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Shoes and Home Goods Hot for Ross in Q4

Ross Stores Inc. said higher basket trends helped it outperform in the fourth quarter, where footwear and homewares got customers buying.

In a Nutshell: “Our fourth quarter sales and earnings results exceeded our guidance due to customers’ positive response to our improved assortments and stronger value offerings,” Barbara Rentler, CEO, told investors in a conference call on Tuesday.

Lower freight and incentive costs helped, but charges for pack-and-hold inventory offset those improvements, she said.

Shoes, home and gift merchandise did well. Florida was the off-pricer’s strongest region, Rentler said.

Home goods sales “slightly” outperformed the chain average,” the apparel also doing well. “The thing that’s part of what really drove home is that home has the highest penetration of gifting and that part of our business performs well,” Rentler said.

Consolidated inventories are down 11 percent.

“We also believe we are well positioned to take advantage of the numerous buying opportunities in the marketplace,” Rentler said, reiterating her belief that the “supply bubble” won’t burst anytime soon.

Inflation is one of the biggest factors in consumer spending right now. “As a result, our shoppers today are seeking even stronger values when visiting our stores,” Rentler said, noting that DD Discounts shows the greatest impact from hard-hit customers.

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“In response, merchants are fine-tuning our assortments with an increased focus on delivering the most competitive bargains available while continuing to adjust our product mix, based on our customers evolving preferences,” she said.

Ross Stores has a game plan in mind.

“We think that the best way to drive sales is for us to continue to focus on value for our customer. That’s really what helped us perform in the fourth quarter,” she said.

Fortunately, there’s plenty of goods floating around the marketplace right now. “We are really highly focused on value and giving our customers the best value possible,” she said.

Ross’ chief operating officer Michael Hartshorn said the company has automated distribution centers and is seeing how technology can optimize store-level operations.

Net Sales: For the fourth quarter ended Jan. 28, net sales rose 4 percent to $5.21 billion from $5.02 billion, as comparable store sales rose 1 percent on top of a 9 percent increase in the same year-ago quarter.

Adam Orvos, executive vice president and CFO, told investors that the increase came from “growth in the size of the average basket as traffic was relatively flat compared to last year.”

He said the company plans to open 75 Ross Dress for Less and 25 DD’s Discounts doors this year.

For the full year, net sales slipped 1 percent to nearly $18.7 billion from $18.92 billion.

Earnings: Net income for the quarter rose 22 percent to $447.0 million, or $1.31 a diluted share, from $366.8 million, or $1.04, a year ago.

Wall Street was looking for adjusted diluted earnings per share of $1.24 on revenue of $5.17 billion.

For the first quarter ending April 29, 2023, the company is projecting earnings per share of 99 cents and $1.05 versus 97 cents a year ago, on flat comps from inflationary pressures.

For the full year ending Jan. 27, 2024, it expects comp store sales for the 52 weeks to come in flat versus a 4 percent decline in Fiscal 2022 and a 13 percent gain in Fiscal 2021. Earnings per share were guided to the range of $4.65 to $4.95 versus $4.38 in Fiscal 2022. The per share guidance is for the 53-week period ending Feb. 3, 2024, and includes an extra week for comparison.

Orvos said projections take into account higher wages and lower ocean freight costs, noting that transportation costs still outpace where they were in 2019.

For the year, net income fell 12 percent to $1.51 billion, or $4.38 a diluted share, from $1.72 billion, or $4.87, a year ago.

CEO’s Take: “Looking ahead, we have significantly increased our focus on strictly controlling inventory and operating expenses throughout the company. We strongly believe that these measures will enable us to maximize our potential for both sales and profit growth in 2023 and beyond,” Rentler said.