Retail Stock Under Pressure: Ross Stores, Inc. (NASDAQ: ROST)

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Ross Stores, Inc. (NASDAQ: ROST) stock has been underperforming as compared to its peer stocks. The stock fell over 6.4% in this year to date (Source: finviz.com). The sales saw a slower start in August. The company’s third quarter FY2020, operating margin was of 4.4%, down from 12.4% last year and was negatively affected by the one-time debt refinancing charge, which was equivalent to 640 basis points. The year-over-year margin had declined due to higher COVID-related operating costs in 2020 and the deleveraging effect on expenses throughout the business, from the decline in same-store sales. ROST in the third quarter of FY 20 has reported the adjusted earnings per share of $1.02, while reported 2 percent decline in the adjusted revenue to $3.75 billion in the third quarter of FY 20

 

The late recovery in sales was due to several factors, including an improvement in the merchandise assortment, a later back-to-school season, stronger performance in the larger markets and the return to more normal store hours. In October, the company had refinanced $775 million in senior notes to significantly reduce the annual interest expense and total cash outlays over the life of the debt. Overall, the company reported net income of $131 million for the third quarter compared to $371 million for the same period last year. The company ended the quarter with over $5.2 billion in liquidity, including an unrestricted cash balance of about $4.4 billion and the $800 million revolver that remains available.

Further, at quarter end, total consolidated inventories had declined by 25% from the prior year with average store inventories down 8%. During the period, the company continued to make progress on the distribution capabilities to support peak sales during the holiday selling season.

Pack away levels at third quarter end were 26% of the total, compared to last year’s 39%. For the third quarter, the strongest merchandise areas at Ross, was home, while the Midwest and the Southeast were the best-performing geographic regions. The company had opened 30 Ross and nine dd’s DISCOUNTS locations in the third quarter, which led to completion of the expansion program for 2020. After the planned closing of about 10 existing stores in the fourth quarter, the company anticipates ending the year with 1,585 Ross and 274 dd’s DISCOUNTS locations, for a net increase of 54 for fiscal 2020.

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