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Why Ross Is Having Trouble Getting Inventory Into Stores

Ross Stores Inc. is still struggling to get more inventory into stores.

In a Nutshell: The off-pricer reported second-quarter results that were better than expected, but said that while buying opportunities are available, there are still gaps in what can be bought for the stores. Moreover, the company is planning conservatively as uncertainty around the coronavirus pandemic could potentially re-close stores and distribution centers, CEO Barbara Rentler told Wall Street analysts.

“There’s a lot of supply out there, just not as consistently across the merchandise areas. We believe this creates opportunity in some areas and gaps in others,” she said on the company’s quarterly conference call. In hindsight, buyers probably could have started “buying a little bit sooner than we did,” instead of now chasing opportunities for both packaways and to flow into the stores, she added. Pack-and-hold product helped bring goods into the stores to bolster depleted inventory levels.

As for the quarter, Rentler said comparable stores sales were impacted by a number of factors. Sales were ahead of conservative plans during the initial store reopenings as the company benefitted from pent-up demand and aggressive markdowns to clear aged inventory. But in the weeks that followed, trends were negatively impacted from depleted store inventory levels as the company was ramping up buying and distribution capabilities, Rentler said.

The CEO also expects the promotional environment to continue given that competitors are still trying to clear out excess inventory or figuring out store closures and bankruptcies.

Ross saw sales turn “significantly down” in the quarter as the infection rate surged in California, Florida, Texas and Arizona, four states representing about 50 percent of its store base.

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Addressing depleted store inventory, Michael J. Hartshorn, group president and chief operating officer, said Ross reopened distribution centers after stores, due to varying government restrictions in California and Pennsylvania, highlighting warehouse staffing challenges. Since then, the off-price chain stepped up wages and incentives, and expects to “quickly ramp up to peak capacity over the next few months.”

Net Sales: For the quarter ended Aug. 1, net sales fell 40.7 percent to $2.68 billion from $4.53 billion. The company said comparable sales were down 12 percent for reopened stores from the date of their reopening to the end of the fiscal quarter.

The retailer operates stores under the Ross Dress for Less and DD’s Discounts nameplates. Most of its stores were operating again by the end of June.

For the six months, net sales fell 41.8 percent to $4.53 billion from $7.78 billion.

Earnings: The company posted net income of $22.0 million, or 6 cents a diluted share, versus net income of $412.7 million, or $1.14, in the year-ago quarter.

Wall Street was expecting an adjusted diluted loss of 26 cents on revenue of $2.47 billion.

For the six months, the net loss was $283.8 million, or 81 cents a diluted share, against net income of $833.9 million, or $2.29, in the comparable year-ago period.

CEO’s Take: “As we move into the third quarter, trends have not materially changed from the second quarter with comparable store sales for the first two and a half weeks trending down mid-teens versus last year. There remains significant uncertainty on how the pandemic will continue to evolve and affect consumer demand and the economy, and the potential exists for additional government mandated shutdowns if Covid-19 cases remain elevated or further increase. Given these risks, we will continue to plan and manage our business very cautiously,” Rentler said.