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Ross Trims Planned Store Openings as Q1 Losses Top $300 Million

On the same day chief competitor TJX Companies said it incurred an $887 million first quarter net loss amid COVID-19-related store shutdowns, Ross Stores reported a similar fate, with net losses for the 2020 first quarter reaching $306 million.

The off-price retailer, which closed all stores on March 20 as the pandemic spread, saw its first quarterly operating loss in more than 30 years.

In a Nutshell: Ross Stores had planned to open 100 new stores this year, but that number has since been reduced to 66, CEO Barbara Rentler said during the company earnings call. In February and March, the company opened 19 Ross and seven dd’s Discounts stores. Ross Stores will not open new stores in the current quarter, and does not expect to open new stores until the fall.

On May 14, Ross Stores began a phased process of reopening its Ross Dress for Less and dd’s Discounts stores on a market by market basis, following a review of current guidance from health officials and advisors, as well as federal, state and local governments. Approximately 700 of its 1,832 stores have since reopened, with the remaining stores and all distribution centers expected to be reopened over the coming weeks.

Ross has created one-way shopping aisles, installed plexiglass cashier shields and limited the number of customers in stores as part of safety measures to further prevent the spread of COVID-19.

Because Ross Stores doesn’t have an e-commerce operation, when the off-price retailer shuttered its stores, it conceded that it would no longer be generating any revenue until stores reopened.

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Earlier this month, Ross entered a new, unsecured 364-day credit agreement administered by Bank of America, which gives the off-price retailer the ability to borrow up to $500 million in that time frame. In March, the retailer had drawn down $800 million under its existing credit facility to build up cash reserves, like many other retailers did when the pandemic first hit.

To conserve additional cash, Ross Stores is suspending its quarterly dividend, after already halting buybacks. Following the outbreak and temporary store closures, the company also canceled merchandise orders through June 18 to preserve its cash balances, and pushed out the time frame for when it paid vendors.

In total, capital expenditures for Ross in 2020 are now expected to be approximately $420 million, down from an initial guidance of $730 million.

Net Sales: Total first quarter sales were $1.8 billion, down 51.5 percent from $3.8 billion in the prior year and missing Wall Street estimates of $2.04 billion. Given that stores were open for less than seven weeks of the 13-week period, Ross Stores is not reporting comparable store sales.

Earnings: The $306 million first-quarter net loss is a wide disparity from the $421 million in net income generated during the same quarter in 2019. In that 13 weeks, Ross Stores reported a loss of 87 cents per share, versus earnings per share of $1.15 for the prior-year period. The loss was far worse than analyst expectations for earnings growth of 3 cents per share.

Adjusted quarterly earnings losses come out to 29 cents per share. The adjustment excludes a one-time, non-cash inventory valuation charge of $313 million, or 58 cents per share, resulting from the extended period of store closures. The charge reflects the expected total Ross Stores expects to sell below cost in the coming months, chief financial officer Travis Marquette said.

CEO’s Take: Though Rentler highlighted the company’s strong $3 billion in liquidity, she would not comment on projections for the future, with the company scrapping its guidance for the remainder of the year.

Given the lack of visibility created by COVID-19 and the unknown extent of the impact the virus will have on consumer demand and store productivity, we are not providing second quarter and 2020 full year sales and earnings guidance,” Rentler said.