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Home a Leader for Off-pricer Ross

Building 'Younger, Fresher' Mix

Even as it reduced its earnings projections for the year, off-price retailer Ross Stores highlighted home merchandise as a bright spot.

"Dresses and home were the best-performing merchandise categories," said Michael Balmuth, vice chairman, president and ceo, speaking to analysts. Discussing comp gain by department, Balmuth noted that home departments had "high single digit percentage increases."

Responding to a question about opportunities in home categories, Balmuth said, "The opportunities we've isolated are really in the gift-giving part of home."

At No. 14 on the HTT Top 50 Retailing Giants, Ross Stores had 2006 home textiles sales of $320.0 million.

Now operating 817 Ross Dress for Less and 45 dd's Discounts units, the company reported second quarter net earnings of $50.9 million, up 13% from $45.4 million in the same period one year ago. Sales of $1.4 billion were up 10% from last year. Comp sales climbed 2%. Year-to-date comps are up 1%.

The company is seeking to build an overall apparel and home assortment that is "younger, fresher" and that emphasizes brands throughout the store, Balmuth added.

Ross offered a conservative forecast on sales and gross margins. The retailer reduced its third-quarter comp sales gain projection from 3% - 4% to 1% - 3%, and forecast 9% -11% total sales growth compared to the year-ago period.

Ross projected 10% - 17% earnings growth for the year, or $1.80 to $1.90 per share, off from its original 2007 guidance of $1.85 to $1.95.

Ross Stores, Inc.

Qtr. 8/4 ($millions) 2007 2006 % change
Sales $1,445 $1,308 10.5%
Oper. Income (EBIT) 84 73 15.0%
Net income 51 45 13.3%
Per share (diluted) 0.37 0.32 15.6%
Average gross margin 21.7% 21.7%
SG&A expenses 15.8% 16.1%
Six months
Sales $2,855 $2,560 11.5%
Oper. Income (EBIT) 193 169 14.2%
Net income 118 104 13.5%
Per share (diluted) 0.85 0.73 16.4%
Average gross margin 22.9% 21.4%
SG&A expenses 16.1% 16.3%

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