Q1 2023 Ross Stores Inc Earnings Call
Speaker 2: Good afternoon and welcome to the Ross Storrs first quarter 2023 earnings release conference call. The call will begin with prepared comments by management followed by a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 2: 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 growth and financial results, including sales and earnings forecasts, new store openings, and other matters that are based on the company's current forecast of aspects of its future business.
Speaker 2: These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release. The company's Fiscal 2022 Form 10K and Fiscal 2023 form 8Ks on the file with the SEC. And now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.
Speaker 3: Please go ahead. Good afternoon. Joining me in our call today are Michael Hork from Group President Chief Operating Officer, Adam Orvos, Executive Vice President and Chief Financial Officer, and Connie Cowg Group Vice President Investor Relations.
Speaker 3: We'll begin our call today with a review of our first quarter 2023 performance, followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have.
Speaker 3: As noted in today's press release, despite continued inflationary pressures impacting our low to moderate income customers, first quarter sales were relatively in line with our expectations.
Speaker 3: Total sales for $4.5 billion dollars upped from $4.3 billion last year while comparable store sales rose 1%.
Speaker 3: Earnings per share for the 13 weeks ended April 29, 2023 for $1.09, a net income of $371 million.
Speaker 3: These results compare to $0.97 per share on net earnings of $338 million, though the 13-week ended April 30, 2022. Cosmetics and accessories were the strongest merchandise areas during the quarter, while the Midwest was the top-performing region. David's discounted performance in the first quarter continued to jump to annual winners from a previous quarter's split, with his
Speaker 3: of the quarter.
Speaker 3: Pac-Way merchandise represented 42% of total inventory versus 43% last year.
Speaker 3: Turning to store growth, we opened 11 new Ross and 8 DDS discounts locations in the first quarter.
Speaker 3: We continue to plan for approximately 100 new stores this year, comprised of about 75 Roth and 25 Didi.
Speaker 3: As usual, these numbers do not reflect our plans to close or relocate about 10 stores.
Speaker 3: Now, Adam will provide further details on our first quarter results and additional color on our outlook for the remainder of fiscal 2023.
Speaker 4: Thank you, Barbara. As previously mentioned, our comparable store sales were up 1% for the quarter, driven by an increase in transactions.
Speaker 4: First quarter operating margin of 10.1% was down from 10.8% in 2022.
Speaker 4: As expected, this decline primarily reflects higher incentive compensation versus last year when we underperformed our expectations.
Speaker 4: Cost of goods sold improved by 50 basis points due to a combination of factors.
Speaker 4: Merchandise margin was up 120 basis points primarily due to lower ocean freight costs while domestic freight costs declined by 60 basis points.
Speaker 4: Partially offsetting these two favorable items were higher distribution expenses of 65 basis points. Driven primarily by unfavorable timing of pack away related costs and deleverage from the opening of our Houston distribution center.
Speaker 4: Buying increased by 60 basis points due to higher incentive compensation and occupancy deleveraged five basis points.
Speaker 4: SG&A for the period rose 115 basis points mainly due to higher incentive compensation and store wages versus last year.
Speaker 4: During the first quarter, we repurchased 2.2 million shares of common stock for an aggregate cost of 234M dollars.
Speaker 4: We remain on track to buy back a total of 950 million dollars in stock for the year.
Speaker 4: Now, let's discuss our outlook for the remainder of 2023.
Speaker 4: For the 13 weeks ending July 29, 2023, comparable sales are forecast to be relatively flat.
Speaker 4: 2nd quarter 2023 earnings per share are projected to be a dollar 7. To a dollar 14 versus a dollar 11 for the 13 weeks ended July 30th 2022.
Speaker 4: Our guidance assumptions for the 2nd quarter of 2023 include the following.
Speaker 4: Total sales are forecast to increase 1 to 4 percent versus the prior year.
Speaker 4: We plan to open 27 locations in the second quarter, including 18 Ross and 9 DD's discount locations.
Speaker 4: Operating margin for the 2nd quarter is planned to be in the 9.8 to 10.1% range.
Speaker 4: Down from 11.3% in 2022. As higher merchandise margin from lower ocean freight costs. Is forecast to be offset by an increase in expenses. Primarily related to incentive compensation and store wages.
Speaker 4: We expect net interest income to be approximately 31M dollars. The tax rate is projected to be about 25%.
Speaker 4: And diluted shares outstanding are expected to be approximately 339 million.
Speaker 4: Now turning to the full year.
Speaker 4: Based on our 1st quarter results and guidance for the 2nd quarter, comparable store sales for the 52 weeks ending January 27th, 2024 are still planned to be relatively flat.
Speaker 4: We now project earnings per share for the 53 weeks ending February 3rd 2024 to be $4.77 to $4.99 compared to $4.38 for the 52 weeks ended January 28th, 2023.
Speaker 4: This guidance includes an estimated benefit to full year 2023 earnings per share of approximately 15 cents. From the 53rd week.
Speaker 4: Now I'll turn the call back to Barbara Rentler for closing comments.
Speaker 3: Thank you, Adam. As noted on our last earnings call, we had expected fiscal 2023 to be another challenging year.
Speaker 3: This was especially true given the continued uncertainty in the macroeconomic, geopolitical and retail environments.
Speaker 3: As a result of today's uncertain external landscape, especially the prolonged inflationary pressure negatively impacting our customers discretionary spend.
Speaker 3: Shoppers are seeking even stronger values when visiting our stores. In response, we remain focused on delivering the most compelling bargains possible while diligently managing expenses and inventory to maximize our opportunities for growth.
Speaker 3: At this point we'd like to open up the call and respond to any questions you may have.
Speaker 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. If you are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 2: And in the interest of time, we ask that you please limit yourself to one question. Thank you.
Speaker 2: interest of time, we ask that you please limit yourself to one question. Thank you. One moment please while we poll for questions.
Speaker 2: And the first question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question.
Speaker 5: Great, thanks. So Barbara, maybe given the pressure on your low to middle income or low to moderate income customer base that you cited, how do you feel today about your merchandise assortments across categories from that value perspective? And then how are you managing buys in the marketplace just given the current level of disruption across the apparel landscape today?
Speaker 3: The merchandise, from a value perspective, first let me lead with, you know, we weren't really satisfied with our results.
Speaker 3: So as I look across the different businesses, we had some businesses where the business didn't perform as well as we had expected, and we're addressing those issues. So let me start with that. As I look at value across the store, that has been a main focus for the merchants for the last few months. So I'd say that we've made progress.
Speaker 3: across the board, but I still think that that is a major focus for us.
Speaker 3: offering the customer the best branded bargains possible at the best possible value we can put out there. So I would say we're on a journey and everyone is really, the merchant team is highly focused on this and I really think that that's an important part, especially for our mid to lower income customers.
Speaker 3: And then in terms of managing, you're saying in terms of managing supply in the marketplace, is that how I interpret that question?
Speaker 5: Yeah, just how you're managing buys given how much disruption there is in the overall apparel landscape, how much you're leaving, thinking about current open to buy and relative to maybe things opportunistic from a pack away perspective.
Speaker 5: Just how you're managing buys given how much disruption there is in the overall apparel landscape, how much you're leaving Thinking about current open to buy and relative to maybe things with opportunistic from a pack away perspective. Okay.
Speaker 3: Well, we have enough open to buy for both Packaway and to chase the business. So right now the plan is postured that we would chase the business as we're coming across and we're monitoring the speed of spending. And the hotel, same scenario, hotel inventories are basically at the same rate as they were last year. And so the merchants are out in the market seeking out deals.
Speaker 3: Based on those deals we make those decisions. So if a deal comes in one business and that wasn't really even planned for that business, we might take that plan up. So we're really looking for the overarching idea that what we want to do is get best possible values on the floor so the merchants go to the market and then there's discussions about what's out there. That's proven from our perspective.
Speaker 3: see what's out there and then come back and then decide where do we want to take the deal. But that is our focus in both companies delivering the best branded bargains that we possibly can.
Speaker 5: Great. Best of luck.
Speaker 2: And the next question comes from the line of Mark Altschlager with Baird. Please proceed with your question.
Speaker 4: Good afternoon, thank you for taking my question. You're holding your comp guide for the year, though you know that the consumer is looking for deeper value and your merchants are focused on that. So I guess I'm wondering how the expected makeup of that flat comp has changed versus your expectations at the start of the year.
Speaker 4: And to the extent that there's perhaps some lower ticket involved, are there any margin implications we should be aware of? Thank you.
Speaker 5: Hi Mark, it's Michael Hartshorn. Let me start by just talking a little bit about the first quarter. You know, the comp in the first quarter was driven by number of transactions and that was, you know, for us that's our proxy for traffic. It was up versus a year ago, so that's a good sign on customer traffic returning. The average basket.
Speaker 5: was flat and it was flat on units per transaction up on a lower AUR. As far as how we're looking at the year, our outlook has not changed. We'll continue to manage the business.
Speaker 5: with a conservative posture and be in a position to chase trends, chase the business, and manage expense and inventory very conservatively. On a stack basis, as we move through the quarter, and as weather became more favorable, we did see trends.
Speaker 5: improve on a multi-year basis.
Speaker 5: So, what that says to us is obviously healthy traffic and a trend that in our mind hasn't changed and hasn't changed our outlook for the year.
Speaker 6: That's great. Thanks for the call.
Speaker 2: And the next question comes from the line of Paul Lejus with Citigroup. Please proceed with your question.
Speaker 7: Hey guys, thanks. I'm curious about geographic dispersion. Maybe if you could talk about some of your big states performance in those states, specifically California, how the trends look from the beginning of the quarter to the end of the quarter, and if maybe you could talk about apparel versus home performance. Thanks.
Speaker 5: Sure, Paul on trends during the quarter, as I just mentioned on a stack basis, we did see. And stack basis versus pre-COVID we did see trends improve as we move through the quarter with April being the strongest geographically.
Speaker 5: We mentioned the Midwest was the top performing region for larger markets. Texas was above the chain average.
Speaker 5: Florida was in line and California underperformed the chain average given the difficult weather throughout the quarter in the West. Merchandise-wise, accessories and cosmetics were the best performing businesses, as we said in the script. Overall, shoes were the best performing businesses in the world.
Speaker 5: performed above the chain average while home was in line and apparel trail.
Speaker 7: Michael, can you just read a little bit more on California? Any quantification of how much it was below the chain and did that gap close between California and the rest of the chain by the end of the quarter?
Speaker 5: It did close, we wouldn't get into the specifics, but it did underperform the chain average and it improved as weather improved.
Speaker 2: Thank you. Good luck. And the next question is from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
Speaker 8: Thanks, good afternoon. As you move through the quarter, did you see any signs of customers trading down into Ross or any other notable changes in consumer behavior?
Speaker 5: I'd say overall Lorraine it's hard. There's so many factors that go into sales. Obviously the low end customer continues to be pressured whether it's ongoing inflation, reduction in SNAP benefits, lower tax refunds, but it was hard to see.
Speaker 3: That's really off of sharper price points.
Speaker 3: It wasn't generated by mix.
Speaker 9: It wasn't generated by mix. Thank you.
Speaker 2: And the next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Speaker 10: Good afternoon. The merchandise margin had a nice uptick here in the first quarter relative to the last quarter. Can you talk about the drivers? I think you called out great. And then how you're thinking about that line item over the balance of the year.
Speaker 4: Yeah, Chuck, this is Adam. I mentioned the merchandise margin grew by 120 basis points in Q1. Ocean freight was clearly the most impactful component here, driving the improvement. Our performance in merch margin was in line with what we embedded in our guidance for Q1, and assuming rates stay where they are.
Speaker 4: Expect that to continue as we move through the year.
Speaker 4: continue as we move through the year. Thank you.
Speaker 2: And the next question is from the line of Adrian Yee with Barclays. Please proceed with your question.
Speaker 3: Great, thank you very much. Barbara, I want to ask you about Packaway, the 42% this year versus 43%. First and foremost, it sounds like you believe that your assortment is on trend. And then typically when there are these kind of late weather breaks to kind of warmer weather across retail, it gives you the opportunity to chase into sort of known winners.
Speaker 8: Do you feel better about the assortment heading into the second quarter? And then Adam or Barbara, with Frontline still being very promotional, does that somehow impede the ability to drive maybe higher AURs because the value is not as evident as it may be when Frontline is a little bit higher?
Speaker 3: Less promotional, thank you very much. Okay, let's start with pathway. I think the 1st question is about. Hackway to content tackway.
Speaker 3: So the content of PACWAY, we feel good about that content of PACWAY. Last year at this particular moment in time was when we started to bring in goods because of all the carrier issues that went on with when everything speeded up, we took goods and put them into PACWAY as we've told all of you.
Speaker 3: that we use later on in the year, really all direct imports. So the pathway that we have in there now is really...
Speaker 3: close out, great deals that we feel very good about. So the percent might be the same, but the content is different. So that's the first one. The second one in terms of the late weather break, I'm not sure I 100% understand what you mean by that.
Speaker 8: So, oftentimes when it's been cold in the Northeast and many people were sort of, retailers were sort of missing plans just because it was colder than for longer. And in the past, it seems like those types of poor weather transitions have given you the opportunity, but I think you just answered it in their first one. Yeah. Yeah. You're saying were there additional great deals out there because of the weather that you go ahead and... Yeah.
Speaker 3: cancelled and yeah good yeah that's that's kind of ongoing as emergency after in the market looking for closed out facing the business and all and all of that so that's very different by type of business.
Speaker 3: Yes, there are. That's part of the supply availability that's out there.
Speaker 8: Then the spread, the widespread from frontline to your pricing.
Speaker 11: I think.
Speaker 8: You're just saying that they're promoting now. It's more promotional than it's been. And then what's our relationship to that emotional environment? Yeah. Does it make it harder to create that value notion when the frontline retailers are sort of every day sitting on the 50 off.
Speaker 3: Yeah, no, no, listen, look, I think the promotional environment is still very, is still competitive. It's still a competitive market. We watched people get more promotional, you know, in these last few months. I don't think that that's going away. I think what has to happen is, and what is happening, is that the buyers have to be in the market.
Speaker 3: Constantly working with vendors to understand two things one not only just brand availability But also pricing because they need they know that they need to get they need to have their values be sharper So they're competitive shopping seeing what's going on in stores and then they're in the market and vendors Are you know giving them the lay of the land availability? I have the what you're talking about the excess goods close out
Speaker 3: and also kind of where the pricing is. They're keeping that in mind because they're studying that. So for a while, you know, the world got very different and there was much more regular price selling, particularly in department stores. You know, we're watching as you're watching that erode and it's becoming more promotional. So, you know, those have been best practices for the company for years and so that's what the merchants are doing.
Speaker 3: to ensure that they're watching it and then making some assumptions about what they believe could happen in front of them, which would be what traditionally is done at all price prior to all the things that have gone on since COVID has started and more regular price selling and all of that. Fantastic. That's very helpful. Thanks, Barbara.
Speaker 3: and then making some assumptions about what they believe could happen in front of them, which would be what traditionally is done in our price prior to all the things that have gone on since COVID has started and more regular price selling and all of that. Fantastic, that's very helpful. Thanks, Barbara. Best of luck.
Speaker 2: Thank you. And the next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.
Speaker 12: Yes, hi, this is Kay Don for Ike. Thanks for taking our question. I guess just to hone in on the gross margin piece, you know, you guys had a decent amount of volatility in both distribution and buying buckets last year within COGS. Can you walk us through how you think those line items progressed through the rest of the year?
Speaker 4: Maybe direction or magnitude. Thank you. Yeah, hi Kate. This is Adam. So we'll take them individually. So. Ocean freight costs, you know, significant tailwind in Q1. Again, given all the volatility we've seen over time, don't want to get too far ahead of ourselves, but kind of what's embedded in the guidance is.
Speaker 4: And obviously there's wage increases embedded in those costs, but assuming those things stay stable, would continue to expect that to be a tailwind for us as we go forward. The biggest piece that we've called out for some time offsetting those benefits are incentive costs.
Speaker 4: So, we gave you the details of that approximately in the call comments. I would also say in the 2nd quarter when we look at it will probably be the most impactful quarter for us. From an incentive cost increase this year. Versus last year, we also commented on distribution expenses. So again.
Speaker 4: Driven by timing of pack away and then the plan D leverage from our newer distribution center in Houston.
Speaker 4: driven by timing of pack away and then the plan D leverage from our newer distribution center in Houston. Very helpful. Thank you.
Speaker 4: and then the Plan D leverage from our newer distribution center in Houston. Very helpful, thank you. Thanks.
Speaker 4: And the next question comes from the line of Alex Stratton with Morgan Stanley . Please proceed with your question. Great. Thanks a lot for taking the question. So it feels like this is kind of an ongoing narrative for the last year that you're not super happy with the value you're offering the customer.
Speaker 12: though historically I think you've proven super consistent and successful there. So I'm just wondering, has anything changed in the buying organization or what do you think the buying team is getting wrong now? And maybe how you're thinking about correcting this or putting initiatives in place to perhaps get this back on track. Thanks a lot.
Speaker 12: been super consistent and successful there. So I'm just wondering, has anything changed in the buying organization, or what do you think the buying team is getting wrong now, and maybe how you're thinking about correcting this or putting initiatives in place to perhaps get this back on track? Thanks a lot. Sure.
Speaker 3: I think the value equation we've been working on for the last few months, over the last year, moving towards getting to that value point. I think we're kind of at a different place now than where we were.
Speaker 3: a few months ago, both in brands and in values on the floor. So I don't see it kind of as, you know, the merchants aren't doing their job. I kind of see it as an evolution.
Speaker 3: And so we are very, very highly focused now on delivering compelling values. As we watch our customers in both companies struggle with all the inflation and all the things that are going on around them, we've gotten pretty, you know.
Speaker 3: Very, let me put this, we're very highly focused on delivering those values. So where we were, let's say six months ago, or how we're thinking about it now.
Speaker 3: continues to evolve. And so, you know, we want to make sure that we have a really wide assortment of, you know, fresh receipts, branded merchandise, and where it's appropriate that we're sharpening our branded values to strengthen the offerings because it's a competitive retail environment. So I don't feel like it's not necessarily...
Speaker 3: working I feel like it's evolving and I think our business last year evolved as we went along and it's important for us to make sure that we deliver you know really sharp values for our customer particularly in this time frame and now that the world is getting even you know more competitive and more promotional you know we have to look through that lens also.
Speaker 3: I think that we need to stay focused on it and do a better job on this and making sure that we really understand where it's appropriate that we are strengthening our brand of values. I don't think it's not working. I think it's much more of an evolution in all of our businesses.
Speaker 2: Thank you. And our next question comes from the line of Simeon Segal with BMO Capital Markets. Please proceed with your question.
Speaker 7: Thanks. Hey, good afternoon. Any change in the percent of sales being driven by top vendors versus last year and then just versus historical trends? Just wondering if concentration of largest vendors has changed at all. And then just because it's coming up fairly frequently, any updated thoughts on shrink. Thank you.
Speaker 5: I'll start. It's Michael, send me in. On Shrink, the Shrink was a little bit higher for us last year, wasn't meaningfully higher. We've assumed that it'll stay at or...
Speaker 5: slightly above those levels in our estimates, but no updates. Well, we typically update the financial impact of that when we take true of our physical inventory in the third quarter.
Speaker 3: And the percentage of our top vendors versus historical, I mean that moves based off of supply, right? So one year we could have a great deal of merchandise from one vendor, top vendor, and then the next year a little bit less, but a little bit more from someone else. So I think that kind of it kind of moves around. I don't think it's changed that much. I don't know we're defining as top vendors, but
Speaker 3: but it hasn't changed that much. It changes more by the vendor itself and the availability that's out there.
Speaker 3: It changes more by the vendor itself and the availability that's out there. Great. Thanks a lot guys. Best of luck for the rest of the year.
Speaker 2: And just as a reminder, in the interest of time, we ask that you limit yourself to one question. Thank you. Our next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question. You must reappear while you are co-inashioned prior to the COVID-19 pandemic.
Speaker 8: Hi, good afternoon everyone as you think about the performance of DDs and what's happening in the environment. Was there any differential and DDs performance in the 4th quarter to the 1st quarter and what you saw and there's just lastly on the bed bath and beyond locations that are available. If you were to get any, would that be in addition to the current run rate of store openings this year or would it be part of it? Thank you.
Speaker 5: Hi Dana, on DDs the sales trends continued to trail Ross results during the first quarter. I wouldn't comment on the difference between fourth and first. Obviously their customer faces even more macro headwinds relative to Ross which
Speaker 5: is I think reflected in their underperformance. I would also say though, similar to Ross, we are sharply focused on offering better values to help drive improved sales performance there. on Bed Bath & Beyond.
Speaker 5: It will no doubt provide opportunities for new store locations. We'll have to review each potential new site on a case-by-case basis to see if it's appropriate for us, but I would say it's not going to impact our 100 store opening plan for this year.
Speaker 2: Thank you. Our next question comes in line of Bob Drubil with Guggenheim. Please proceed with your question.
Speaker 7: Hi, good afternoon. I guess just the question for me is as you think about, you know, what's happening in the macro, when you look at your, you know, good, better, best mix, are you migrating your offering to, you know, the lower end of the spectrum? I'm just curious just in terms of the buys or how you're thinking about the merchandising piece.
Speaker 6: Thanks. Thank you.
Speaker 3: Sure, so we have a good better best strategy and that is really driven by the assortment that we put on the floor and the values we put out there. So we want a tiered strategy because you can attract much more broader, a broader set of customers but as we say before you plan on sliding off the counterwind into the eyes it's usually just
Speaker 4: That can move based on supply, based on availability, based on our purchases. So it fluctuates as you go. As you think about the rest of the year, you're not really buying for more of a good environment versus a better versus best in your offering?
Speaker 3: I think that depends by business. I think that I can't tell you that that is a. A company watch strategy, I think that moves by moves by business based on what the businesses. And clearly, you know, the customer in particular is very price sensitive. So. Really paying attention to the values of putting on the floor, the pricing we're putting on the floor.
Speaker 3: both so but even at DDS it's these things it moves around so We are obviously conscious there particularly with that customer Thank you
Speaker 2: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.
Speaker 12: Good afternoon. Thank you for taking our question. Given the ongoing inflationary pressures in the macro, I'm wondering if you can provide updated thoughts on the longer-term path to recapturing pre-COVID operating margins. Are there any initiatives that you're contemplating to help drive that recovery outside of sharpening values and driving additional market share capture? Thank you.
Speaker 4: Hi, Burke, this is Adam. Thanks for the question. So our long-term operating margin improvements are to be highly dependent on us delivering strong sales over a sustained period of time. And then the question on how long do inflationary pressures persist. But over the longer term, we believe we can achieve gradual improvement and profitability.
Speaker 4: I think, you know, if you get into like, are there any structural questions related to that? We're seeing tangible benefit and freight costs, but we're still, these costs still are not at pre-pandemic levels. And then we're seeing some wage pressures in the stores.
Speaker 4: You know, when you talk about, you know, we've guided to capex of 810 million dollars. So a big component of that in addition to distribution center capacity. In addition to investing in the 100 new stores, you know, a big chunk of that is technology investments that will drive further efficiencies within the stores. And in our distribution center.
Speaker 4: centers, so more automation in our distribution centers and some store initiatives that we've touched on in the past.
Speaker 2: Thank you. And the next question comes from the line of Laura Champine with Loop Capital. Please proceed with your question.
Speaker 13: Thanks for taking my question. It's about the weather's impact on your comp in Q1. Is that something you can quantify or maybe if that's a tough one maybe give us the discrepancy roughly between California and the rest of the chain?
Speaker 5: Hi, Laura. It's hard to calculate. I mean, I think it's suffice it to say it didn't help our business. You know, I would say California was slightly under the, you know, trailed the chain average and did improve as weather improved.
Speaker 5: It's hard to calculate. I mean, I think it's suffice it to say it didn't help our business. You know, I would say California was slightly under the, you know, trailed the chain average and did improve as weather improved, is what we'd say.
Speaker 2: Got it. Thank you. And the next question comes from the line of Marnie Shapiro with Retail Tracker. Please proceed with your question.
Speaker 14: Hey guys, I just wanted to clarify, I think you said the 53rd week adds about 15 cents. Could we expect between 350 to 400 million in sales? Is that a decent number to use for that week? Or is it a little less because it's a January week? I'm curious.
Speaker 14: Yeah, not for I'll probably a little bit less than that that Marnie given given that it's as you said given that it's January early February that's I figured and then this came up on other calls It looks like your traffic is is good that people are looking for sharper deals, but you obviously called out accessories and cosmetics Beauty which tends to have a lower a you are are people
Speaker 14: gravitating towards the lower price items or as you've seen the weather improve have you seen apparel come back in slightly higher AUR but they're looking for the apparel items that are on sale or just at the better prices I'm curious sort of what the dynamic is there. So so apparel apparel
Speaker 3: Apparel struggled in Q1. I don't necessarily think it was driven off the prices. I think that the assortments were not necessarily where we wanted them to be.
Speaker 3: So depending upon what business that's in that could have been the price that could have been the product because there's a variety of factors in in there So I don't think I could take it down to a common denominator price or say was it driven by markdowns or wasn't driven It really it really You know, I would say was driven by the assortment
Speaker 3: when it's all said and done. Certainly the weather didn't help. Yeah. But I don't think the weather's a big enough impact that I could sit here and say that. I think our assertments weren't necessarily where we wanted them to be. And so, you know, we're working on that. And we're going to continue to work on that. But it's not really based off of a price or one thing or, you know.
Speaker 5: We have our work cut out for us and the merchants are working on that now. And was it a- In Barney, it wasn't driven by mix. It was driven being sharper priced across the association.
Speaker 14: So it was across, you saw the softness across the assortment in apparel. It wasn't specific. No, AUR. AUR.
Speaker 14: So it was across, you saw the softness across the assortment in apparel. It wasn't specific. Right, AUR. You asked was AUR driven by mix in the business.
Speaker 14: that was not driven by Mexican nurses. But on the apparel side, was the softness across the board, whether it was men's polo shirts or women's dresses or kids, every department across the board was soft? Or were there certain spots, even without disclosing it if you don't want to, were there certain spots that really need a lot of work and other spots that were OK? Well, obviously, we're not going to get into into
Speaker 3: details but within all the apparel businesses like even common sense to tell you that some businesses are better than others right so with that we wouldn't we wouldn't get into specifics but you know there's no if you're asking is there like a raging disaster in one particular area I was kind of thinking on the positive was there something
Speaker 3: the assortments whether it's delivering the right products, whether it's the values. I mean they're very you know really focused highly focused on that right now.
Speaker 3: whether it's delivering the right product, whether it's the values. I mean, they're really highly focused on that right now. Okay, great. Thank you so much.
Speaker 2: And the next question comes in the line of Corey Tarla with Jefferies. Please proceed with your question. Hi. Good afternoon and thank you for taking my question. So Barbara, just on the availability across your good, better, best.
Speaker 4: spectrum that you have, is there any better availability within any one of those three segments as you speak to your merchants?
Speaker 3: Oh, you're just saying where does the supply the supply is pretty, pretty broad based. I mean, you know, supply.
Speaker 3: You know, there's supply in most businesses. You know, there's always more on one vendor than the other, more on product than the other. I mean, it fluctuates. Overall, there's still a lot of supply. I wouldn't say it's bucketed in one of those three buckets.
Speaker 4: No, I would still say it's pretty broad-based. Got it. And then just on the lower AUR comment being driven by sharper price points.
Speaker 4: I guess within the context of the guide for the full year for flat comps, is the expectation that the AUR is likely to be lower throughout the rest of the year as well.
Speaker 15: The.
Speaker 3: Putting out better values doesn't necessarily mean that your AUR is going down. But what we're focused on is we're focused on delivering really sharp values. So depending upon what, using your example of the good, better, best, depending upon what that mix looks like, that doesn't necessarily mean the AUR is going down.
Speaker 3: What we're really trying to do is we're really trying to focus on sharpening our branded values for the customer. We think that's our path to driving sales and we think that's our path ultimately to gaining market share. Those two don't necessarily go hand in hand.
Speaker 7: Thank you very much and best of luck.
Speaker 2: And the next question comes from the line of J. Soul with UBS. Please proceed with your question. The next question comes from J. Soul with UBS.
Speaker 16: Great, thank you so much. You know, it looks like you beat the low end of your guidance that you gave for EPS in first quarter by about 10 cents, but you're raising the low end of the full year guidance by about 12 cents. You tell us what the extra 2 cents is where that's coming from. Thank you. Yeah, I think the better way to look at it is what we did on the top end.
Speaker 4: We beat the top end by four. You lose a quarter in that, and then we raised the full year by the four cents. Got it. Okay. Thank you so much. And the next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question. Thanks for taking my question. So your guidance implies...
Speaker 8: just about Q2 and then a little bit more optimistic for the back half of the year.
Speaker 5: Sure, Anisha, I think it's hard to look at these on a two-year stack with all the fiscal stimulus and COVID. We're really looking at pre-COVID, what's changed on a four-year stack and how that's progressed over time.
Speaker 5: We went into the year and had a plan in the first quarter. What we saw is that four-year stack improved as we moved through the quarter, and weather improved and exited in a place that would support that stack guidance for the year. Okay, so just to clarify, you are embedding an improvement in the four-year stack through the course of the year? Correct, yeah. Okay.
Speaker 5: and had a plan in the first quarter, what we saw is that four-year stack improved as we moved through the quarter, and weather improved and exited in a place that would support that stack guidance for the year. Okay, so just to clarify, you are embedding an improvement in the four-year stack through the course of the year? Correct, yeah. Okay, thank you.
Speaker 17: And the next question comes from the line of Krista Zuber with TD Cowen. Please proceed with your question. Hi, it's Krista on for John . Just a quick question on inventory. You've had several, at least two quarters here of fairly sizable declines. Just wondering how you're thinking about it through the balance of this year and should we continue to expect declines on a quarterly basis through the end of the year?
Speaker 5: year with that elevated inventory last year it started to recede in third and fourth quarter and you get more comparable but we should be lower given the excess inventory we had last year and the first half of the year. 1
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Speaker 2: Good afternoon and welcome to the Ross Store's first quarter 2023 earnings release conference call. The call will begin with prepared comments by management followed by a question and answer session.
Speaker 2: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 growth and financial results, including sales and earnings forecasts, new store openings, and other matters that are based on the company's current forecast of aspects of its future business.
Speaker 2: These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's Fiscal 2022 Form 10-K and Fiscal 2023 Form 8-Ks on the file with the SEC. And now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer. Please go ahead.
Speaker 3: Good afternoon. Joining me in our call today are Michael Hochstrand, Group President, Chief Operating Officer, Adam Orvoz, Executive Vice President and Chief Financial Officer, and Connie Kao, Group Vice President, Investor Relations.
Speaker 3: We'll begin our call today with a review of our first quarter 2023 performance, followed by our outlook for the second quarter and fiscal year. Afterwards, we'll be happy to respond to any questions you may have. As noted in today's press release, despite continued inflationary pressures impacting our low- to moderate-income customers, first quarter sales were relatively in line with our expectations. fiscal sales were $4.5 billion.
Speaker 3: up from $4.3 billion last year while comparable store sales rose 1%. Earnings per share for the 13 weeks ended April 29, 2023 for $1.09 on net income of $371 million. These results compare to 97 cents per share on net earnings of $338 million for the 13 weeks ended April 30, 2022. Cosmetics and accessories for the strongest merchandise areas during the quarter.
Speaker 3: Pac-Way merchandise represented 42% of total inventory versus 43% last year.
Speaker 3: Turning to store growth, we opened 11 new Ross and 8 DDS discounts locations in the first quarter.
Speaker 3: We continue to plan for approximately 100 new stores this year, comprised of about 75 tours, 5 games individuals, 20 EnjoyFab, 18 HofATrock, 25 PeoplePlus 1 Money collagen,
Speaker 3: As usual, these numbers do not reflect our plans to close or relocate about 10 stores. Now Adam will provide further details on our first-code results and additional color on our outlook for the remainder of fiscal 2023.
Speaker 4: Thank you, Barbara. As previously mentioned, our comparable store sales were up 1% for the quarter, driven by an increase in transactions. 1st quarter operating margin of 10.1% was down from 10.8% in 2022.
Speaker 4: As expected, this decline primarily reflects higher incentive compensation versus last year when we underperformed our expectations.