new stores this year. We expect to open 31 stores in the three month period ending August 2, 2025, including 28 Ross and three dd's DISCOUNTS locations.
The following table summarizes the stores opened and closed during the three month periods ended May 3, 2025 and May 4, 2024:
Three Months Ended
Store Count May 3, 2025 May 4, 2024
Ross Dress for Less
Beginning of the period 1,831 1,764
Opened in the period 16 11
Closed in the period - -
Total Ross Dress for Less stores end of period
1,847 1,775
dd's DISCOUNTS
Beginning of the period 355 345
Opened in the period 3 7
Closed in the period - -
Total dd's DISCOUNTS stores end of period
358 352
Total stores end of period 2,205 2,127
Sales.Sales for the three month period ended May 3, 2025 increased $126.9 million, or 2.6%, compared to the three month period ended May 4, 2024, primarily due to the opening of 78 net new stores between May 4, 2024 and May 3, 2025.
Our sales mix for the three month periods ended May 3, 2025 and May 4, 2024 is shown below:
Three Months Ended
May 3, 2025 May 4, 2024
Home Accents and Bed and Bath 26 % 26 %
Ladies 23 % 23 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics 15 % 15 %
Men's 14 % 14 %
Shoes 13 % 13 %
Children's 9 % 9 %
Total 100 % 100 %
Cost of goods sold.Cost of goods sold for the three month period ended May 3, 2025 increased $90.7 million compared to the three month period ended May 4, 2024, primarily due to higher sales from the opening of 78 net new stores between May 4, 2024 and May 3, 2025.
Cost of goods sold as a percentage of sales for the three month period ended May 3, 2025 was relatively flat compared to the three month period ended May 4, 2024. Compared to the prior year period, there was a 45 basis point decrease in merchandise margin mainly due to higher ocean freight costs and the initial impact of tariffs. Occupancy and distribution costs rose by 20 basis points and five basis points, respectively. Buying costs declined by 50 basis points from lower incentive compensation expense, and domestic freight costs levered by 20 basis points.
Moving into the second quarter of fiscal 2025, we expect merchandise margin to decrease as a percentage of sales due to the impact from announced tariffs and distribution costs to increase as a percentage of sales primarily due to the opening of our eighth distribution center in Buckeye, Arizona in May 2025. We expect these costs to be partially offset by lower incentive compensation expense.
Selling, general and administrative expenses.For the three month period ended May 3, 2025, selling, general and administrative expenses ("SG&A") increased $20.9 million compared to the three month period ended May 4, 2024, primarily due to the opening of 78 net new stores between May 4, 2024 and May 3, 2025, partially offset by lower incentive compensation expense.
SG&A as a percentage of sales for the three month period ended May 3, 2025 was relatively flat compared to the three month period ended May 4, 2024, as the benefit from lower incentive compensation expense was offset by sales deleverage.
Moving into the second quarter of fiscal 2025, we expect lower incentive compensation expense as a percentage of sales compared to the prior year.
Operating income.Operating income as a percentage of sales for the three month period ended May 3, 2025 was flat compared to the three month period ended May 4, 2024, as both cost of goods sold and SG&A were relatively flat as a percentage of sales period over period.
Moving into the second quarter of fiscal 2025, we anticipate operating income to decrease as a percentage of sales compared to the prior year as a result of lower merchandise margin primarily due to the impact from announced tariffs and higher distribution costs primarily from the opening of our eighth distribution center in Buckeye, Arizona in May 2025, partially offset by lower incentive compensation expense.
Interest income, net.For the three month period ended May 3, 2025, interest income, net decreased $11.5 million compared to the three month period ended May 4, 2024, primarily due to decreased interest income both from lower average interest rates and from lower average cash balances, which decreased largely due to our repayment at maturity of $700 million of Senior Notes in April 2025 and $250 million of Senior Notes in September 2024. The decrease in interest income was partially offset by lower interest expense due to the repayment of those Senior Notes.
The table below shows the components of interest income, net for the three month periods ended May 3, 2025 and May 4, 2024:
Three Months Ended
($000) May 3, 2025 May 4, 2024
Interest income $ (46,868) $ (63,218)
Capitalized interest (5,404) (4,265)
Other interest expense 400 358
Interest expense on long-term debt 17,463 21,175
Interest income, net $ (34,409) $ (45,950)
Taxes on earnings. Our effective tax rate is impacted by changes in tax laws and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and the resolution of tax positions with various tax authorities. For the three month period ended May 3, 2025, our effective tax rate was approximately 25% compared to approximately 23% for the three month period ended May 4, 2024. The increase in the effective tax rate of 2% for the three month period ended May 3, 2025 compared to the three month period ended May 4, 2024 was primarily due to the tax effects associated with stock-based compensation.
Earnings per share.Diluted earnings per share for the three month period ended May 3, 2025 was $1.47 compared to $1.46 for the three month period ended May 4, 2024. The $0.01 increase in the diluted earnings per share for the three month period ended May 3, 2025 was primarily attributable to a 2% reduction in weighted-average diluted shares outstanding largely due to stock repurchases under our stock repurchase program, partially offset by approximately a 1% decrease in net earnings.
Financial Condition
Liquidity and Capital Resources
The primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, capital expenditures related to new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under active stock repurchase programs, repay debt as it becomes due, and pay dividends. We repaid at maturity $700 million of our Senior Notes in April 2025. As of May 3, 2025, we had $500 million principal amount of 0.875% Senior Notes that will reach maturity in 2026.
Three Months Ended
($ millions) May 3, 2025 May 4, 2024
Cash provided by operating activities $ 410 $ 369
Cash used in investing activities (207) (136)
Cash used in financing activities (1,150) (450)
Net decrease in cash, cash equivalents, and restricted cash and cash equivalents $ (947) $ (217)
Operating Activities
Net cash provided by operating activities was $410 million for the three month period ended May 3, 2025. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, partially offset by the payment of fiscal 2024 incentive bonuses. Net cash provided by operating activities was $369 million for the three month period ended May 4, 2024. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation, partially offset by the payment of fiscal 2023 incentive bonuses.
The increase in cash flow provided by operating activities for the three month period ended May 3, 2025 compared to the same period in the prior fiscal year was primarily driven by lower incentive compensation payments.
Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 81% and 86% as of May 3, 2025 and May 4, 2024, respectively. The decrease in accounts payable leverage was primarily due to the timing of inventory receipts and related payments versus last year.
As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory to our stores. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage for less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.
Changes in packaway inventory levels affect our operating cash flow. As of May 3, 2025 and February 1, 2025, packaway inventory was 41% of total inventory.
Investing Activities
Net cash used in investing activities was $207 million and $136 million for the three month periods ended May 3, 2025 and May 4, 2024, respectively, and was related to our capital expenditures. Our capital expenditures include costs to open new stores and improve existing stores, build, expand, and improve distribution centers, and for various other expenditures related to our information technology systems and buying and corporate offices.
The change in cash used in investing activities for the three month period ended May 3, 2025, compared to the same period in the prior fiscal year, was primarily due to higher capital expenditures in the current year related to the construction of our next distribution center in Randleman, North Carolina and the opening of new stores.
Capital expenditures for fiscal 2025 are currently projected to be approximately $855 million. Our planned capital expenditures for fiscal 2025 are for costs to open new stores and improve existing stores, investments in our supply chain to support long-term growth, including construction of our next distribution centers, investments in our information technology systems, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash.
Financing Activities
Net cash used in financing activities was $1.1 billion for the three month period ended May 3, 2025 primarily resulting from the repayment at maturity of $700 millionprincipal amount of 4.600% Senior Notes in April 2025, stock repurchases under our stock repurchase program, and dividend payments. Net cash used in financing activities was $450 million for the three month period ended May 4, 2024 primarily resulting from stock repurchases under our stock repurchase program and dividend payments.
Revolving credit facilities.We have a $1.3 billion senior unsecured revolving credit facility. As of May 3, 2025, we had no borrowings or standby letters of credit outstanding under theCredit Facility, our Credit Facility remained in place and available, and we were in compliance with the financial covenant. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.
Senior notes.As of May 3, 2025, we had approximately $1.5 billion of outstanding unsecured Senior Notes, of which $499 million was classified within Current Liabilities on our Condensed Consolidated Balance Sheet for the period ended May 3, 2025. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.
Other financing activities.In March 2024, our Board of Directors approved a two-year program to repurchase up to $2.1 billion of our common stock through fiscal 2025. During the three month period ended May 3, 2025, we repurchased 2.0 million shares of common stock for $262.5 million (excluding excise tax) under this program. As of May 3, 2025, there was $787.5 million available for repurchase under this program.
During the three month periods ended May 3, 2025 and May 4, 2024, we also acquired 0.5 million shares of treasury stock to cover employee tax withholding obligations under our employee equity compensation programs, for aggregate purchase prices of approximately $60.1 million and $70.5 million, respectively.
On May 21, 2025, our Board of Directors declared a quarterly cash dividend of $0.4050 per common share, payable on June 30, 2025. The Board of Directors declared a quarterly cash dividend of $0.4050 per common share in March 2025, and $0.3675 per common share in March, May, August, and November 2024.
For the three month periods ended May 3, 2025 and May 4, 2024, we paid cash dividends of $133.3 million and $123.3 million, respectively.
Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources, and expect to be able to maintain adequate trade credit, bank credit, and other credit sources to meet our capital and liquidity requirements.
We ended the first quarter of fiscal 2025 with $3.8 billion of unrestricted cash balances, which were held primarily in overnight money market funds invested in U.S. treasury and government instruments across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our Credit Facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, our bank credit facility, and trade credit are adequate to meet our operating cash needs and to fund our common stock repurchases, planned capital investments, debt repayments, quarterly dividend payments, and interest payments, for at least the next 12 months.
Contractual Obligations and Off-Balance Sheet Arrangements
As of May 3, 2025, there have been no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K as of February 1, 2025, other than those which occur in the ordinary course of business.
Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility and a funded trust to collateralize some of our insurance obligations. As of May 3, 2025, February 1, 2025, and May 4, 2024, we had $1.0 million, $1.8 million, and $2.2 million, respectively, in standby letters of credit outstanding. As of May 3, 2025, February 1, 2025, and May 4, 2024, we had $64.6 million, $63.9 million, and $61.6 million, respectively, held in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash and cash equivalents.
Critical Accounting Estimates
During the first quarter of fiscal 2025, there were no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended February 1, 2025.
Forward-Looking Statements
This report contains a number of forward-looking statements regarding, without limitation, projected sales, costs and earnings, planned new store growth, capital expenditures, liquidity, and other matters. These forward-looking statements reflect our then-current beliefs, plans, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words "plan," "expect," "target," "anticipate," "estimate," "believe," "forecast," "projected," "guidance," "outlook," "looking ahead," and similar expressions identify forward-looking statements.
Future impact from tariffs, inflation, interest rate changes, ongoing military conflicts and economic sanctions, climate change, extreme weather, pandemics, natural disasters, and other economic, regulatory, consumer spending, and industry trends that could potentially adversely affect our revenue, profitability, operating conditions, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations, plans, and projections. Such risks and uncertainties are not limited to but may include:
•Changes in U.S. tax, tariff, or trade policy regarding apparel, shoes, and home-related merchandise produced in China and other countries could significantly and adversely affect our business. While we directly import only a small portion of our merchandise, more than half of the goods we sell originate from China. Elevated tariff levels on goods imported into the United States from China and other countries may disrupt our merchandise purchasing patterns, increase our costs, and put pressure on our margins and profitability.
•Uncertainties arising from the macroeconomic environment, including inflation and the price of necessities, high interest rates, housing costs, energy and fuel costs, financial and credit market conditions, recession concerns, geopolitical conditions, and public health and public safety issues may affect consumer confidence, consumer disposable income, and shopping behavior, as well as our costs.
•Unexpected changes in the level of consumer spending on, or preferences for, apparel and home-related merchandise could adversely affect us.
•Competitive pressures in the apparel and home-related merchandise retailing industry.
•Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.
•Risks associated with importing and selling merchandise produced in China and other countries, including risks from supply chain disruption, shipping delays, and higher than expected ocean freight costs.
•Unseasonable weather or extreme temperatures that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise.
•Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to anticipate consumer preferences and to purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices.
•Information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could disrupt our operations, and result in theft or unauthorized disclosure of confidential and valuable business information, such as customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business.
•Disruptions in our supply chain or in our information systems, including from ransomware or other cyber-attacks could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.
•Our need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned store openings.
•Our need to expand in existing markets and enter new geographic markets in order to achieve planned growth and market penetration.
•Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell could harm our reputation, result in lost sales, and/or increase our costs.
•An adverse outcome in various legal, regulatory, or tax matters, or the adoption of new federal or state tax legislation that increases tax rates or adds new taxes could increase our costs.
•Damage to our corporate reputation or brands could adversely affect our sales and operating results.
•Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies.
•Our need to effectively advertise and market our business.
•Possible volatility in our revenues and earnings.
•A public health or public safety crisis, or a natural or man-made disaster in California or another region where we have a concentration of stores, offices, or a distribution center could harm our business.
•Our need to maintain sufficient liquidity to support our continuing operations and our new store openings.
The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.
Ross Stores Inc. published this content on June 11, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on June 11, 2025 at 10:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at support@pubt.io