Ross CEO Sees Availability of Product as Favorable and Broad-Based
Ross Stores Inc.’s low-to-moderate income customers are gravitating toward sharper pricing on discretionary goods as inflation continues to impact spending power.
“Cosmetics and children’s were the strongest merchandise areas during the quarter, while geographic performance was broad based,” Barbara Rentler, vice chairman and CEO, said of the Ross Dress for Less banner during a conference call Thursday to investors. She said sales at the DD’s Discounts banner improved as “shoppers responded favorably to the stronger values and fashions offered in stores.”
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For kids, one purchase pattern is buy it and wear it now. She gave as an example denim shorts and long denim, which Rentler said that “they’re actually both performing pretty well.” She explained that parents are buying that “new pair of shorts for my kid to go back to school in,” because they need that one last set.
The CEO also said women’s apparel is a key focus as the off-pricer looks to shift assortments that are more branded as its a key category, one that Rentler described as “critical to the entire business.”
“We keep learning as we’re going, adding a lot of new vendors, trying different values. And so, that’s just going to kind of continue,” she said. In addition, the retailer is also thinking about value in pricing, compared to the out-the-door prices at other retailers. Having more branded products allows Ross to better compare prices and “show really incredible value to the customer, because the value strategy is our market-share strategy,” Rentler said, adding that the retailer will continue with its good, better, best brands because it doesn’t want to alienate any customers.
She also said that availability of product remains favorable and is broad-based. Another plus is the expansion of the retailer’s vendor pool, particularly as some vendors are looking to build out new relationships given their own challenged businesses due to the macro-economic backdrop.
Rentler also said the company is adjusting assortments in new markets as it addresses a more diverse customer base. The company opened 21 new Ross doors and 3 DD’s during the quarter. “We remain on track to open a total of approximately 90 new locations this year, comprised of about 75 Ross and 15 DD’s,” she said.
For the quarter, consolidated inventories were up 8 percent from year-ago levels, with packaway merchandise representing 39 percent of total inventories at quarter end, up from 38 percent last year.
Michael Harshorn, group president and chief operating officer, said home and apparel performed in line with the chain average, while shoes were slightly below as it lapped higher year-ago comparisons.
He added that the company piloted self-checkout in select locations, and introduced new handheld devices for use by store associates to check inventory, take markdowns and manage tasks in stores.
Bank of America Securities analyst Lorraine Hutchinson on Friday reiterated her “Buy” rating on shares of Ross Stores.
“The sharper value strategy across good, better, and best items is drawing in consumers at both Ross and DD’s,” she said, adding that “availability of quality branded inventory remains favorable across categories and the company is expanding its vendor relationships, which will benefit its merchandising capabilities over the long-term.”
The retail analyst said she expects merchandise margin pressures in the near-term as the strategy is to offer sharper pricing to provide better value to customers. However, enhanced productivity that’s driven by leverage on distribution, buying costs and domestic freight improvements, as well as investments in automation, will provide some offsets, she noted.
For the second quarter ended Aug. 2, net income jumped 19.1 percent to $527.1 million, or $1.59 a diluted share, from $446.3 million, or $1.32, a year ago. Net sales rose 7.1 percent to $5.29 billion from $4.93 billion. The retailer said comparable store sales for the quarter was up 4 percent.
For the six months, net income was up 24.2 percent to $1.02 billion, or $3.05 a diluted share, from $817.5 million, or $2.41, a year ago. Net sales gained 7.6 percent to $10.15 billion from $9.43 billion.
“For both the third and fourth quarters, we are planning comparable sales growth of 2 percent to 3 percent on top of 5 percent and 7 percent gains, respectively, in 2023,” Rentler said.
The third quarter earnings per share (EPS) guidance was between $1.35 to $1.41, versus $1.33 in the year-ago quarter, with fourth quarter EPS forecasted at $1.60 to $1.67 versus $1.82 a year ago. For the full year, ending Feb. 2, 2025, the retailer guided EPS to the range of $6.00 to $6.13, versus $5.56 in 2023. Year-ago comparisons include a 20-cent benefit for the fourth quarter and full-year from an extra 53rd week.