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Ross Stores Let Ladies Down in Q1

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Ross

No surprises here: Ross Stores reported first-quarter earnings in line with analyst estimates and the strong performance of fellow off-price retailer TJX Companies, which reported its own numbers Tuesday, but admitted that a snafu in women’s had left a mark.

“Our assortments in ladies apparel were not up to standard, making us less compelling to shop,” Barbara Rentler, chief executive officer, revealed on a conference call with analysts Thursday, noting that the Dublin, California-based company had made some “execution errors” in the transition to spring product. “We had the wrong fabrications and colors, they weren’t appropriate, and our assortment was off course.”

She added, “We’re working to address these issues and fix them as quickly as possible.”

But that was enough to spook investors. Shares (ROST) fell by more than 6 percent in after-hours trading Thursday

Sales at Ross Dress for Less and DD’s Discounts increased 5 percent from $2.9 billion to $3.1 billion in the three months ended Apr. 30, with comparable store sales up 2 percent, compared with a 5 percent gain in the same quarter a year ago.

Earnings per share (EPS) for the first quarter were $0.73, versus $0.69 in the prior year’s period—a 6 percent gain that wasn’t a patch on the 19 percent increase seen in the previous Q1.

“Even though we faced our strongest prior year comparisons, sales performed at the high end of guidance, while earnings per share were slightly above our targeted range,” Rentler said, adding, “Operating margin for the period of 15.4% was down from last year, but slightly above plan, mainly due to higher merchandise margins that partially offset the expected impact from the unfavorable timing of packaway-related costs.”

On a geographical basis, Ross said the Midwest was strong and Texas was better than expected, while store in the Mid-Atlantic region benefited from “favorable weather comparison.” However, California and Florida both performed below the chain’s average, with the latter suffering the most from that glitch in ladies apparel.

Looking ahead, Rentler said she was pleased with the packaway goods purchased in Q1 for Q2 and fall, and that the vendor community is “pretty much open to doing business with us everywhere.”

To that end, Ross said it sees same-store sales increased 1-2 percent in the quarter ending July 30, while full-year earnings per share are expected to be in the range of $2.63 to $2.72. The company also said it expects to add a total of 90 new locations in 2016 and close or relocate about 10 older stores.

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