Ross Stores Inc. (NASDAQ:ROST) Q3 2017 Earnings Conference Call Transcript

Nov 16, 2017 • 04:15 pm ET


Ross Stores Inc. (NASDAQ:ROST) Q3 2017 Earnings Conference Call Transcript


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Good afternoon, and welcome to the Ross Stores Third Quarter 2017 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question-and-answer session.

(Operator Instructions)

(Forward-looking Cautionary Statements)

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

Barbara Rentler

Good afternoon. Joining me on our call today are Michael O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; Michael Hartshorn, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations.

We'll begin our call today with a review of our third quarter and year-to-date performance, followed by our outlook for the remainder of the year. Afterwards, we'll be happy to respond to any questions you may have.

As noted in today's press release, our third quarter sales and earnings outperformed our expectations despite being up against our toughest prior year comparison and two major hurricanes during the quarter. We are pleased with these results, which reflect our continued market share gains in a challenging retail environment.

Earnings per share for the period were $0.72, up 16% from last year. These results include an approximate $0.01 benefit from favorable expense timing that's expected to reverse in the fourth quarter. Net earnings grew to $274 million compared to $204 million in the prior year.

Sales for the third quarter rose 8% to $3.3 billion, with comparable store sales up 4% on top of a robust 7% gain last year. Operating margin of 13.3% was better than expected, mainly due to a combination of higher merchandise margins and leverage on above-plan sales.

For the first nine months of fiscal 2017, earnings per share were $2.36, up 15% on top of an 11% increase in the prior year. Net earnings were $912 million, up from $817 million last year. Sales year-to-date rose 8% to $10.1 billion, with comparable store sales up 4% versus a 4% gain in the same period last year.

By region, trends were fairly broad-based, with the Midwest performing the strongest during the period. We estimate that the hurricanes in Texas and Florida had a minimal impact to the quarter as sales rebounded significantly following the storms. By merchandise category, children's was the best-performing area, benefiting from solid execution of our merchandising strategies.

Similar to Ross, dd's DISCOUNTS continued to post better-than-expected gains in both sales and operating profit for the third quarter.

As we ended the third quarter, total consolidated inventories were up 4%, with average in-store inventories flat compared to the prior year. Packaway as a percent of total inventories was 46% compared to 45% last year.

Turning to our expansion programs, we opened 30 new Ross and 10 dd's DISCOUNTS locations in third quarter, completing our 2017 store opening program. We expect to end the year with 1,408 Ross and 213 dd's DISCOUNTS stores, a net increase of 88 locations for fiscal 2017.

Now, Michael Hartshorn will provide further color on