Q4 2021 Ross Stores Inc Earnings Call

March 1, 2022

Good afternoon and welcome to the Ross Stores fourth quarter and fiscal year 2021 earnings release conference call. The call will begin with prepared comments by management followed by your question and answer session. At this time all participants are in listen-only mode.

To ask a question during the session you will need to press star one on your telephone. If you require any further assistance please press star zero. Please be advised that today's call is being recorded. Before we get started on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future [performance].

And financial results, including sales and earnings forecasts, new store openings, COVID-19 related costs and other matters that are based on the company's current forecast of aspects of [its future business].

These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance.

Current expectations. With factors that are included in today's press release, and the company's fiscal 2020 Form 10-K, and fiscal 2021 form 10, Qs and 8-K on file with the SEC. Now I would like to turn the call over to Barbara Rentler, Chief Executive Officer.

Good afternoon.

Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer, Adam Orvos, Executive Vice President and Chief Financial Officer, and Betty Chen, Vice President Investor Relations.

We will begin our call today with a review of our fourth quarter and 2021 performance.

Followed by our outlook for '22 and the longer term.

Afterwards, we'll be happy to respond to any questions you may have.

As noted in today's press release, we achieved strong sales results in the fourth quarter. Despite the negative impact from both the surgeon Omicron cases during the peak holiday selling period and continued supply chain congestion.

Earnings per share for the 13 weeks ended January 29th, 2022 were $1.4 on net income of $367 million.

This compared to $1.28 per share on net earnings of $456 million for the 13 weeks ended February 1st, 2020.

Total sales for the fourth quarter were $5 billion with comparable-store sales up 9% versus the same period in 2019.

For the 2021 fiscal year earnings per share were $4.87.

A net income of $1,723,000,000 up from $4.60 per share on net earnings of $1,661,000,000 in 2019.

Total sales for 2021 rose 18% to $18.9 billion with comparable-store sales up 13%.

Now, let's turn to additional details on our fourth quarter results.

For the holiday selling period, the best performing larger merchandise areas for children's and men's while the Midwest and Southeast were the strongest regions.

Similar to Ross [DCs] discount trends remained solid during the period.

However, their profitability was also negatively impacted by cost pressures related to freight wages in COVID-19.

At quarter end total consolidated inventories were up 23% versus 2019.

Mainly from an increase in in-transit merchandise due to longer lead time from the industry-wide supply chain bottlenecks.

Average store inventories were down slightly versus 2019, while pack away merchandise represented 40% of total inventories versus 46% two years ago.

As noted in today's release, we are pleased to report that our board recently authorized a new two-year program to repurchase up to $1.9 billion.

Of our common stock through fiscal 2023.

This authorization replaces the $850 million remaining under the prior buyback we announced in May of last year.

A total of $650 million of common stock was repurchased under the previous program in fiscal 2021.

The board also increased our quarterly cash dividend by 9% to 31 cents per share to be payable on March 31st, 2022 to stockholders of record as of March 15th 2022.

The increases to our stock repurchase and dividend programs reflect our ongoing commitment to enhancing stockholder value and returns as well as our confidence in the strength of our balance sheet and projected future cash flows.

Now Adam will provide further details on our fourth-quarter results and additional color on our outlook for fiscal 2022.

Thank you, Barbara. As previously mentioned, our comparable store sales increased 9% for the quarter.

This gain was driven by growth in the size of the average basket, partially offset by a decline in transactions.

Fourth-quarter operating margin of 9.8% was down 350 basis points from 13.3% in 2019, mainly due to ongoing expense headwinds.

Cost of goods sold increased 210 basis points due to a combination of factors.

Domestic freight rose 100 basis points and distribution cost increased 70 basis points, primarily due to the previously mentioned supply chain challenges in addition to higher wages.

Merchandise margin declined 50 basis points due to higher ocean freight cost while buying expenses grew 20 basis points.

Occupancy leveraged 30 basis points on higher sales volume.

SG&A for the period rose 140 basis points again due to pressure from the holiday-related pay incentives plus higher wages and COVID-19 costs.

Total net COVID-19 related expenses for the quarter were approximately 35 basis points with a higher impact to SG&A and cost of goods sold.

Now, let's discuss our outlook for fiscal 2022.

As Barbara noted in our press release, 2022 is a difficult year to predict for numerous reasons. We were up against last year's record government stimulus and the lifting of covered restrictions that led to unprecedented consumer demand, which fueled extraordinary sales gains in the spring of 2021.

In addition, we continue to face industry-wide supply chain headwinds as well as external risks from the effects of inflation, both on consumer demand and on cost within our business.

As a result comparable store sales for the 52 weeks ending January 28th, 2023 are planned to be flat to up 3% versus a 13% gain in 2021.

Earnings per share for 2022 are projected to be $4.71 to $5.12.

Compared to $4.87 in 2021.

This reflects our expectations for sales and profitability to improve as we move through the year given the substantial cost increases we incurred in the fall of 2021.

Our guidance assumptions for the 2022 year include total sales are forecast to grow by 2% to 6%.

We plan to return to our more normal opening cadence of 100 new locations in 2022 comprised of about 75 Ross and 25 Dd's discounts. As usual, we expect to close about 10 older stores.

Operating margin for the full year is planned to be in the 11.6% to 12.1% range down slightly from 2021 due to deleveraging on lower same-store sales gains and again ongoing expense headwinds, especially in the first half of 2022.

Net interest expense is estimated to be $70 million.

Depreciation and amortization expense inclusive of stock based amortization is forecast to be about $560 million for the year.

The tax rate is projected to be about 24% to 25%.

And diluted shares outstanding are expected to be approximately $348 million.

In addition, capital expenditures for 2022 are planned to be approximately $800 million.

This outweigh will fund further investments in our supply chain to support long term growth and in technology to increase efficiencies throughout the business in order to maximize our prospects to capture profitable market share going forward.

Let's now turn to our guidance for the first quarter.

In addition to the aforementioned stimulus benefits and strong pent up demand early last year. We also faced larger headwinds from higher freight and wage costs early in the year.

As a result, we are forecasting comparable store sales for the 13 weeks ending April 30th, 2022 to be down to the down 4% on top of a 13% gain for the 13 weeks ended May 1st, 2021.

Earnings per share for the 2022 first quarter are projected to be 93 cents to 99 cents.

99 <unk>.

Versus $1.34 in the prior year period.

The operating statement assumptions that support our first quarter guidance includes the following.

<unk> statement assumptions that support our first quarter guidance includes the following.

Total sales are forecast to be down 2% to up 1% versus last year's first quarter.

We plan to add 30 new stores, consisting of 22 Ross and eight [DDs] discounts during the period.

We project first-quarter operating margin to be 10.2% to 10.6% compared to 14.2% last year.

The expected decline reflects the deleveraging effect from the negative same store sales assumption as well as ongoing expense pressure from freight and wage costs early in the year.

Net interest expense is estimated to be $19 million, our tax rate is expected to be approximately 25%.

And diluted shares are forecast to be about $350 million.

Now I will turn the call back to Barbara Rentler for closing comments.

Thank you, Adam.

As mentioned in our press release, giving consumers increased focus on value and convenience, we have seen favorable sales trends in both our new and infill market stores.

As a result, along with the large number of retail closures and bankruptcies over the last several years, we now believe that Ross dress for less can expand to about 2,900 locations up from our prior target of 2,400 and that Dd's discounts can eventually become a chain of approximately 700 stores versus our previous projection of 600.

Rejection of 600.

This represents an overall 20% increase in our forecast the potential to 3,600 stores, providing substantial runway for expansion relative to our year-end store count of nine 723 locations.

We operate in attractive sector of retail and our mission continues to be delivering the best bargains possible to leverage our favorable market position.

Looking at 2023 and beyond, we are targeting a return to double-digit earnings per growth driven by a combination of same-store sales gains.

Operating margin improvement, accelerated new store openings and our ongoing stock repurchase program.

In closing, we especially want to thank our approximately 100,000 talented associates throughout the company.

Whose dedication has enabled us to successfully navigate through the unprecedented challenges of the past two years.

We believe their continued efforts will enable us to capitalize on our opportunities for future sales and earnings growth. While also delivering strong returns to stockholders over the coming years.

At this point, we'd like to open up the call and respond to any questions you may have.

As a reminder, if you have a question at this time please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue press the pound key. We kindly request that you limit your questions to one only. Thank you. Once again that's star one to ask a question. Your first question comes from the line of

Kimberly Greenberger with Morgan Stanley. Please go ahead.

Okay, great. Thank you so much.

I wanted to just ask about the guidance here for Q1.

And if you have seen perhaps a better start to the quarter, but are expecting deceleration as we get through the stimulus lap I'm just wondering how you're planning the quarter.

And then if I could just sneak one more in. I just wanted to ask Barbara about what you're seeing in terms of inventory availability in the market.

And whether you have been able to capitalize on perhaps some of the supply chain volatility that's causing.

<unk> been able to capitalize on perhaps some of the supply chain volatility that's causing.

Late deliveries elsewhere. Thanks so much.

Kimberly. Hi, I'll start with the first-quarter guidance, it's Michael Hartshorn.

First quarter last year, we saw a significant acceleration in March and April last year.

As a reminder, the government stimulus hit in the.

Started being dispersed to taxpayers in the third week.

We're planning around that with our guidance.

Around that with our guidance.

We had a slower start to the year last year, and then had a significant acceleration.

As we move through the quarter.

And then as it pertains, Kimberly, to availability.

There is definitely availability, but what I would say is it's not consistent across all merchandise departments and classifications.

As goods come in from the supply chain congestion and there's issues.

It's not always had as broad based in every business, but with that yes, I would say we've been able to capitalize on the on the volatility in the supply chain just given our increase in pack away how much it's gone up in the last in the last few months.

And we see more potential opportunities in front of us from closeout. There's a lot of that merchandise that vendors are still moving. It is not necessarily even in the country.

Great. Thank you so much.

Thank you. Your next question comes from the line of Mark Altschwager with Baird. Please go ahead.

Good afternoon, and thanks for taking my question. So with the inflationary backdrop getting tougher, I was hoping you could give us some perspective on how your customer has responded to the inflation in the past.

As you're planning for the spring season, how are you thinking about the share gain opportunity as consumers seek value versus the risk of a near term pullback in spending as consumers digest some of the price hikes.

Price hikes.

In essentials categories. Thanks.

Hi. Obviously, we don't have it.

Obviously, we don't have it.

It's been 40 years since the US has seen this type of inflation. So we don't have a ton of experience on how the customer will react.

So I'd be speculating as inflation appears at this point to be with us for a while. In general, I'd say the consumer.

seems to be healthy coming into the year, given higher wages and savings. But obviously, with this level of inflation throughout the economy, they're going to have to make choices, how and where they spend their money and it's highly likely the consumer will be seeking value and that would be positive for us.

Thank you. Your next question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Great. Thanks, and congrats on a nice quarter.

So Barbara, maybe could you elaborate on the behavioral changes that you cited tied to value and convenience.

You saw this potentially accelerates how you think the models positioned. And then just on the profitability front.

As you cited in 2023 and moving forward to operating margin improvement. How best to think about the drivers of that as we think about the return to double-digit earnings growth annually going forward?

[inaudible]

The way, we're thinking about this year.

I will just go through the components of expenses.

And then talk through the long term model.

Overall, like everyone in the US economy, we're seeing cost inflation throughout the business. For us, it's most acutely felt in transportation, both domestic and ocean freight markets and also on the wage front.

In those three areas.

We have very good line of sight on ocean freight and we know that they will remain elevated through 2022.

On the domestic freight, we don't expect the same type of headwind on core domestic freight, although we do expect especially with the current

Geopolitics, we do expect volatility in fuel related costs.

And then on wages with low unemployment rates. The overall labor market continues to be very tight.

Although the warehousing labor market has been the most competitive over the last year.

All that said, we believe we are well positioned to start the year, especially given the wage actions we took in the back half of 2021.

On the long term model.

Given our market share opportunity with the consumers' heightened focus on value and convenience.

And given the fact that we are facing less brick and mortar competition.

We believe we have a market share opportunity going forward.

So looking into 2023.

<unk>.

As you mentioned, we're targeting double-digit earnings per share growth. And the model or the formula looks very similar to what it looked like prior to the pandemic and that's a combination of new store growth around 5%.

Comp sales of 3% to 4% with EBIT margin expansion at the high end of that range and with the stock repurchase program.

That adds up to the double digit EPS growth.

Thank you. Your next question comes from the lineup Chuck Grom with Gordon Haskett. Please go ahead.

Hey. Thank you very much.

Earlier today's call spoke to an improving traffic picture in the month of February.

And improving traffic picture in the month of February.

And also noted that they've begun to see some trade down in certain categories, suggesting that that's a focus on value that you guys are suggesting is actually [just started to be gone.] So I was just curious if you've seen that.

Thus far in and how that bodes for the balance of the year.

We wouldn't comment on intra quarter.

Trends for us.

For us.

Obviously, the latest information we could talk about it.

Is in January what we did see during the quarter as omicron spike surged.

<unk>.

Right before Christmas, we did see a falloff on traffic, but the customer.

With their fewer trips, but more per transaction as we progress.

The remainder of the quarter.

And the focus on value. Our customers have always been focused on values, but as the world is evolving and there is inflation, we actually feel we have an opportunity to gain a trade down customer at the same time. So, you know, value has always been critical for us and it's something the merchants are constantly watching and evaluating.

Especially as retails have gone up in the outside world understanding where our price-value relationship is with everything. So value is as critical as always and I will just be more important going forward.

Retails have gone up in the outside world understanding where our price value relationship is with everything so value value is as critical as always and I will just be more important going forward.

Thank you.

Thank you. Your next question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Thanks. Good afternoon, just following up on that. You had discussed last quarter some limited pricing actions in certain categories. Can you update us on the success of that and if you plan to continue to broaden that out for more of the store?

Sure.

We have put in a strategic process, where we actually go in.

A strategic process, where we actually go in <unk>.

And the buyers are constantly assessing the market to understand pricing and where they're where potentially opportunities to increase that pricing and we started that last quarter and a continued through this quarter and the average price per SKU with up somewhat during the quarter.

The way we're looking at it is we've had successes in many areas now compared to where we were. And we are watching it and evaluating it and I would say being cautious about moving the needle, based off of where we sit in the food chain so were evolving.

And testing in certain in certain commodities not even testing by it in certain commodities, where it's been successful, but I think the most important thing for us to remember is that you know.

Value to our customer.

That real definition for her is the appropriate separation of price between ourselves the mainstream retail so we'll continue to do that.

And we'll watch things as they evolve and move on from there.

Thank you.

Thank you. Our next question comes from the line of Michael Binetti with Credit Suisse. Please go ahead.

Hey, guys. Thanks for all the information here. Just to follow that a little bit. I mean, it does seem, I know at first you're fairly resistant to talking about AUR increases, but I guess two quarters have gone by now and the rest of the world is going to be taking some pretty meaningful price increases. Do you see the opportunity improving versus where

one and two quarters ago as far as the ability to take price? And I guess also as you look through the store. Are you starting to see any evidence of a new customer coming in that would point to evidence to you of a trade down? I know during the great recession was a long time ago now, but I know you guys benefited from a lot of customers.

coming in from channels like Department store and specialty apparel. I'm wondering if you're seeing any evidence that among the new customers coming in.

Well, Michael. First, let's talk about the pricing. So right, for the last two quarters, we've really been watching it, we've got a process in place we are watching the retails move

in our competition in all types of competition because the merchants are studying that.

And where we think we have that opportunity and we can still offer unbelievable value to the customer we're taking it.

If we don't feel like we can offer that value to her at this point, we're not taking it but I would also say is it's kind of hard to predict where mainstream retail so be in the future and what and what theyre going to do because.

Prices can go up and go up and go up and they might go up until they don't work at some point.

In a traditional retailer can compete Pos at any moment in time. So we're trying to really manage our way through giving the customer great value increasingly AUR, where its appropriate and really making sure that we balance through where the future could go in terms of you know.

Potential <unk> at some point in time, so there's a lot of variables, which is why we have which is why we have processes in place and we're doing it strategically, but where we have where we have done strategically and continue to offer value to customer great values. It is working.

And then in terms of.

Understanding of the trade down customer I think it's kind of hard to say, if you're asking from specific types of products or retails I wouldn't say, we've seen anything specific along those lines.

Hey that were that were getting a trade desk customer at this point.

But with inflation continuing.

We think that that would be a logical conclusion that over time that we could potentially pick up additional market share.

Thanks, a lot.

Thank you. Your next question comes from the line Marni Shapiro with retail tracker. Please go ahead.

Hey, guys.

I have just a quick follow up on that.

The pricing question again I'm sorry.

But are you able to take prices up with Dd's I know those prices tend to be a little bit lower on the customer a little bit more sensitive.

And then if you could also just talk about.

Past this year kind of longer term.

You said there is.

Change out there in bricks and mortar fewer competitors.

Potentially meaning a healthier retail environment in general.

Is there an opportunity for you guys to push up the food chain, a little bit with some better brands and some.

Changes to the assortment, just a little bit, especially at Ross stores.

Okay.

Two things so with Didi.

We have the customer is absolutely price sensitive and had lower price points, but indeed is we're running the same process. We're doing at Ross were studying the merchants are understanding is theyre understanding values because a lot of the competition for dd's as mass market and a lot of those retails have gone up and so we're running the same.

Assets in both in both companies to make sure that we have real sides around it we can understand it and make the right decisions and.

<unk> has also had success in some areas where they have tried it so I would say both companies. It it's kind of you know.

Ongoing process and it'll be the same process that will that will you know.

We continue.

In terms of.

Longer you're saying an assortment strategy.

Could be could be trade up into more better brands and and.

But I think our better brand strategy that we have we're comfortable with we continue to test and try better brand what the.

So I would think we would continue to do that and then give her an offer her what she what she wants.

As it stands today, what you know.

When it comes to brands and supply as you know.

It can also peaking right.

No, especially I'm better brands it can it can.

It can be a lot and they can send a contemporary they can come back up. So I think we're always looking to try to increase our brand strategy and try to offer the customer the best possible products and values that we can so that process would continue with over time, there are more opportunities in the customer with responding we would we would continue to to shifting assortments based on the cuts.

<unk> response.

Great that makes a lot of sense and best of luck for the spring season.

Thank you.

Yes.

Thank you. Your next question comes from the line of Beth Reed with Truest Securities. Please go ahead.

Hi, Good afternoon, I wanted to ask about the lower income consumer.

Any changes in purchasing patterns related to specific customer cohort or any color on trends at Ross versus dd's. Thank you.

Yeah.

I wouldn't make any callouts Ross versus Dd's Dd's performance has been.

In line.

Ross actually performed better with government stimulus earlier in the year, but.

Has maintained levels that are similar and then.

In terms of changes there are just so many factors.

That.

Are happening with the consumer whether it's COVID-19 related whether it's inflation whether it's.

All the other things we're seeing.

It would be hard to parse that specifically out in their behavior.

Related to income factors.

Thank you. Your next question comes from the line of Dana Telsey with Telsey Advisory Group. Please go ahead.

Hi, Good afternoon, everyone. As you think about the expanded opportunity for new store openings at both businesses any adjustments in size that you're making how are you thinking about the regions, where where youre going to an expanding into and any framework. This past fourth quarter of what you saw.

The region, how it was different by brand. Thank you.

Yeah.

On on region.

<unk> performance, what we saw in.

In the fourth quarter as we said in the commentary.

The top top performing regions.

The southeast and the Midwest and then our largest regions.

California, Florida, and Texas, Texas was above the chain average in California and Florida.

Slightly below but in terms of how we're thinking about long term store potential.

What gives us confidence in.

That is we as we do every year, we look at research on the store potential.

And there's a couple of factors.

That are important first of all but more broadly than consumers focus on value and convenience.

Brick and mortar retail closures, but also the changing traffic patterns for evolving customer.

Behavior.

Post COVID-19 or ability to cluster stores together in high density and high volume trade areas.

We've had success in our smaller markets and then last but not least we have a favorable growth trends in our targeted demographic. So those are the changes that gives us confidence to increase the store count potential that 3600 locations.

Thank you.

Thank you. Your next question comes from the lineup Laura Champine with loop capital. Please go ahead.

Thanks for taking my question, it's about the long term growth algorithm that you're laying out today and it's more philosophical like why is now we're going into our third year, where the comparables aren't exactly likely to live up to their name why is now the right time to lay out this long term.

Growth algorithm and what gives you the confidence.

Confidence that.

You can put up sustainable.

Comp growth, what kind of a macro do you need to hit your goals.

Well I'd say number one.

Laura is what we've talked about is given the customers' continued focus on value and convenience we're in the right sector of retail.

And we think we have a large market share.

Opportunity ahead of us.

Uh huh.

I think this is the first time in 2022 was a difficult year to predict but.

We think we can grow market share and we think we have the strategies in place to be able to do that.

If I can get a quick follow on will the growth I think what I heard was was.

Store growth of about 5% would that push your capex in the out years up to more like four 5% of sales compared to the 335% you have been running historically.

There's a couple of factors that go into the Capex certainly one of the most important is new store growth, but it can get choppy with our distribution center capital is where.

As last year, we added a new distribution center that is opening earlier this year.

So it can get a bit choppy.

But going forward I think it remains at these these levels maybe slightly up.

In future years based on distributions.

Center capacity growth.

Got it thank you.

Thank you. Your next question comes from the lineup John Kernan with Cowen. Please go ahead.

Good afternoon.

And thanks for taking my question.

Freight inflation and wage inflation isn't the only cost inflation out there product costs are higher let's see outlook for merchandise margin this year and long term.

John I'll jump in on that.

Consistent with the prior quarters in 2021 merchandize margin was strong without ocean freight it improved every quarter versus LOI.

Versus 2019.

So while we expect ocean freight costs remain elevated through 2022.

To anniversary that initial spike in ocean freight costs in the fall. So as we look forward into 2022 again without the impact of Ocean freight.

We feel like it's healthy and will continue to be strong and grow in 2022, obviously dependent on sales and inventory turns but.

Feel strong about that.

Got it thanks, and just maybe one quick follow up where are.

We in the wage inflation cycle at Ross stores, you seem to imply that you have taking taken wages up both in stores and Dcs, we've heard quite a bit from some of your big box.

Competitors out there about where they are taking wages where are we in the wage inflation cycle here do you feel comfortable where you are now in both Dcs and stores yes.

I would say answer than year to year, we feel good about the changes we made last year, but we.

Our approach has been.

Look at wages on a market by market basis versus a blanket approach, but I would also add there are statutory increases minimum wage increases, California has large bumps year to year and theres. Other large states for us that had minimum wage increases so we're keeping up with those and then we're making.

Decisions on a market by market basis to make sure we can.

Hire great talent across the chain.

Yes.

Got it thank you best of luck.

Okay.

Thank you. Your next question comes from the line if I keep <unk> Wells Fargo. Please go ahead.

Hey, everyone just on I think you do.

On a double L Y basis. It was 100 basis point headwind in Q4 can you just say what that was year over year just to give some context and then if there is any way you could explain what's embedded I think you said the cost should get much better as you move through next fiscal year, but what is the year over year headwind that you're currently anticipating whether its first half full.

Anything there would be helpful would be great.

Yes.

We wouldn't give.

Specifics on the deleverage, we usually would do that after the fact, but.

But as I explained the back half of last year is when we started seeing significant increases in ocean freight as.

As lead times extended.

And we had to pay more in the spot rate market. So.

We're up against that.

We'll be up against that next year. So it will be less of a headwind. This year overall, we expect though that ocean freight will stay elevated all the way through the year and perhaps.

A bit higher.

But the vast headwind.

We'll be in the first half of the year versus the second half of the fear is that mix.

Okay. Thanks.

And we have no further question at this time I will now turn the call over back to Barbara Ventura for closing remarks.

Thank you for joining us today and for your interest in Ross stores.

And this concludes today's conference call you may now disconnect.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Hum.

Yes.

Okay.

Yes.

<unk>.

Okay.

Thanks.

[music].

Okay.

[music].

Okay.

Sure.

Yes.

Okay.

Yeah.

Okay.

[music].

Okay.

Sure.

Yes.

Okay.

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

[music].

Okay.

Yeah.

Okay.

Yeah.

Sure.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Sure.

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

[music].

Yes.

Sure.

Yes.

[music].

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

We do.

Yes.

Okay.

[music].

Sure.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Sure.

Okay.

Sure.

Okay.

[music].

Yes.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

Yeah.

[music].

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

[music].

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Thank you.

Sure.

Great.

Yes.

Thank you.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Yes.

<unk>.

[music].

Yes.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Hum.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

<unk>.

Okay.

[music].

Thank you.

Okay.

[music].

Thank you.

Sure.

Yeah.

Okay.

Yes.

Okay.

Sure.

Okay.

[music].

Okay.

[music].

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Yes.

Good afternoon, and welcome to <unk> fourth quarter and fiscal year 2021 earnings release conference call. The call will begin with prepared comments by management followed by your question and answer session. At this time all participants are in listen only mode.

A question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero. Please be advised that today's call is being recorded before we get started on behalf of Ross source I would like to note that the comments made on this call will contain forward looking statements regarding expectations about future.

And financial results, including sales and earnings forecasts, new store openings covered related costs and other matters that are based on the company's current forecast of aspects of its future business. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance.

Current expectations with factors are included in today's press release, and the company's fiscal 2020 Form 10-K and fiscal 2021 form 10, Qs and eight <unk> on par with the SEC now I would like to turn the call over to Barbara <unk> Chief Executive Officer.

Good afternoon George.

Joining me on our call today are Michael Hartshorn Group, President and Chief Operating Officer, Adam <unk>, Executive Vice President and Chief Financial Officer, and Betty Chen Vice President Investor Relations.

We will begin our call today with a review of our fourth quarter and 2021 performance.

Followed by our outlook for 'twenty, two and the longer term.

Afterwards, we'll be happy to respond to any questions you may have.

As noted in today's press release, we treat achieved strong sales results in the fourth quarter. Despite the negative impact from both the surgeon Omicron cases during the peak holiday selling period and continued supply chain congestion.

Earnings per share for the 13 weeks ended January 29, 2022 for a dollar for a net income of $367 million.

This compared to a $1 28 per share on net earnings of $456 million for the 13 weeks ended February one 2020.

Total sales for the fourth quarter were $5 billion with comparable store sales up 9% versus the same period in 2019.

For the 2021 fiscal year earnings per share were $4 87.

Net income of $1 billion $723 million up from $4 60 per share on net earnings of $1 $661 million in 2019.

Total sales for 2021 rose, 18% to $18 9 billion with comparable store sales up 13%.

Now, let's turn to additional details on our fourth quarter results.

For the holiday selling period, the best performing larger merchandise areas for children's and men's while the Midwest and southeast were the strongest regions.

Similar to Ross Dd's discount trends remained solid during the period.

However, their profitability was also negatively impacted by cost pressures related to freight wages in COVID-19.

At quarter end total consolidated inventories were up 23% versus 2019.

Mainly from an increase in in transit merchandise due to longer lead time from the industry wide supply chain bottlenecks.

Average store inventories were down slightly versus 2019, while pack away merchandise represented 40% of total inventories versus 46% two years ago.

As noted in today's release, we are pleased to report that our board recently authorized a new two year program to repurchase up to $1 9 billion of.

Of our common stock through fiscal 2023.

This authorization replaces the $850 million remaining under the prior buyback we announced in May of last year.

A total of $650 million of common stock was repurchased under the previous program in fiscal 2021.

The board also increased our quarterly cash dividend by 9% to 31 cents per share to be payable on March 31, 2022 to stockholders of record as of March 15th 2022.

Now Adam will provide further details on our fourth quarter results and additional color on our outlook for fiscal 2022.

Thank you Barbara as previously mentioned, our comparable store sales increased 9% for the quarter.

This gain was driven by growth in the size of the average basket, partially offset by a decline in transactions.

Fourth quarter operating margin of nine 8% was down 350 basis points from 13, 3% in 2019, mainly due to ongoing expense headwinds.

Cost of goods sold increased 210 basis points due to a combination of factors.

Domestic freight rose 100 basis points and distribution cost increased 70 basis points, primarily due to the previously mentioned supply chain challenges in addition to higher wages.

Merchandise margin declined 50 basis points due to higher ocean freight cost while buying expenses grew 20 basis points.

Occupancy leveraged 30 basis points on higher sales volume.

SG&A for the period Rose 140 basis points again due to pressure from the holiday related pay incentives plus higher wages and COVID-19 costs.

Total net covered related expenses for the quarter were approximately 35 basis points with a higher impact to SG&A and cost of goods sold.

Now, let's discuss our outlook for fiscal 2022.

As Barbara noted in our press release 2022 is a difficult year to predict for numerous reasons, we were up against last year's record government stimulus and the lifting of coverage restrictions that led to unprecedented consumer demand, which fueled extraordinary sales gains in the spring of 2021.

In addition, we continue to face industry wide supply chain headwinds as well as external risks from the effects of inflation, both on consumer demand and on cost within our business.

As a result comparable store sales for the 52 weeks ending January 28, 2023 are planned to be flat to up 3% versus a 13% gain in 2021.

Earnings per share for 2022 are projected to be $4 71 to $5 12.

Compared to $4 87 and 2021.

This reflects our expected expectations for sales and profitability to improve as we move through the year given the substantial cost increases we incurred in the fall of 2021.

Our guidance assumptions for the 2022 year include total sales are forecast to grow by 2% to 6%.

We plan to return to our more normal opening cadence of 100, new locations in 2022 comprised of about 75, Ross and 25 Dd's discounts as usual, we expect to close about 10 older stores.

Operating margin for the full year is planned to be in the 11, 6% to 12, 1% range down slightly from 2021 due to deleveraging on lower same store sales gains and again ongoing expense headwinds, especially in the first half of 2022.

Net interest expense is estimated to be $70 million.

Depreciation and amortization expense inclusive of stock based amortization is forecast to be about $560 million for the year.

The tax rate is projected to be about 24% to 25% and.

And diluted shares outstanding are expected to be approximately $348 million.

In addition capital expenditures for 2022 are planned to be approximately $800 million.

Let's now turn to our guidance for the first quarter in.

In addition to the aforementioned stimulus benefits and strong pent up demand early last year. We also faced larger headwinds from higher freight and wage costs early in the year.

As a result, we are forecasting comparable store sales for the 13 weeks ending April 32022 to be down two to down 4% on top of a 13% gain for the 13 weeks ended may one 2021.

Earnings per share for the 2022 first quarter are projected to be 93 to.

99 <unk>.

The $1 34 in the prior year period.

The operating statement assumptions that support our first quarter guidance includes the following.

Total sales are forecast to be down 2% to up 1% versus last year's first quarter.

We plan to add 30, new stores, consisting of 22, Ross and Dd's discounts during the period.

We project first quarter operating margin to be 10, 2% to 10, 6% compared to 14, 2% last year.

Expected decline reflects the deleveraging effect from the negative same store sales assumption as well as ongoing expense pressure from freight and wage costs early in the year.

Net interest expense is estimated to be $19 million, our tax rate is expected to be approximately 25% and.

And diluted shares are forecast to be about $350 million.

Now I will turn the call back to Barbara <unk> for closing comments.

Thank you Adam.

As mentioned in our press release, giving consumers increased focus on value and convenience, we have seen favorable sales trends in both our new and infill market stores.

As a result, along with the large number of retail closures and bankruptcies over the last several years, we now believe that Ross dress for less can expand to about 2900 locations up from our prior target of 2400 and that Dd's discounts can eventually become a chain of approximately 700 stores versus our previous.

Rejection of 600.

This represents an overall, 20% increase in our forecasted potential to 3600 stores, providing substantial runway for expansion relative to our year end store count of 19, <unk> hundred 23 locations.

We operate in attractive sector of retail and our mission continues to be delivering the best bargains possible to leverage our favorable market position.

Looking at 2023 and beyond we are targeting a return to double digit earnings growth driven by a combination of same store sales gains.

Operating margin improvement accelerated new store openings and our ongoing stock repurchase program.

In closing, we especially want to thank our approximately 100000 talented associates throughout the company.

Dedication has enabled us to successfully navigate through the unprecedented challenges of the past two years.

We believe their continued efforts will enable us to capitalize on our opportunities for future sales and earnings growth. While also delivering strong returns to stockholders over the coming years.

At this point, we'd like to open up the call and respond to any questions you may have.

As a reminder, if you have a question at this time. Please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue press. The pound key we kindly request that you limit your questions to one only thank you once again Thats star one to ask a question. Your first question comes from the.

Kimberly Greenberger with Morgan Stanley. Please go ahead.

Okay, great. Thank you so much.

I wanted to just ask about the guidance here for Q1.

If you have seen perhaps a better start to the quarter, but are expecting deceleration as we get through the stimulus lap I'm just wondering how you're planning the quarter.

And then if I could just sneak one more in I just wanted to ask about what youre seeing in terms of inventory availability in the market.

And whether you have.

<unk> been able to capitalize on perhaps some of the supply chain volatility that's causing.

Late deliveries elsewhere. Thanks, so much.

Kimberly Hi, I'll start with the first quarter guidance, it's Michael Hartshorn.

First quarter last year, we saw a significant acceleration in March and April last year.

Q4 2021 Ross Stores Inc Earnings Call

Request a DemoDemo

ROST

Ross Stores

Earnings