Ross Stores, Inc. reduced its guidance for sales and earnings in the full year due to a shortfall in same-store sales in the first quarter.

The off-price retailer reported earnings per share for the 13 weeks ended April 30, 2022 of 97 cents on net earnings of $338 million. Wall Street’s consensus estimate had been $1.00. Ross had projected EPS in the range of 93 cents to 99 cents.

The quarter includes an approximate benefit of $0.06 per share from the favorable timing of expenses expected to reverse in subsequent quarters. These results compare to $1.34 per share on a net income of $476 million for the 13 weeks ended May 1, 2021.

Sales for the first quarter of 2022 were $4.3 billion versus $4.5 billion in the prior-year period. Comparable store sales declined 7 percent on top of a robust 13 percent gain in the first quarter of 2021 versus 2019. Wall Street’s consensus estimate had been $4.54 billion. Ross had projected comps to decline in the range of 2 percent to 4 percent.

Barbara Rentler, CEO, commented, “We are disappointed with our lower-than-expected first-quarter results. Following a stronger-than-planned start early in the period, sales underperformed over the balance of the quarter. We knew fiscal 2022 would be a difficult year to predict, especially the first half when we were facing last year’s record levels of government stimulus and significant customer pent-up demand as COVID restrictions eased. The external environment has also proven extremely challenging as the Russia/Ukraine conflict has exacerbated inflationary pressures on the consumer not seen in 40 years.”

Rentler continued, “First quarter operating margin of 10.8 percent was down from 14.2 percent in 2021, reflecting the deleveraging effect from the same-store sales decline combined with ongoing headwinds from higher freight and wage costs that began rising in the second half of 2021.”

Second Quarter and Updated Fiscal 2022 Guidance

Looking ahead, Rentler commented, “Given our first-quarter results and today’s increasingly uncertain macro-economic and geopolitical environment, we believe it is prudent to adopt a more conservative outlook for the balance of the year. We are now forecasting same-store sales for the 13 weeks ending July 30, 2022 to decrease 4 percent to 6 percent on top of a very strong 15 percent gain in the prior-year period, with earnings per share projected to be $0.99 to $1.07 versus $1.39 in last year’s second quarter.”

She continued, “Although we continue to expect sales and profitability to improve as we move through the year, for the 52 weeks ending January 28, 2023, we now forecast comparable store sales to decline 2 percent to 4 percent versus a 13 percent gain in fiscal 2021. Earnings per share for fiscal 2022 are projected to be $4.34 to $4.58 compared to $4.87 in the prior year.”

Previously, earnings per share for fiscal 2022 are projected to be in the range of $4.71 to $5.12. Comparable store sales are forecast to be flat to up 3 percent.

Rentler concluded, “While the landscape in early 2022 has been tougher than expected and the year may prove to be more difficult than initially anticipated, we remain confident in our ability to successfully navigate through this period. We have shown in the past that our value-focused business model has served us well in both healthy and more uncertain external climates and believe the current challenging conditions will be no different.”

Photo courtesy Ross Stores