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Rosy Results for Ross Stores

Fourth- quarter profits at Ross Stores Inc. shot up by 37.0%, to $71.0 million from $51.8 million last year, lifted by stronger same-store sales, improving margins and interest earned on banked money.

Fourth-quarter sales at the off-price retailer improved by 16.5%, to $1.4 billion from $1.2 billion last year, boosted by the rollout of new units. Importantly, the acid-test gauge of same-store sales grew by 6.0%.

In a big lift to the bottom line, in addition to the stronger sales, average gross margin widened by 190 basis points, or 1.9 percentage points, more than offsetting higher costs. When measured as a percentage of sales, operating costs rose by 70 basis points, or seven-tenths of a percentage point, to 15.3% from 14.6% during the same period a year ago. Costs were driven higher mostly by higher incentive plan costs.

Dropping cash straight to the bottom line, Ross earned $1.6 million in interest income during the period, compared to the same period a year ago when it paid out $18,000 in interest expense.

For all of 2005, Ross profits climbed by 17.5%, to $199.6 million from $169.9 million the preceding year. Sales improved by 16.6%, to $4.9 billion, while same-store sales rose 6.0%.

Full-year earnings, said vice chairman, president and ceo Michael Balmuth, “benefited from a solid rebound in sales, partially offset by a combination of higher-than-expected markdowns related to transitional systems and distribution issues earlier in the year, higher expenses related to inventory shortage, and higher incentive plan and information technology costs.”

Balmuth added, “We are pleased to report that healthy operating cash flows during 2005 continued to provide the resources to fund capital investments in new-store growth and infrastructure. During fiscal 2005, $176 million in capital expenditures supported the addition of 75 net new Ross locations, 10 dd’s DISCOUNTS stores, the purchase of a new warehouse facility in Moreno Valley, Calif., and other various information technology and infrastructure investments.”

Ross Stores Inc.

a. Fourth-quarter results include $1.6 million in interest income, compared with $18,000 in interest expense during the same period a year ago.
b. Twelve-month results include $2.9 million in interest income, compared with an interest expense of $915,000 last year; 2004 12-month results include a $15.8 million charge for the impairment of long-lived assets.
Qtr. 1/28 (x000) 2005 2004 %change
Sales $1,411,488 $1,211,754 16.5
Oper. income (EBIT) 115,250 85,118 35.4
Net income 70,978a 51,826a 37.0
Per share (diluted) 0.49 0.35 40.0
Average gross margin 23.5% 21.6%
SG&A expenses 15.3% 14.6%
12 months
Sales $4,944,179 $4,239,990 16.6
Oper. income (EBIT) 325,444 295,718 10.1
Net income 199,632b 169,902b 17.5
Per share (diluted) 1.36 1.13 20.4
Average gross margin 22.5% 22.6%
SG&A expenses 15.9% 15.7%


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