Ross Stores reported same-store sales grew 9 percent in the fourth quarter but earnings declined due to higher freight, wages and COVID-related costs. The off-pricer also announced a new two-year $1.9 billion stock repurchase program, increased its quarterly dividend and raised its long-term growth potential.

Earnings per share for the 13 weeks ended January 29, 2022 were $1.04 on a net income of $367 million. This compares to $1.28 per share on net earnings of $456 million for the 13 weeks ended February 1, 2020. Sales for the fourth quarter of 2021 were $5.0 billion, with comparable-store sales up 9 percent versus the same period in 2019.

For the 2021 fiscal year ended January 29, 2022, earnings per share were $4.87 on net income of $1.72 billion, up from $4.60 per share on net earnings of $1.66 billion in 2019. Total sales for 2021 grew 18 percent to $18.9 billion, up from $16.0 billion in fiscal 2019, with comparable-store sales up 13 percent.

Barbara Rentler, CEO, commented, “We achieved strong sales results in the fourth quarter despite the negative impact from both the surge in Omicron cases during the peak holiday selling period and continued supply chain congestion. Fourth quarter operating margin of 9.8 percent was down from 13.3 percent in 2019 mainly due to ongoing headwinds from higher freight, wages, and COVID-related costs.”

Board Authorizes $1.9 Billion Stock Repurchase Program and Increases Dividend
The company’s Board of Directors recently authorized a new two-year program to repurchase up to $1.9 billion of common stock through fiscal 2023. This authorization replaces the $850 million remaining under the prior buyback authorization announced in May 2021. A total of $650 million of common stock was repurchased under the previous program in fiscal 2021. The Board also increased the quarterly cash dividend by 9 percent to $0.31 per share to be payable on March 31, 2022 to stockholders of record as of March 15, 2022.

In commenting on these actions, Rentler noted, “The increases to our stock repurchase and dividend programs reflect our ongoing commitment to enhancing stockholder value and returns, confidence in our projected future cash flows as well as the strength of our balance sheet.”

Fiscal 2022 Outlook
Looking ahead, Rentler commented, “Fiscal 2022 is extremely difficult to predict, especially early in the year. In addition to the ongoing Omicron surge that began just before Christmas, we are up against last year’s record government stimulus and the lifting of COVID restrictions that led to unprecedented consumer demand which fueled extraordinary sales gains in the Spring of 2021.

“For the 52 weeks ending January 28, 2023, comparable store sales are forecast to be flat to up 3 percent versus a 13 percent gain in fiscal 2021. Earnings per share for fiscal 2022 are projected to be $4.71 to $5.12 compared to $4.87 in the prior year. This guidance reflects our expectation for sales and profitability to improve as we move through the year.

“While we hope to do better, given the aforementioned stimulus benefits and strong pent-up demand early last year, we are forecasting comparable store sales to be down 2 percent to down 4 percent on top of a 13 percent gain for the 13 weeks ended May 1, 2021. Earnings per share for the 2022 first quarter are projected to be $0.93 to $0.99 versus $1.34 in the prior-year period, as we face larger headwinds from higher freight and wage costs early in the year,” Rentler concluded.

Company Raises Targets for Long-Term Store Potential and EPS Growth
Turning to the longer term, Rentler noted, “Given consumers’ increased focus on value and convenience, we have seen favorable sales trends in both our new and in-fill market stores. As a result, along with the large number of retail closures and bankruptcies over the last several years, we now believe that Ross Dress for Less can expand to about 2,900 locations, up from our prior target of 2,400, and that dd’s DISCOUNTS can eventually become a chain of approximately 700 stores, versus our previous projection of 600. This represents an overall 20 percent increase in our forecasted potential to 3,600 stores, providing a substantial runway for expansion relative to our year-end store count of 1,923 locations.”

She added, “We operate in an attractive sector of retail and our mission continues to be delivering the best bargains possible to leverage our favorable market position. Looking at 2023 and beyond, we are targeting a return to double-digit earnings per share growth, driven by a combination of same-store sales gains, operating margin improvement, accelerated new store openings, and our ongoing stock repurchase program.”

Rentler concluded, “We especially want to thank our talented Associates throughout the company whose dedication has enabled us to successfully navigate through the unprecedented challenges of the past two years. We believe their continued efforts will allow us to capitalize on our opportunities for future sales and earnings growth while also delivering strong returns to stockholders over the coming years.”

Photo courtesy Ross/Getty