Skip to content
    ROST
    Earnings call· Jan 2025(Q4 FY24)

    ROSS STORES, INC. ROST

    Mar 4, 2025 Source

    Executive summary

    Ross Stores Q4 FY24 — Strong Holiday Sales Offset by Softening Trends and Cautious FY25 Outlook

    Ross Stores delivered strong Q4 FY24 results, driven by positive customer response to improved assortments and effective holiday execution, with dd's DISCOUNTS showing particular strength. However, softening sales trends in late January and February, attributed to unseasonable weather and macroeconomic volatility, have led to a cautious outlook for Q1 and full-year FY25, with management planning for potential sales deleverage and continued investment in branded assortments. The company remains committed to returning capital to shareholders through increased dividends and share repurchases.

    Highlights

    5

    • Q4 sales of $5.9 billion, with comparable store sales up 3% on top of a 7% gain last year, exceeding expectations.

    • Full-year FY24 EPS of $6.32, up from $5.56 in FY23, and total sales of $21.1 billion, up from $20.4 billion.

    • dd's DISCOUNTS posted healthy sales gains above Ross, leading to plans to rebuild its store growth pipeline.

    • Board approved a 10% increase in quarterly cash dividend to $0.405 per share.

    • Repurchased 1.7 million shares for $262 million in Q4, with $1.05 billion remaining under authorization for FY25.

    Concerns

    5

    • Q4 EPS of $1.79, down from $1.82 last year, impacted by planned declines in merchandise margin and unfavorable timing of packaway costs.

    • Merchandise margin declined by 85 basis points in Q4 due to increased mix of quality branded assortments.

    • Softening sales trends in late January and February, leading to cautious Q1 FY25 comparable store sales guidance of down 3% to flat.

    • Full-year FY25 comparable store sales projected to be down 1% to up 2% due to macro pressures and consumer confidence.

    • Q1 FY25 operating margin expected to decrease to 11.4%-12.1% from 12.2% last year, reflecting sales deleverage and unfavorable packaway costs.

    Guidance & targets

    21
    CategoryTargetConfidence
    Comparable store sales
    down 3% to flat
    high materiality
    Medium
    Earnings per share
    $1.33 to $1.47
    high materiality
    Medium
    Total sales growth
    down 1% to up 3%
    medium materiality
    Medium
    Operating margin
    11.4% to 12.1%
    high materiality
    Medium
    Merchandise margin
    down slightly
    medium materiality
    Medium
    New store openings
    19
    low materiality
    High
    Net interest income
    $35 million
    low materiality
    High
    Tax rate
    24% to 25%
    low materiality
    High
    Weighted average diluted shares outstanding
    $328 million
    low materiality
    High
    Comparable store sales
    down 1% to up 2%
    high materiality
    Medium
    Earnings per share
    $5.95 to $6.55
    high materiality
    Medium
    Total sales growth
    up 1% to up 5%
    medium materiality
    Medium
    Operating margin
    11.5% to 12.2%
    high materiality
    Medium
    Merchandise margin
    relatively neutral
    medium materiality
    Medium
    New store openings
    90
    low materiality
    High
    Store closures/relocations
    10 to 15
    low materiality
    High
    Net interest income
    $127 million
    low materiality
    High
    Depreciation and amortization expense
    $690 million
    low materiality
    High
    Tax rate
    24% to 25%
    low materiality
    High
    Weighted average diluted shares outstanding
    $325 million
    low materiality
    High
    Capital expenditures
    $855 million
    medium materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    dd's DISCOUNTS
    Posted healthy sales gains, resonating with shoppers due to value and fashion offerings. Encouraged by improved performance in newer markets, planning to rebuild pipeline for expanded growth in the near future.
    Sales gains: healthy (above Ross)New stores added: 14Total stores at year-end: 355
    		————

    Operational metrics

    22
    Net Income
    $587 millionvs $610 million Q4 FY23
    Q4 FY24

    Includes one-time benefit from facility sale, offset by planned declines in merchandise margin and unfavorable timing of packaway-related costs.

    Operating Margin
    12.4%flat to last year
    Q4 FY24

    Gain from facility sale offset by planned declines in merchandise margin and unfavorable timing of packaway-related costs.

    Cost of Goods Sold
    80 bpsdeleveraged
    Q4 FY24
    Merchandise Margin
    85 bpsdeclined
    Q4 FY24

    Due to increased mix of quality branded assortments.

    Occupancy
    45 bpsdeleveraged
    Q4 FY24

    As company anniversaried the extra week last year.

    Distribution Costs
    flat
    Q4 FY24

    Unfavorable timing of packaway-related costs offset improved productivity.

    Domestic Freight
    30 bpsleveraged
    Q4 FY24
    Buying
    20 bpsimproved
    Q4 FY24

    Mainly due to lower incentives.

    SG&A
    80 bpsleveraged
    Q4 FY24

    Primarily due to the facility sale.

    Consolidated Inventories
    up 12%YoY
    end of FY24

    Mainly due to higher planned packaway levels.

    Average Store Inventories
    up 2%YoY
    end of FY24
    Packaway Inventory Mix
    41%vs 40% last year
    end of FY24

    As a percentage of total inventories.

    Shares Repurchased
    1.7 million
    Q4 FY24

    Part of the 2-year $2.1 billion program announced in March 2024.

    Cash and Investments Balance
    $4.7 billion
    end of FY24

    After funding growth and capital needs of the business.

    Quarterly Cash Dividend
    $0.40510% increase
    Q1 FY25

    To be payable on March 31, 2025, to stockholders of record as of March 18, 2025.

    EPS Benefit from Facility Sale
    $0.14
    FY24

    One-time benefit related to the sale of a packaway facility.

    Sales Benefit from 53rd Week
    $308 million
    FY23

    Prior year sales and earnings results for Q4 and FY23 included this benefit.

    EPS Benefit from 53rd Week
    $0.20
    FY23

    Prior year sales and earnings results for Q4 and FY23 included this benefit.

    Full-Year Operating Margin
    12.2%
    FY24
    New Store Productivity
    60% to 65%flat YoY
    FY24

    As a percentage of an average store.

    Shrink
    relatively flatto FY23
    FY24

    Physical inventory taken in Q3; did not change forecast.

    Average Unit Retail (AUR)
    slight increase
    Q4 FY24

    Due to how the business mixed out with some of the better branded goods as part of the assortment.

    Industry KPIs

    8
    MetricValueDetails
    Sg a OPEX ratio80 bpsbps
    Comparable sales3%%
    Store count growth2,186stores
    Gross margin drivers—
    Share buyback capital return$262 millionUSD
    Inventory position markdown riskup 12%%
    Same sku like for like inflation—
    Distribution supply chain cost economicsflat

    Risks & headwinds

    6
    Softening sales trends due to macroeconomic and geopolitical volatilityLate January and February, continuing into Q1 FY25

    Q1 FY25 comparable store sales down 3% to flat; FY25 comparable store sales down 1% to up 2%

    Mitigation: Cautious approach in forecasting, flexible business model, focus on strong execution of key initiatives, potential for increased closeout merchandise opportunities.

    Unseasonable weather negatively impacting customer trafficLate January and February

    Contributed to Q1 FY25 sales softness

    Mitigation: Believed to be transitory; management expects consumer re-engagement as weather improves.

    Planned declines in merchandise marginQ4 FY24, Q1 FY25

    Merchandise margin declined by 85 bps in Q4 FY24; expected to be down slightly in Q1 FY25

    Mitigation: Strategic investment in quality branded assortments; FY25 merchandise margin expected to be relatively neutral overall.

    Unfavorable timing of packaway-related costsQ4 FY24, Q1 FY25

    Impacted Q4 FY24 operating margin; expected to impact Q1 FY25 operating margin

    Mitigation: Offset by other factors in Q4; part of expected decrease in Q1 operating margin.

    Domestic freight headwindQ1 FY25 and full year FY25

    Expected headwind

    Mitigation: Monitoring fuel prices and contract renewals; off-price model can benefit from disruptions.

    Impact of tariffsQ1 FY25

    Some impact of tariffs built into Q1 merchandise margin

    Mitigation: Negotiating costs, mixing business differently, potential for closeout opportunities from supply chain disruption.

    What to watch in Q1 FY25

    5

    Comparable store sales trend

    Next quarter (Q1 FY25 results)
    CurrentDown in late Jan/Feb, improving with weather
    TargetWithin Q1 FY25 guidance of down 3% to flat

    Why it matters

    Indicates whether macro pressures🌐 and weather impact🌐s were indeed transitory📎 and if consumer confidence is returning.

    Sales trends began softening later in January and into February. We believe that a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environment has negatively impacted customer traffic.

    Q&A highlights

    6

    What are the new CEO's top strategic priorities, and what are the current sales trends in less weather-impacted regions?

    CEO Jim Conroy plans evolutionary changes, focusing on enhancing store environment and marketing. He noted an inflection point down in February, but trends improved as weather did, suggesting transitory impacts.

    “I think from a merchandising standpoint, it's second to none world-class merchandising team. The stores' organization is extremely efficient and operationally very sound. We probably have some opportunity to enhance our store environment and shopping experience. And then from a marketing standpoint, I'd say it's probably the least developed muscle and least invested in part of the business.”

    asked by Matthew Boss · answered by James Conroy

    2 min read6 chapters

    Detailed Narrative

    01

    CEO Transition and Strategic Priorities

    Jim Conroy, the newly appointed Chief Executive Officer, emphasized continuity with the existing brand and merchandising strategies for both Ross and dd's, stating they are "extremely sound" and worth pursuing. His focus will be on learning the off-price model and making evolutionary changes. He identified opportunities to enhance the store environment and develop the marketing muscle, suggesting these areas are less developed and could benefit from increased investment over time⏳, aiming for cost-neutrality or proven ROI.

    02

    Q4 Performance and Merchandise Trends

    The fourth quarter saw broad-based strength across geographies and merchandise categories, with cosmetics and children's identified as the best-performing areas. Non-apparel businesses generally outperformed apparel and footwear. Footwear, however, was a comp-eroding business for the quarter. Ladies apparel showed nice sequential improvement from Q3 to Q4, aligning with the company's branded strategy, which achieved its target penetration levels for the first time in Q4.

    03

    dd's DISCOUNTS Outperformance and Expansion

    dd's DISCOUNTS consistently posted healthy sales gains above Ross throughout FY24 and in Q4, driven by upgraded fashion and value offerings that resonated with shoppers. Management is particularly encouraged by the sustained improved performance in newer markets, leading to plans to rebuild the pipeline for expanded store growth. While it takes time to restart the pipeline, increased growth for dd's is anticipated into FY26.

    04

    Macroeconomic Headwinds and Cautious Outlook

    Sales trends softened in late January and February, attributed to a combination of unseasonable weather and heightened volatility in the macroeconomic and geopolitical environment. This negatively impacted customer traffic and led to a cautious Q1 and full-year FY25 guidance. Management believes some of these challenges may be transitory📎, noting that the off-price model tends to benefit from market dislocations, potentially leading to more closeout merchandise opportunities in future quarters.

    05

    Inventory Management and Buying Environment

    Consolidated inventories were up 12% at year-end, primarily due to higher planned packaway levels, which constituted 41% of total inventories compared to 40% last year. Average store inventories were up 2%. Management noted an improving buying environment with increasing closeout opportunities from mainstream retailers experiencing softness, store closures, and supply chain disruption🌐s, which is seen as beneficial for adding excitement and margin-accretive goods.

    06

    Capital Allocation and Investments

    Ross Stores repurchased 1.7 million shares for $262 million in Q4 FY24, with $1.05 billion remaining under the current authorization for FY25. The Board approved a 10% increase in the quarterly cash dividend to $0.405 per share. FY25 capital expenditures are planned at $855 million, with most of the step-up from FY24 allocated to supply chain investments, including the construction of a ninth facility, and merchant process improvements such as new tools and enterprise-wide data.

    AI-generated summary of the company’s earnings call. Not investment advice.