Value Sells as Ross Profits Gain in ’02

Ross Stores said higher sales and better buying opportunities paved the way for double-digit increases in its fourth-quarter and yearend profits.

NEW YORK — Benefiting from a consumer focused intently on value, Ross Stores said Wednesday that higher sales and better buying opportunities paved the way for double-digit increases in both its fourth-quarter and yearend profits.

This story first appeared in the March 20, 2003 issue of WWD.  Subscribe Today.

Newark, Calif.-based Ross Stores, the nation’s second-largest off-price apparel chain behind TJX Cos., said income for the three months ended Feb. 1 fattened 17.6 percent to $58.7 million, or 74 cents a diluted share, matching Wall Street’s consensus estimates. Last year, the firm reported income of $50 million, or 62 cents.

Sales for the quarter rung in at $964.6 million, a 13.7 percent increase over sales of $848.4 million reached in the year-ago quarter. Comparable-store sales rose 3 percent on top of an 8 percent boost in the prior-year quarter.

In reaction to the company warning that sales are trending below plan in March, investors sent shares down $1.17, or 3.1 percent, to close at $36.18, in Nasdaq trading.

“Our financial results benefited from our ability to take advantage of great opportunities in the market for branded products at compelling discounts,” Michael Balmuth, chief executive, said on a morning conference call. “The great bargains we were able to offer in a wide array of name-branded fashions for the family and the home were an attractive choice for customers seeking values.”

Richard Jaffe, a retail analyst at UBS Warburg, said, “Even in a tough economic environment, Ross has shown the ability to outperform. So when you get rid of the other noise-hurting retailers in general, Ross could benefit as consumers continue to shop harder to receive better value.”

Balmuth said the quarterly results benefited from a 31 basis-point expansion in operating margin. However, the retailer experienced a slight decline in gross margin as lower markdowns and distribution costs were not enough to offset the sharper pricing strategy and higher freight costs.

Geographically, Balmuth said sales trends in the quarter were relatively consistent with positive comp gains in all major markets, including California, where comps rose 3 percent.

Ross, which currently operates 507 stores, added 55 new stores in 2002 and expects to open an additional 62 this year.

Looking ahead, Balmuth said that, while he is confident in the firm’s ability to achieve its financial targets, the year was starting off slowly. “As we entered 2003, we decided that being more conservative in our outlook, especially concerning the first quarter, was prudent because of the recent slow-down trend, the later Easter holiday and the usual weather risks to early spring sales,” as well as the challenging comparisons with last year and the uncertain geopolitical and economic environments.

In addition to February’s below plan, 3 percent comp decline, Balmuth said halfway through March, comps are again tracking slightly below its comp goal of flat to down 2 percent. But he said he expects comps to gradually improve over the balance of the year, noting comps in April should increase 1 to 3 percent and forecasting comp increases of 2 to 3 percent in the second quarter and 3 to 4 percent in both the third and fourth quarters.

With much of the quarter left to go, the company reaffirmed its earnings outlook for the first quarter to range between 62 and 65 cents a share, versus 59 cents last year, and said it is anticipating 2003 EPS to range between $2.80 and $2.90.

For the year, income jumped 29.8 percent to $201.2 million, or $2.52 a diluted share, versus income of $155 million, or $1.91, in 2001. Sales blossomed 18.2 percent to $3.53 billion over 2001 sales of $2.99 billion, with comps up 7 percent.