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Ross Stores (ROST) Wider-Than-Expected Q1 Loss, Sales Miss

Zacks Equity Research
·4-min read

Ross Stores, Inc. ROST reported drab first-quarter fiscal 2020 results, wherein both the top and bottom lines declined year over year. Results were affected by temporary store closures, including all Ross Dress for Less and dd’s DISCOUNTS stores stemming from the ongoing COVID-19 situation, along with operating loss reported for the first time in the last 30 years. Loss of sales from closed stores for almost half of the first quarter and one-time charge related to non-cash inventory hurt operating margin.

Further, management refrained from providing top and bottom line guidance for the second quarter and fiscal 2020 owing to the unprecedented impacts of COVID-19, including fluctuating consumer demand and weak store productivity.

This led shares of Ross Stores to fall 3.2% in the after-hours session on Mar 21. In the past three months, shares of the Zacks Rank #5 (Strong Sell) company have slumped 20.4% against the industry’s decline of 7%.


However, the company re-opened roughly 700 stores on May 14 in a phased manner. Going forward, it plans to re-open more stores gradually in sync with health guidelines and government regulations.

Q1 Highlights

Ross Stores posted loss of 29 cents per share against earnings of $1.13 per share reported in the prior-year quarter. Further, the figure came in wider than the Zacks Consensus Estimate of a loss of a penny.

Total sales plunged 51.5% to $1,834 million and lagged the Zacks Consensus Estimate of $2,088 million.

Cost of goods sold or COGS rose 30% to $1,890 million. Selling, general and administrative (SG&A) expenses decreased 25.6% to $415.3 million. As a percentage of sales, SG&A expenses decreased 780 bps.

Store Update

During the quarter, the company opened 20 Ross and seven dd's DISCOUNTS stores, bringing the total store count to 1,832 outlets. Mmanagement noted that it doesn’t expect to open any new store in the second quarter due to the rising uncertainty in consumer demand and shopping patterns. That said, it anticipates opening 39 new stores this fall season and 66 stores in fiscal 2020.

Financials

Ross Stores ended the quarter with cash and cash equivalents of $2,669.5 million, long-term debt of $2,285.6 million, and total shareholders’ equity of $2,817.4 million. Prior to the suspension of the share repurchase program in light of the ongoing pandemic, the company bought back 1.2 million shares worth $132 million. Moving ahead, it does not intend to repurchase any shares for the rest of fiscal 2020.

COVID-19 Updates

In wake of the COVID-19 outbreak, management has undertaken some financial measures like withdrawing $800 million from its current revolving credit facility, suspending the share repurchase program, lowering costs and capital spending. Notably, capital expenditure for fiscal 2020 is now envisioned to be roughly $420 million, down from the previously guided view of $730 million. Also, the company furloughed most of its store and distribution associates along with certain other employees on Apr 5.

However, it has a liquidity of $3 billion and cash balance of $500 million which makes it well placed to overcome this hurdle. Apart from these, it has now decided to suspend its quarterly dividend and lower new store openings for fiscal 2020.

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Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. Price, Consensus and EPS Surprise
Ross Stores, Inc. Price, Consensus and EPS Surprise

Ross Stores, Inc. price-consensus-eps-surprise-chart | Ross Stores, Inc. Quote

Better-Ranked Retail Stocks to Watch

Big Lots BIG has a long-term earnings growth rate of 12% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Kroger Co. KR has a long-term earnings growth rate of 4.9% and a Zacks Rank #2.

Office Depot ODP has a long-term earnings growth rate of 6.8% and a Zacks Rank #2.

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