Ross Stores CEO Discusses Q3 2010 Results – Earnings Call Transcript
Ross Stores, Inc. (
)
Q3 2010 Earnings Call Transcript
November 18, 2010 11:00 am ET
Executives
Michael Balmuth – Vice Chairman and CEO
John Call – SVP and CFO
Michael O’Sullivan – President and COO
Analysts
Brian Tunick – JPMorgan
Paul Lejuez – Nomura Securities
Laura Champine – Cowen and Company
Marni Shapiro – Retail Tracker
Adrianne Shapira – Goldman Sachs
Kimberly Greenberger – Morgan Stanley
Evren Kopelman – Wells Fargo
David Mann – Johnson Rice
Jeff Klinefelter – Piper Jaffray
Rob Wilson – Tiburon Research
Richard Jaffe – Stifel Nicolaus
Presentation
Operator
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Ross Stores, Inc. Q3 2008 (Qtr End 11/01/08) Earnings Call Transcript
Good morning. Welcome to the Ross Stores third quarter 2010 earnings release conference call. The call will begin with prepared comments by Michael Balmuth, Vice Chairman and Chief Executive Officer, followed by a question-and-answer session. (Operator instructions) As a reminder, ladies and gentlemen, this conference is being recorded today November 18, 2010
At this time, I would like to turn the call over to Mr. Balmuth.
Michael Balmuth
Good morning. Thank you for joining us today. Also on our call are Norman Ferber, Chairman of the Board; Michael O’Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Senior Vice President and Chief Financial Officer; and Bobbi Chaville, Senior Director of Investor Relations.
We’ll begin with a brief review of our third quarter performance followed by our outlook for the remainder of the year. Afterwards, we’ll be happy to respond to any questions you may have.
Before we begin, I want to note that our comments on this call will contain forward-looking statements regarding expectations about future growth and financial results and other matters that are based on management’s current forecast of aspects of the company’s future business.
These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from historical performance or current expectations. These risk factors are detailed in today’s press release and our fiscal 2009 Form 10-K and 2010 Form 10-Qs and 8-Ks on file with the SEC.
Today, we reported third quarter earnings of $1.02, up from $0.84 per share for the 2009 third quarter. These results represent a 21% increase on top of exceptional growth in the prior year, when earnings per share were up 91%. Net earnings for the current year quarter grew 16% to a record $121.4 million, up from $105.1 million last year.
Our third quarter sales increased 7% to $1.874 billion, with comparable store sales up a better than expected 3% on top of an 8% gain in the prior year. For the nine months ended October 30, 2010, earnings per share were $3.26, up from $2.39 for the same period in 2009.
These results represent a 36% increase on top of a robust 52% gain in earnings per share during the first nine months of last year. Year-to-date through October 30, net earnings grew 31% to a record $393 million, up from $299.9 million last year.
Sales for the first nine months of 2010 increased 10% to $5.721 billion with comparable store sales up 6% versus a 5% gain for the same period in 2009. We delivered strong sales and earnings increases in the third quarter and first nine months of 2010 on top of outstanding gains in the prior year. This is especially noteworthy considering the ongoing uncertainty in the macroeconomic and retail environment.
Our third quarter performance was driven by our continued ability to deliver exciting bargains while operating our business on lower inventories as well as much better than expect shortage results.
Dresses and Home were the top performing merchandise categories for the third quarter, both with low double-digit same stores sales increases. Geographic trends were relatively broad-based.
Florida remained the strongest region with low double-digit comparable store sales gains for the third quarter and first nine months. We are pleased to report that sales trends in California improved during the quarter.
Despite ongoing weakness in the housing market and high unemployment, same-store sales in our largest state rose 2% in the third quarter on top of an 8% increase in the prior year. Year-to-date, California is up 3% on top of a 5% gain last year.
For the third quarter and first nine months, profit margins rose to new record levels on top of exceptional gains in the prior year. Earnings before interest and taxes as a percent of sales grew to 10.5% in the quarter for a 60 basis point increase on top of a 385 basis point gain in the same period last year.
Gross margin rose 80 basis points as higher merchandise gross margin, lower distribution costs and leverage on occupancy expenses were partially offset, mainly by higher intensive and freight cost as a percent of sales versus the prior year.
Selling, general and administrative expenses grew 20 basis points mainly due to higher incentive costs as a percent of sales. John will provide some additional details on these operating margin trends in a few minutes.
At the end of the third quarter, total consolidated inventories were up about 3% with average selling store inventories down about 10%. Packaway was about 37% of total inventories compared to 32% at this time last year.
We continue to plan further reductions of in-store inventories with average levels targeted down in the high single-digit percentage range in the fourth quarter compared to 2009.
As we have mentioned on previous calls, our ongoing focus on tight inventory management allows us to maximize the percentage of fresh receipts the customer sees while shopping our stores. It also drives faster inventory turns, fewer markdowns and ultimately higher merchandise gross margins.
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