The leading off-price retailer of apparels and home accessories in the United States, Ross Stores Inc. (ROST), reported earnings of $1.37 per share for fourth-quarter 2010, in line with the Zacks Consensus Estimate. The earnings grew 18.1% from the prior-year quarter figure of $1.16 primarily because of strong top line growth and reduced cost of goods sold and operating expenses.
For fiscal 2010, the earnings grew robustly by 30.8% to $4.63 from $3.54 per share in the prior-fiscal on the back of higher gross margin, lower shortage costs and leverage on operating expenses.
Financial Details
Net sales for the quarter increased 8.4% to $2,145.2 million compared with $1,979.8 million in the prior-year quarter, beating the Zacks Consensus Estimate of $2,138.0 million. This robust increase in net sales was primarily because of initiatives taken by the company to keep merchandise fresh by reducing the amount of merchandise in stores.
Operating margin for the quarter improved by 70 basis points to 12.2% from 11.5% in the prior-year quarter. The improvement in operating margin was primarily attributable to a decline of 1.05% in cost of goods sold, partially offset by an increase of 45 basis points in selling, general and administrative expenses.
Ross Stores ended fiscal 2010 with cash and cash equivalents of $833.9 million compared with $768.3 million in the prior fiscal. The company generated a healthy cash flow throughout the year. During fourth-quarter 2010, Ross generated $673.0 million of operating cash flows. This will enable the company to make capital investments, dividend payments and share repurchases. At the end of fiscal 2010, the company had a long-term debt of $150.0 million and shareholders’ equity of $1,332.7 million, which constitutes a debt-to-capitalization ratio of just 10.1%.
Dividend and Share Repurchase
The company’s board of directors has raised the quarterly cash dividend by 37.5% to 22 cents. Also, during fiscal 2010, Ross repurchased 6.7 million common shares for $375.0 million under its previous $750.0 million share repurchase program.
Ross Store has now rescinded its $750.0 million share repurchase program. Instead, the board of directors of the company has now approved a new $900.0 million share repurchase program over the next two years through fiscal 2012.
Store Update
At the end of fiscal 2010, the company had a total of 1055 stores compared with 1005 stores in the prior fiscal.
However, the company faces intense competition from other well-established players in the industry, such as Kohl’s Corporation (KSS) and Wal-Mart Stores Inc. (WMT) which may dent its margins.
Currently, Ross Stores maintains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, we retain a long-term ‘Neutral’ recommendation on the stock.
KOHLS CORP (KSS): Free Stock Analysis Report
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