Ross Stores Confident But Cautious
August 21, 2006,
Pleasanton, Calif. — With sales coming in at the high end of expectations, and same-store sales growing by 4.0%, Ross Stores Inc. recorded a second-quarter profit of $45.4 million, up 7.3% from the same period last year.
In a lift to the bottom line, average gross margin widened by 110 basis points, or 1.1 percentage points, to 21.7% from 21.6% a year ago. But acting as a modest drag and offsetting some of the margin increase, operating costs climbed higher by 40 basis points, or four-tenths of a percentage point, to 16.1% of sales from 15.7% last year.
Michael Balmuth, ceo, said, “Improvements in distribution costs and merchandise margin were offset by higher shrinkage accruals, freight, store and occupancy expenses.”
Ross, like an increasing number of retailers, is hoarding cash and shunning debt, providing a further boost to profits, and during the second quarter the retailer earned $1.6 million in interest income, up from $580,000 last year.
Looking ahead with prudence, Balmuth said same-store sales were beneath plan for the first two weeks of August, rising by 2%. Hoisting a yellow caution flag, he warned investors, “In addition, we are entering the fall season with residual inventory and clearance levels that are expected to pressure gross margin during the third quarter. As a result, we are adopting a more conservative outlook for the second half of the year.”
Ross Stores Inc.
|Qtr. 7/29 (x000)||2006||2005||% change|
|a. Second quarter results include $1.6 million in interest income, compared with $580,000 during the same period last year.
b. Six-month results include $3.4 million in interest income vs. $878,000 a year ago.
|Oper. income (EBIT)||73,287||69,044||6.1|
|Per share (diluted)||0.32||0.29||10.3|
|Average gross margin||21.7%||21.6%||—|
|Oper. income (EBIT)||168,960||150,929||11.9|
|Per share (diluted)||0.73||0.62||17.7|
|Average gross margin||22.6%||22.3%||—|