Ross Stores, Inc. reported profits declined 22.1 percent in the second quarter due to higher markdowns and a 7 percent same-store drop. The off-pricer downwardly adjusted its outlook for the year.
Earnings per share for the 13 weeks ended July 30, 2022, came to $1.11 on a net income of $385 million. These results compare to $1.39 per share on net earnings of $494 million for the 13 weeks ended July 31, 2021. Sales for the second quarter of 2022 were $4.6 billion versus $4.8 billion in the prior year period. Comparable store sales were down 7 percent on top of a robust 15 percent gain in the second quarter of 2021, which was the strongest period of last year.
For the six months ended July 30, 2022, earnings per share were $2.08 on a net income of $723 million. These results compare to earnings per share of $2.73 on net earnings of $971 million in the first half of 2021. Sales for the first six months of 2022 were $8.9 billion, with comparable store sales down 7 percent versus a 14 percent gain in the first half of 2021.
Barbara Rentler, CEO, commented, “We are disappointed with our sales results, which were impacted by the mounting inflationary pressures our customers faced as well as an increasingly promotional retail environment. Earnings came in above our guidance range primarily due to lower incentive costs resulting from the below plan topline performance.
“Second quarter operating margin of 11.3 percent was down from 14.1 percent in the prior year period, reflecting the deleveraging effect from the same store sales decline, higher markdowns given the sales underperformance, and ongoing headwinds from increased freight costs that did not begin rising until the second half of 2021. These expense pressures were partially offset by lower incentive and COVID costs.”
“During the second quarter, we repurchased 2.9 million shares of common stock for an aggregate price of $235 million. As previously announced, we expect to buy back $950 million of common stock during fiscal 2022 under our two-year $1.9 billion repurchase program that extends through fiscal 2023.”
Second Half and Updated Fiscal 2022 Guidance
Looking ahead, Rentler commented, “Given our first half results, as well as the increasingly challenging and unpredictable macro-economic landscape and today’s more promotional retail environment, we believe it is prudent to adopt a more conservative outlook for the balance of the year. While we hope to do better, we are now planning third-quarter same-store sales to decline 7 percent to 9 percent versus a strong 14 percent gain last year. For the fourth quarter, same-store sales are forecast to be down 4 percent to 7 percent on top of a 9 percent increase for the same period a year ago.
“If the second half performs in line with these updated sales assumptions, earnings per share for the third quarter are projected to be $0.72 to $0.83 versus $1.09 last year and $1.04 to $1.21 for the fourth quarter, compared to $1.04 in 2021. Based on our first half results and second half guidance, earnings per share for fiscal year 2022 are now planned to be in the range of $3.84 to $4.12 versus $4.87 last year.”
Ross Stores had previously forecast comparable store sales to decline 2 percent to 4 percent for the year with EPS arriving in the range of $4.34 to $4.58.
Rentler concluded, “We are facing a very difficult and uncertain macro-economic environment that we expect will continue to strain our customers’ discretionary spending. Though 2022 will likely remain a challenging year for our company, we believe our value-focused business model and our strong financial position will enable us to manage through these economic pressures and rebound over time.”