Ross Stores (ROST) 5 Mar 192018 Q4 Earnings call transcript

Good afternoon, and welcome to the Ross Stores Fourth Quarter and Fiscal Year 2018 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question-and-answer session. [Operator Instructions].

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 forecasts of aspects of its future business. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from historical performance or current expectations. SEC. in XX-K release XX-Qs and on with included fiscal the and are file Form XXXX fiscal the factors today's and press company's X-Ks Risk XXXX Form

over Now, to I'd turn like the Barbara Chief Executive to Rentler, Officer. call

afternoon. Good

call We'll our Executive Relations. Michael any review be and me Investor our Group Vice O'Sullivan, President XXXX. Gary VP President, President, Call, call quarter Hartshorn, Executive Stores President and Finance are and a Joining Kao, today Financial Connie respond questions and we'll with begin Michael of have. Legal; Operating and today Officer; Executive Chief to Vice Afterwards, may to Chief our happy XXXX, Officer; outlook fourth you John and our followed by on Vice for Cribb, Loss Prevention;

to our year XX Let were fiscal and today’s while our quarter of fourth year’s week XXrd by XXXX $XXX week quarter full respectively, added financial fourth earnings margin week year share XXXX our noting XX in per sales XX extra points $X.XX last and added and periods XXXX were discussion and fourth basis me and fiscal respectively in preference Further, XX in about that fiscal to period. quarter week The XX XX fourth year. and quarter million the operating and results year. approximately and

result. today's to turn let's Now

fiscal release, year today's in press and quarter sales expectation. outperformed our earnings the and noted As both for fourth

XXXX. earnings the million $XXX XX for fourth weeks the As were weeks multi-year our for XXXX apparel holiday $X.XX Ladies in in mentioned, quarter per X, season. the versus were we achieved in ended the weakness February year. ended challenging comparisons business and also XX million we own the share X, despite Net results February $XXX these during prior versus our XXXX Earnings $X.XX

XXXX X, to weeks net $X.XX February X, per to in XXXX Fiscal the ended share billion XXXX. ended billion from in $X.X For earnings up grew XX XXXX. the weeks $X.X February earnings XX were $X.XX compared fiscal

recent results. our Now let's to turn sales

XX billion. Comparable store gain X, strong weeks total year's over For period sales a ended XXXX X% the February quarter. sales fourth the X% rose in for were last $X.X

sales weeks comparable billion $XX ended store on February sales X% For to each three X, X% top gain XXXX the prior increased up X% XX with of the years. in of

best continued the respond the customers performing I another to regions. both and positively leading year area strongest solid the assortment, operating of quarter as DISCOUNTS Ladies and For underperform. said, quarter, Men’s and Midwest to were to merchandise fourth and gains Southeast Geographically in the was dd’s its profits. sales

year. ended with last As Packaway over inventories to versus consolidated XX% inventories XX% of last were X% total in-store down year were prior slightly we the the up compared Average at levels XXXX, year. total

new to As two noted in next authorized Board today's a $X.XX repurchase release, years. fiscal billion stock program of common our the over

ongoing board needs also $X.XXX payouts funding balance XXXX after stock growth of billion for prices, this cash per increases two amounts increase the to XX% year. prior January of the current other was over cash dividends XXXX. represents company's strength and share, quarterly approved of The to authorizations market our the reflect sheet about recent the prior up an and the business. our that completed and significant X% shareholder The Our capital share to XX% year, the program our generate ability a total increase over X.XX new in repurchase in of

commitment year value raised record since XXXX every dividend and shareholder to reflects repurchased since inception have and stock our as its return. annually also cash consistent continuing in XXXX. We planned This our enhance

and our on and year first full color future details provide will on quarter guidance. XXXX Hartshorn Michael XXXX Now results our

Barbara. you, Thank

$X.XX the These and fourth earlier, quarter year. and As per results the to mentioned XXXX for earnings year compare for $X.XX share were share $X.XX $X.XX per and respectively. of XXXX Barbara earnings quarter fourth fiscal

the results XXXX and legislation resolutions share a from matter, related as benefit for year the the of fiscal per $X.XX $X.XX in earnings the fourth a Our well quarter non-cash reflect quarter tax to as favorable both and for gain tax year. $X.XX a of reform fourth onetime

$X.XX $X.XX to In a Tax and addition $X.X quarter revaluation to $X.XX EPS from year's adoption of a of share from a deferred rate. XX last lower fiscal the also XXXX Reform earnings consisting benefit per of our benefit included year and the fourth gain from one-time due taxes a tax week, Legislations, results

on further fourth our results. I’ll Now details quarter discuss

by gain in store comparable increase an of driven size the of Our higher the was basket. combination the quarter sales a X% in traffic and average

than period costs. year. quarter from the the better of last in basis wage primarily basis freight expected due down the benefit The XX.X% approximate fourth point the for was week decline XX from higher operating to So as XXXX point expected, and was and XXX margin XXrd

XX.X%, year cost basis increase week. sold the for higher basis in a costs, These XX were part last SG&A X to XX of XX gross basis partially a full point point rose in points, increased year XXrd points by goods and the driven increase basis the year higher point the and merchandise margin a basis basis margin. in due XX of and freight XX expenses from basis consisting declined expense wages. points point distribution in occupancy offset XX of basis by benefit operating points rise respectively. buying For year's XX pressures for Cost to XX

$XXX During $X.X shares price a the for repurchased stock we quarter of million to common purchase total million.

shares we billion. year million $X.XXX price full aggregate $XX.X the For for of repurchased an

our for XXXX. Now let’s outlook discuss

we X, fiscal be $X.XX for XXXX share $X.XX, weeks from up the $X.XX For forecasting to to ending are earnings February XX XXXX. per

sales to ending which a X% XXX X% new not XX February store grow increase significant for Our XX stores to ended lease Comparable XXXX Total earnings plan guidance the fiscal following: are DISCOUNTS projected years on include operating the to X% new dd’s The impact this about for compared add year of reflects We results. XX are of weeks gains. statement XXXX have the of X, adoption Ross the of locations. consisting accounting standard, approximately to to X% expected strong sales the to to top our is expected multiple to X, assumptions and XXXX. weeks February

usual XXXX numbers XX.X%, of do XX.X% plans to As million. decline reflects interest the plans X%. same or income We in of relatively relocate flat Net range about and gross X% some these $XX.X XXXX. to not estimated if be for forecasted reflect operating to stores. The our sales is increased for expenses deleveraging margins older in to $XX.X% our store to compared be XX margin close projected will

tax Our to be is projected rate approximately XX%.

to is diluted $XXX expense be includes be investment amortization outstanding average shares and stock XXXX be expect for of million. approximately net distribution our about in $XXX amortization inclusive the based capital expenditures center. which $XXX depreciation million, about We forecast initial are to And projected to million,

move Let's guidance. now to our quarter first

to quarter X% include Given apparels, $X.XX Ladies share be assumptions to becomes $X.XX the support comparable the in that projected planned are recent business increase important in first per be up quarter forecasting versus are we a under the XXXX. to sales X, guidance are performance Other to for X%, store first quarter, ended more the X%. flat first May Total to earnings that to our following: sales $X.X

quarter. Ross new six and dd’s DISCOUNTS to during expect locations open We XX the

quarter the headwinds outstanding average is be versus tax costs ongoing XX% benefited expectations be margin first to are on half income XX.X%. and projected quarter for of year's shares estimated about quarter timing XX.X% rate freight $XXX wage First be to forecasted million, a that of Packaway This finally weighted to the impact operating to projected in related and Net for around declined last from year's XX.X% $X.X first expected be is approximately interest last to negative includes is the diluted expenses million. XXXX. our and higher

to Barbara Now I'll the closing call turn comments. for back

Michael. Again you, for we better earnings gains than Thank both quarter fiscal expected sales fourth and year. and the delivered

to do we forecasting business while ahead, prudent approach better, hope we to continue our for take XXXX. Looking to

multi Longer confident facing our to favorably share offering very by throughout customers comparisons, and uncertain profitable though consistently value store. our outstanding positioned own political remain we difficult achieve term landscape Although retailer, off-price in market retail our we an as ability and gains macro-economic a going an on environment. are we year remain competitive

As we earnings. strategies, long off-price growth solid as we we believe proven our and remain the continue careful focused execution of can deliver both sales to on in

have. the [Operator over the more XX this begin to his call question-and-answer end contributions John his month. years. transition decades I'd we at two as begins Call previously respond the at an and Ross, than Before for to open like you serving leadership At made advisory John role including the thank questions and may any to to for CFO up he's of this session, point numerous we’d Instructions]. planned like

comes Your first from Morgan. question from Matthew Boss JP

nice the on congrats quarter. and Thanks

maybe on the any guess frame correct Could question what excess my drove know and I the just weakness. work how maybe on it? think time you through elaborate inventory picture; and to best maybe to the on So to drivers, just larger the you it Ladies time is about apparel, frame

have got the business apparel we assortments business. the because all of within in Okay, didn't certain categories ladies first the right course of balance of apparel total our

So the business. left of table result on a we seasonal areas money in some as the

we stores, need we inventory don’t know deal to with excess through. you or terms that have left any of In residual issues inventories go excess in or

know year. we’ll correcting rebound In course say expect of correct the the terms it as but gradual merchandise as misuse we as improvement I would assortment is, throughout we obviously of the possible, that you quickly

follow-up any and guess year? this the versus back of threshold think in the needed a way the and calm the is on Great, year a the to expense I SG&A to half the leverage perspective front just about best then there from difference front, what's

more which in Sure leverage We year, pre-XXXX. historical with SG&A line is Matthew. averages expenses, point front about half. would in expect X%, On this the deleverage is our the

national As first the to a wage a of minimum we our in increased in last that year, quarter the little of the we have quarter. reminder, bit round and second so second

moved escalated margins we addition, in last freight In as operating year overall year. the through costs

be of will drag those versus in the So half half. second a first more the

color. Best great That's of luck!

Your from next Hutchinson from for comes America. question Lorraine Bank

this of relief year? Could coming are also this time you headwinds and that you versus maybe contracts last quantify you, that rates freed afternoon. seeing freight Thank the year? some in seeing Are good some comment you the are on the then

Lorraine. Sure

as expected, quarter. first In freight: the fourth on terms of the of we impact So

remaining basis costs. the quarter, freight basis point wage XXX and the the combination basis So fourth of points was due week, to higher XX points drag, of was there XXrd the XX a was decline

had year. freight full for we For XX the fiscal a the point drag year, basis

and first the XXXX, was the into in be quarter, so obviously second later expect in and fourth higher move then and quarter neutral year. drag we continued the third As drag somewhat the we’d in

contracts, against Our you spot rates, cases spot they than if compare the rate. in are lower the many actually

go year, we normalize. this through rates expect as somewhat we would to So renewal contract

you. Thank

next question from Your Nomura Siegel comes Simeon Instinet. from

Hey implications. thanks margin and had Steven for on the for a questions. question [Inaudible] gross guys, I on taking flat Simeon our

on how touched the freight. distribution year? be think occupancy margins for how out costs, guys maybe our shake You But may and we should will about merchant

merchant Sure, be commentary to in my the intended was gross margin margins.

be we in the expect we the half more wage first half. would to rest margin we headwinds three business, costs. the year on relatively than flat year and the So guidance additional in some for second of Like didn't the the these provide expect DCs merchant of

appreciate Alright, it. thanks guys

Deutsche from Trussell Paul Bank. from comes question next Your

afternoon. Good

is by apparel; about the Just know well and [Audio thought quarter. Ladies a thought that follow is comp up Gap] the point for first quarter, process as on a negatively you fourth the in process that

some out, question? cut Could just you cut out. you repeat Paul the

follow-up Ladies to on wanted just I apparel. Yes,

bigger XQ. a maybe that fourth better was the little get thought bit impact the a quarter assessment and I in what the is know to Just in to then around you comp that business

how are you other and thinking puts about and you your any can first that, quarter provide around takes Just guidance.

way specific, it more other it's reasons wouldn’t our say than being first into specific, I Ladies that apparel for guidance, is of to guidance, performing. terms on more quarter built competitive be In the for the

is impact and first – Packaway quarter the Understood, we all that going think the should the continue into at that and second is to of what in the that quarter?

the lapping points XX worth the this we our tough year. and as predict, are impact to an at In rose doesn't the the levels Paul. quarter. in basis so are was the we QX quarter you last It reoccur timing Packaway during related We’ll first benefit last assumes and first Packaway about year. Packaway quarter talk point update levels about guidance Sure May that give wouldn't conference our call results. beyond

luck! of Best you. Thank

Boruchow Ike from comes from question Wells next Fargo. Your

Hi, good afternoon everyone.

it to had So early think or last I you I'm too but you the but I of think XXXX. be an again it are sorry to take didn't kind versus to Ladies kind the apparel the I I'm category, when issue know time in just want then, jump to specific, similarities Barbara then today don't train, guys – and on you I look back of Michael, that I happening guess then can't curious correct. course was back long

happened were in think X% later. range, different compare around? back a I ago? comp years months there I trying several today three guess time anything just you this and what I’m Is to

categories, our was seasonality. unrelated would assortments they so Sure, issues a merchant the from I What in tell you What balanced and completely these product, are in about on that were certain yeah coloration really we talking what think related. issues. that went here and XXXX is two perspective aren't are not is I really, wrong

of obviously are terms correct gradual as it issue, the quickly correcting the but trying to improvements to on. going possible, we’re as expect In months as go we

Thanks.

next Morgan Stanley. Greenberger, comes Kimberly line from Greenberger is Your open. your Kimberly question from

Sorry, was on I sorry mute.

you and John congratulate balance sounds quickly best case that distinguished in and I is I'm on seeing quarter, the LIBOR have also you more out winter first issue fourth in very example Ladies that and are Southeast Is Barbara, that seeing QX for case the from that – there retirement. stores figure example I him the a career was trying business quarter it you. mentioned benefit the wrong there's well are any co-located. I better stores goods sure the wanted And assortment. to and simply sort It Midwest you in women's. here to if there closings your as either a wish Call done just are was merchants sort in competitor you thought ask merchandising or you the for to could heading that the into store in more Bon-Ton’s the issue. any regions. separately, noticed bought I the in make me just Let the benefit and you potentially performing those you've presence of then the Thank Is if a balance had goods. maybe Midwest. it like of wondering if or in on a inventory seasonal if long just

Kimberly, I’ll performance. start with the regional

now, XXXX. mentioned, the the and we market where we Midwest Southeast the as entered strongest strong. in The know been You Midwest has for since some the time

no change So Ladies? no question second was on I say the change – would in over your Yeah, trend significant year.

this within and the On assortment natural then is is – to question the trying your – Ladies to of put game categories assortment game in the imbalance a – in the certain assortment. the Kimberley to within the

driven which business. we had those by is leave we shape verifies that would been in of that table imbalance, know because have our did feel better we opportunity You in different QX more did seasonal on the What business business.

different into move into you you obviously start products. QX, As transitioning

However does so month change a that to up not time it time. going gradually month, you be take that know to that’s take two will one switch, assortment,

other absolutely time we and we back or is cleaned to to need that, the or be. anything have other so be, don't want balances you the we issues way we it lines, terms, assortment bad to to in The liable get any in it need get to take having those thing to terms inventor know thing it Packaway where to of from the along that the we up the ship

so you Great, thank much.

from from D.A. name comes Your Morris Davidson. John

much filter on about of whether women's. then the either looked had And you, that talk great quick you impact up. Weather with I know year if or in realized a not wondering one weather I as QX particular a in just on you did with impact, back strength. seasonal talk follow I'm it about or as stepped we you at congratulations my areas and as regional well. Thanks, got

was year-over-year. neutral us for Sure. relatively Weather

but You I the mentioned was we broad-based. Southeast I meant – and the know fairly know strength Midwest,

a the in was Florida it again market chain our It were with markets, for when below Some the in also up chain. major California was was us average. slightly strongest performing year. of our line Texas, large XXXX

And I don’t the think weather.

right. that’s well Yeah,

impact think hurt what weather I business. don't the is our

in you little then new DC. talk about bit mean up you of Got DC, some speed typical impact. is the timing know my from your more highlight you. of and And follow terms about the benefits know the is to the in you'll and a your really I maybe be that distribute, the potential getting terms ability of that

we the million business. plan X.X in couple there do productivity. sickly our take as automation are That Sure. large as is get that DC help It years is can we to of feet. investments the The place a capacity that as said us will us distribution said, the large That centers think it new to for grow square put a place. we

Good luck thanks. for Great, spring.

from question William Blair. Daniel comes next Your Hofkin from

Hi, good afternoon.

wondering a bit more category could of of the you detail. Just if fill little out some

I men's apparel, there additional any regional like you detail additional and there's other can ladies or aside think categories that share? some give from you maybe color if just Home something

performed line the last the that’s that after of several growth in same. years Basically the average, top solid and Home chain inline of most over were on other and businesses the performed with

later? believe the expect terms and one apologize, ladies is XXXX Okay I time one earlier a early for be of than about in fix I to What required similar of apparel. shorter you this this amount of do if lot – question you know the – then time, could I questions or just of the

it. issues. is putting will I'm specific I be improvement. not a to these types are expectation My that of there time think frame gradual XXXX, Versus different two

of Okay. Thanks much. luck! Best very

Tracker. Shapiro Retail from from Your next comes question Marni

Hey everybody, John And retirement. your congratulations, congratulations. enjoy

You who Mike the or were lasted only this long. Michael

a For Michael Mike, then Mike, while Michael, was and all it John.

[Inaudible]

Exactly, we remember always you.

for move ask actually a a can I women’s moment from and just down. if break So just away quick

was by little out which said again. those then it’s a basket and business, or I benefit You Kids-R-Us, well. you often as are and any was shoes away, driven cross can you talk guess a family business with stores a also stores was nice stores see family family has but going I up. bit them curious I AUR which UPT are average know there Payless opportunity see that if view Barbara, about stores driven. gone your your how as And you a where business stores view I with family them, your did don’t any I and as

Sure.

As it had pertains Payless would because and it think it share of amount would stores. would you a you that present market know a to obviously family the large going away, business – opportunity, is

So shopping between be remains a customers, we but that how think seen just share would much it the market plan. to be would

of when any out, Kids saw that that we went from on do we Kids-R-Us – of In the we stores. do terms think Ross, impact Michael of have any

question Mike. Marni another is O'Sullivan, this – I Michael think your

So down volume. those go you’d some go remaining close retails your retailers that I of as stores, to out help. as only That in areas somewhere or would in know it and pick-up was other expect sales of terms the broader that volume think has question you Barbara can mentioned

results of stores altogether. any year, from material same as two You wouldn't I or to given we And the say look retailors know we that But over period. years it’s have that closed think business out as over we in gone thing. our forward, benefited last been

be continue to it I You material we jobs right, business. to our if should overall know do don't the will but think we benefit,

so we UPT comp components driven and and The for by as basket. the comments, flat AUR quarter by average of the was entirely size the traffic the driven said the of increase was in basket as in on forward Marni sales, the higher was growth.

this luck spring guys. of Best Excellent!.

Your comes Paul from Citi. next from Lejuez question

So stuff Also on of us in versus and also Any Thanks. saw bit And Hey a business as side Ross to just luck of the margin margin. thanks. the the well. that that right size out curious buying high on in little data Ladies, the level more John, operating stuff give color XXXX. dd’s was congrats you saw terms it not weren’t that the sir! if is the you can available. right coming and best more dds of the business, of issues ladies or question, on that you maybe your Barbara buyers

in said to customers remarks, both Paul dd’s her well operating QX and our merchandise the assortments so as Barbara in responded and dd’s posted business Yes, on in gains opening profit. sales very solid

in we is, is of dd’s of don’t detail lot know of calls that. is you we only for that make you the would I the detail our our lot lot these to so Ross. of to of couple about around its detail not XX% on on a to really a a reasons dd, As additional then and know Ross XX% point many talk disclose trends One And tend other in business and give general of business, of apply so know you same we about or dd’s.

availability issue. the balanced And would be some weighting Ross to ladies, as in business them that wasn’t I balanced. had way we of to it an would weren’t that and it products, the like say the we we’d that categories the brought I of say pertains

is good. So the merchandise

luck. Yeah, good

from Suisse. Credit Your question Binetti Michael comes from next

Michael levels, Hey you into I anything bit would a guys, mix. with that XX Was to tailwinds IMU there. down little are know basis markdown here. margins it points us year? be rolls-off And flat think quick in that this questions helping comment merchant the last regarding about about guidance a for mind lower what thanks our you merchant for the want the said, year to then were margins

basis. XX a Sure, week quarter margin up slightly was so the for on merchandise

merchandise was business chase into then and are plan, the lower What better flattish. drove against also closeouts merchandise again, with markdowns. basis markdowns, that leverage up to and be forward points XX our exceed up can going of anytime in the XXXX. we can this margins year buying we it and sales so the XX% combination was we was XXXX full a basis planning And improvement For margin year point

And for the Michael, price persisting a outlook look couple the years the as and of wages. company of off you margin really freight had you the cost for across pressure space, from pretty

You on every you from you us are well you we pretty as a know the these for as navigated anybody. ahead year. with year outlook guys calls get When stable

with dramatic You much the profitability to expressed you But of to to more to think know try volatility, out, how do are and has think you confidence something seen always things. done, group lot right know you you those get for navigate years to as of there just and be look able a restore freight. to a few the that now what we’ve given you wages levels, be

the I say was us exception. XXXX Yeah, for would that

at our and You the tax national wage reform to investment we getting know a we from we were important made $XX knew obviously beginning an minimum year of benefit raising in an the hour.

year X.XX with a guiding was up So compared its X.XX two to one we and six. we exception. X.XX that guiding look last the to XXXX, are are If one that ahead and to to we to

resolution fourth last tax in As included favorable that reminder, a the a a matter also benefit from $X.XX the onetime quarter. year

we Excluding above three one two we how is the to that with and seven, year. line EPS which growth in one time historically guided at EPS to of item are

you Okay, very thank much.

Loop Laura Your next comes from from Champine Capital. question

it execute to is scale just have Barbara or you on question. taking mishap some an at just now kind the to off for recur. my do of that issues in price women's, execution your that model belief driven in of becoming is you the unlikely the tougher purely an that missteps think was that this Thanks by were

It’s ever any saying business. tougher I don't be about again, I I'd a misstep. tell the think that think occur like anyone I that don't don’t could off-price don't an issue. I it model, but never I'd that, that’s execute to think would think say you to

internal, think on. it’s we think go I assortment has it the for don’t could customer. what know out model, do the built the self-inflected, future, the to off-price anything that I with you were issues the

and to it. need go is just you You do know it's important in don't that, we I know so or now in and think model large everywhere and correct obviously really to a – a us it's business else price before for very ladies issue. But

I correct ’XX. think correct miscues we need that will them had during we to plan up and we go and merchandise

it, Got you. thank

Our next Goldman Sachs. Alexandra question comes from from Walvis

about there, for question the strategy. question. I taking thanks the relocation Hi had a

up relocations done you like somewhat number not who you've and know prior been some opportunities could us that you up opportunities that relocations ramp opportunities years, in opportunities present are consistent have So the know with as it market. for ramping you here, number be at relocations in looks bring just you competitors themselves? the is the the closures see as across with the space plan those that retail How looking and more more come to of up

that number the change a relos. I don’t Sure Alexandra, that handful will and we open that includes significantly over years. about XXX new stores a expect next year in any couple year given of

if opportunities think always – But change materially. additional it You will not It's respond there. to here going know are don’t or we’ll there I

you. thank Great,

comes from Bob Our last question Guggenheim. Drbul from

up on Alex’s following Hi, just question.

to On year you new are available real-estate continue years, new seeing a do talk stores, in real-estate, to about thank XXX any past and as the and like you productivity costs store of performance versus changes new the you? or the terms that can the you stores, few

since of productivity fairly been terms five years entered over we’ve stable the the its store mid-west. new last actually In

the years So average. average is first than few XX% in faster ramps on and chain of average the chain an store store to a comp the XX% in then it about new

we XXX on a store that XX stores we those I several then over to new as sort rate no going about pipeline, years back look at major question last availability, availability. in of and changes and the And your would several running at And say we for look real-estate plant years out. been we've

years continue. to last has the reasonably I think that expect several been over availability and good I we think

you thank much. very Great,

That was this call will question. Rentler closing comments. Barbara our I time, the At last now turn over for to back

joining and a Thank Ross in for Stores. Have day! today your interest you us great for

concludes conference This call. today's

disconnect. now may You