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Ross Stores Weathered Stormy Ocean Freight Costs in Q4

Ocean freight headwinds hurt fourth quarter results at Ross Stores.

In a Nutshell: “We achieved strong sales results in the fourth quarter despite the negative impact from both the surge in Omicron cases during the peak holiday selling period and continued supply chain congestion,” CEO Barbara Rentler said.

The CEO added that fourth quarter operating margin of 98 percent was down from 2019’s 13.3 percent, mostly due to higher freight, wages and Covid-related costs.

Children’s and men’s performed best over the holidays, she said.

Ross’ board authorized a new two-year stock repurchase program of up to $1.9 billion of common stock through fiscal 2023, replacing the $850 million remaining under the current buyback authorization. The board increased the quarterly cash dividend by 9 percent.

Rentler said consumers are trading down and looking for value, something that will become “more important going forward.”

Rentler believes the company can take advantage of closures and bankruptcies and grow Ross Dress for Less to 2,900 locations, and DD’s Discounts by 100 to a total of 700 locations. About 30 new stores are set to open this year, after adding 60 new stores last year.

CFO Michael Hartshorn said ocean freight costs should come down in the back half. He expects ocean freight costs could stay elevated through most of the year, and potentially rise modestly.

Net Sales: For the three months ended Jan. 29, net sales rose 18 percent to $5.02 billion from $4.25 billion in the year-ago quarter. Comparable store sales rose 9 percent in the current quarter, helped by growth in basket size.

The CEO said inventories were up 23 percent on rising in-transit merchandise due to longer lead times stemming from supply chain bottlenecks.

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For the year, net sales jumped 51 percent to $18.92 billion from $12.53 billion.

Earnings: Net income rose 54 percent in the quarter to $366.8 million, or $1.04 a diluted share, from $238 million, or 67 cents, a year ago.

Wall Street expected adjusted diluted EPS of 97 cents on revenue of $4.96 billion.

For the first quarter ending April 30, the company is guiding comparable store sales down 2 percent to down 4 percent, after taking into account both stimulus benefits and strong pent-up demand a year ago. EPS is expected at 93 cents to 99 cents, impacted by “larger headwinds from higher freight and wage costs early in the year,” Rentler said.

For Fiscal 2022 ending Jan. 28, 2023, the company guided earnings per share in the range of $4.71 to $5.12, with comparable store sales flat to up 3 percent.

For the year, net income was $1.72 billion, or $4.87 a diluted share, from net income of $85.4 million or 24 cents, a year ago.

CEO’s Take: “We operate in an attractive sector of retail and our mission continues to be delivering the best bargains possible to leverage our favorable market position,” Rentler said. “Looking at 2023 and beyond, we are targeting a return to double-digit earnings per share growth, driven by a combination of same store sales gains, operating margin improvement, accelerated new store openings, and our ongoing stock repurchase program.”