Ross More or Less on a Roll
By George Anderson
Ross Stores recent financial reports demonstrate that less can be more when it comes to both top and bottom line performance.
The clothing retailer with 633 stores operating under the Ross Dress for Less, Ross and dd’s discounts banners in 26 states recently reported outstanding monthly, quarterly and
annual figures with major improvements in total and same store sales as well as operating margins and earnings per share.
Ross reported a quarterly sales increase of 16 percent with same-store sales up six percent compared to the same period the year before. For the year, comp sales were up six
percent, as well.
In a conference call with analysts last week, John Call, senior vice president and CFO for Ross Stores, said the company had managed its sales improvements while keep inventory
levels “relatively flat on a comparable store basis.”
The company’s inventory position suggests the investment Ross has made in IT and other areas may be paying off. Ross has had issues in the past with its inventory management
processes.
In August of last year, the company’s vice chairman, president and CEO Michael Balmuth said, “Markdowns year-to-date have consistently been higher than planned. Although residual
inventory issues from 2004 and modest volatility around actual-versus-plan sales had an impact on markdown activities, we believe that the internal learning curve related to numerous
new system processes, procedures and information flow also has contributed to higher markdown levels. We believe we have addressed most of these transitional issues and that their
overall impact on margins should diminish going forward.”
The strongest operating regions for the company, according to Mr. Call, were the Southwest and Mid Atlantic. Both regions posted double-digit growth.
“Product categories that did best were Juniors and Shoes. Children’s and Men’s also posted healthy percentage gains in comparable store sales in the high single to low double
digit range,” he said.
Moderator’s Comment: What is your assessment of where Ross has been and where it is headed? –
George Anderson – Moderator
- Ross Stores Reports Jan Sales, Estimated
Q4&2005 EPS And Projects EPS Ranges For Q1&FY 2006 – Ross Stores, Inc./PRNewswire-FirstCall - Ross Stores Conference Call Transcript – Ross Stores, Inc./PRNewswire-FirstCall
- Ross Stores Reports Second Quarter Earnings
and Forecasted Second Half 2005 Sales and EPS Ranges – Ross Stores, Inc./PRNewswire-FirstCall
In the year ended 2/3/2001, Ross netted 5.6% of sales. Its announced forecast net for the year just ended is 3.9% of sales. So they have a way to go. Like many retailers, they did a lot more work for very little profit. Sales were only $2.7 billion for the year ended 2/3/2001, and profit was $152 million. Sales for the most recent year were $5 billion, almost double, but profit is expected to be only $195 million. So sales went up 85% but profit was up 28%. Many retailers focus endlessly on sales. Business health is dependent on translating sales into profit.
My understanding is that Ross is either in the midst of, or has just completed integrating a new ERP system from Retek/Oracle. Indications are that there were significant issues in that, and these are probably what was referred to in the press release as the new processes and technologies.
Retek’s system is fundamentally solid, and can and should bring with it immediate improvements in inventory control, markdown control, and merchandise planning; particularly in comparison to very antiquated systems and processes which I understand to have been in place at Ross.
My evaluation of Ross is that it is still struggling to find a real differentiated niche, outside of location. Assortment planning, in what is primarily an off-price model (but don’t bank too heavily on that assumption) is tricky at best. The single biggest gain for Ross has probably been in adhering to open-to-buy constraints at a more impactful level than “category.” Opportunistic buying, into already overcrowded inventories, is simply buying into markdowns.
Where are they going? I have no idea, and can’t really figure it out from any public commentary. Right now, they appear to be concentrating on being effective and efficient at what they are doing. Given their size (small) and location opportunities, it’s probably years from when they absolutely must have a more defined and focused strategy. Upside potential in store comps for the next year.
From a brief visit to a Ross Store in Houston, I strongly admit that they cannot compare to TJX operations. The Ross Store felt more like a Salvation Army Thrift Store than a fashionable deep discount store. They really need to beef up their image and expand nationwide to make a dent in TJX.