Ross Stores reported earnings per share for the 13 weeks ended May 1, 2004 of $.32, compared to $.32 for the 13 weeks ended May 3, 2003. Net earnings in the first quarter of 2004 were $48.5 million, compared to $49.3 million in the prior year period. Sales for the first quarter ended May 1, 2004 increased 13% to $992 million, from $879 million for the quarter ended May 3, 2003. Comparable store sales for the same period grew 3% from the prior year.
Michael Balmuth, Vice Chairman and Chief Executive Officer, commented, “First quarter earnings per share were, as anticipated, even with the prior year despite an interruption in our distribution capacity due to weather and a partial roof collapse at our South Carolina facility in January 2004. Higher distribution costs related to that incident, as well as ramp-up expenses associated with the retrofit of our Pennsylvania center and the start-up phase of our Southwest facility, contributed to a 138 basis point decline in gross margin during the quarter. This was partially offset by a 23 basis point reduction in selling, general and administrative expenses as a percentage of sales, primarily reflecting leverage on store operating costs. As a result, operating margin for the first quarter declined to 8.0% from 9.2% in the prior year.”
Mr. Balmuth continued, “As previously reported, during April we went live with our new Core Merchandising System. While this technology is expected to improve our ability to plan, buy and allocate merchandise more precisely, we have been experiencing longer-than-expected delays in producing information on current merchandise trends during the start-up period of the systems. We have made some progress over the past two weeks, resulting in improved visibility into buying and allocation data, and we currently expect these information systems issues to be fully remedied during the second quarter. Information we are now receiving from the new system does indicate, however, that temporary in-store inventory imbalances have developed that we believe will adversely impact sales and margins over the near term. It appears that we are beginning to see the effect of this situation, with same store sales month-to-date in May now down 1% from the prior year.”
“As a result of these variables, we believe it is prudent to adopt a more conservative outlook for the second and third quarters. We now estimate that comparable store sales for the 13 weeks ending July 31, 2004 will be flat to down 2% and that earnings per share will be in the range of $.31 to $.34, compared to $.35 for the 13 weeks ended August 2, 2003. For the third quarter ending October 30, 2004, we now expect that same store sales will increase 1% to 2% and that earnings per share will be in the range of $.33 to $.35, compared to $.33 for the 13 weeks ended November 1, 2003. We also are maintaining our previous forecast for same store sales to grow 2% to 3% for the 13 weeks ending January 29, 2005 and believe that earnings per share for the fourth quarter will be in the range of $.52 to $.54, compared to $.48 for the 13 weeks ended January 31, 2004.”
Commenting on the Company's expansion plans, Mr. Balmuth said, “The long-term fundamentals of our business and growth strategy remain strong and healthy. We are on track with our goal of 12% unit expansion for Ross, or about 70 new locations during 2004. In addition, we still expect to open the first of ten dd's DISCOUNTS(SM) locations in the third quarter. The initial six stores are projected to open in August, with two locations each in the San Francisco Bay Area, Sacramento and Fresno, California. We remain very excited about this new business opportunity and the additional growth potential it offers the Company.”
Mr. Balmuth concluded, “We remain committed to returning capital to stockholders through our stock repurchase and dividend programs. During the first three months of 2004, we repurchased 2.0 million shares of common stock for an aggregate of $59.0 million under the two-year $350 million program authorized by our Board of Directors in early 2004.”
As previously reported, the Company is currently evaluating continuing uses for or the potential sale of its Newark, California headquarters and distribution center once the facility is fully vacated following the planned corporate office relocation to Pleasanton, California in July 2004. As part of this process, the Company expects to obtain independent, third-party market valuations of the Newark facility. Management believes it will complete this evaluation process by the end of the second quarter of 2004. Depending on the Company's decision as to future use or disposition of the Newark facility, a write-down to adjust the facility's net book value, which is approximately $35 million, to its current fair market value may be required. This potential non-cash charge is not included in today's earnings guidance.
ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended May 1, May 3, ($000, except per share data, unaudited) 2004 2003 Sales $991,892 $879,284 Costs and Expenses Cost of goods sold, including related buying, distribution and occupancy costs 750,622 653,248 Selling, general and administrative 161,431 145,139 Interest expense (income), net 170 (70) Total costs and expenses 912,223 798,317 Earnings before income taxes 79,669 80,967 Provision for taxes on earnings 31,151 31,658 Net earnings $48,518 $49,309 Earnings per share Basic $0.32 $0.32 Diluted $0.32 $0.32 Weighted average shares outstanding (000) Basic 149,890 154,104 Diluted 153,371 156,508 Stores open end of period 599 530