Shares of Ross Stores ( ROST) fell Wednesday after the company said second-quarter profit dropped by almost half due in part to problems with a new merchandising system.

Further, the company reportedly said in a post-earnings conference call that it is operating with less visibility than it has in the past and that results so far in August have been softer than expected.

Ross said earlier Wednesday that it "made progress during the quarter in resolving many of the problems we have experienced with this new system. We continue to make progress addressing the information requirements most important to the buying process and believe that most of these data needs will be addressed in the next few weeks, with some planned to be complete later in the third quarter."

Shares of the company were lately off $1.21, or 5%, at $22.91, approaching their 52-week low of $21.98, reached on Aug. 4. Earlier in the session it seemed investors believed the company had dealt with the problems, as the stock rose about 2%.

Before the bell Wednesday, Ross said it earned $32.6 million, or 22 cents a share, in the three months ended July 31, compared with $54.6 million, or 35 cents a share, in the year-earlier period. Results included a non-cash charge of 7 cents a share from a write-down related to the company's former headquarters and distribution center. Sales in the quarter rose 4% to $1.01 billion, while same-store sales decreased 3%.

Analysts were expecting earnings of 29 cents a share on $1.02 billion in revenue.

"We believe our business in the second quarter was affected by problems associated with our new core merchandising system and the resulting limitations these placed on our ability to identify and respond to changes in customer trends -- especially in what appears recently to be a more difficult retail climate. This situation resulted in below-plan sales and a decline in gross margin," Ross said.

As a result, the Pleasanton, Calif.-based company sees lingering impacts on sales and earnings in the second half of 2004. It still expects to open 80 new stores in the year, however.

The company initially said May 19 that the new merchandising system had created temporary inventory problems, which it expected to hurt sales and margins in the near term. At that time, the company brought down its second-quarter forecast to below the consensus and guided third-quarter earnings to 33 cents to 35 cents a share. Ross has since revised its third-quarter guidance to a profit of 25 cents to 30 cents a share.

In the third quarter, the Wall Street consensus is for a profit of 27 cents a share at Ross, according to Thomson First Call. That would compare with 33 cents a share in the prior-year period.

Looking to the fourth quarter, the company said on Aug. 5 that it expects earnings of 44 cents to 49 cents a share; the analyst consensus is 46 cents a share. Ross earned 48 cents a share in the fourth quarter last year.

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