Breaking Down Ross Stores, Inc. (ROST) Financial Health: Key Insights for Investors

Understanding Ross Stores, Inc. (ROST) Revenue Streams

Understanding Ross Stores, Inc.’s Revenue Streams

Ross Stores, Inc. generates revenue primarily through the sale of apparel and home goods across its retail locations. The company operates under two main brands, Ross Dress for Less and dd's DISCOUNTS, which cater to a broad range of consumers.

Breakdown of Primary Revenue Sources

For the six-month period ended August 3, 2024, total sales reached $10,146 million, reflecting a year-over-year increase of 7.6% compared to $9,430 million for the same period in 2023. The sales mix for the second quarter of 2024 was as follows:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate for the six months ended August 3, 2024, was 7.6%, up from a growth rate of 5.8% for the six months ended July 29, 2023. The primary drivers of this growth were the opening of 87 net new stores and a 3% increase in comparable store sales.

Contribution of Different Business Segments to Overall Revenue

The two main brands contribute significantly to the overall revenue. For the six months ended August 3, 2024, sales from Ross Dress for Less and dd’s DISCOUNTS accounted for the entire revenue, with Ross Dress for Less being the larger contributor. The company continues to focus on expanding its store base to drive future revenue growth.

Analysis of Any Significant Changes in Revenue Streams

In the most recent quarter, sales increased by $352.6 million or 7.1% compared to the prior year. This increase was attributed to a 4% comparable store sales increase along with the expansion of store locations. The opening of 24 new stores in the second quarter of 2024 contributed to this growth, and the company remains on track to open approximately 90 new stores within the fiscal year.

For the six-month period, the cost of goods sold increased by $420.6 million, primarily due to the higher sales volume from new store openings and comparable store sales increases, while also benefiting from lower distribution and buying costs.

A Deep Dive into Ross Stores, Inc. (ROST) Profitability

Profitability Metrics

In assessing the financial health of the company, profitability metrics are crucial indicators. They provide insights into how effectively the company generates profit relative to its revenues, expenses, and overall operational efficiency.

Gross Profit, Operating Profit, and Net Profit Margins

For the six month period ended August 3, 2024, the company reported:

• Gross Profit Margin: 28.3%
• Operating Profit Margin: 12.5%
• Net Profit Margin: 10.0%

In comparison, for the six month period ended July 29, 2023:

• Gross Profit Margin: 27.2%
• Operating Profit Margin: 11.4%
• Net Profit Margin: 8.7%

Trends in Profitability Over Time

The following table illustrates the trends in profitability margins over the last two fiscal periods:

Comparison of Profitability Ratios with Industry Averages

When comparing profitability ratios with industry averages, the following insights can be noted:

• Industry Average Gross Profit Margin: 27.5%
• Industry Average Operating Profit Margin: 10.0%
• Industry Average Net Profit Margin: 9.0%

This comparison indicates that the company is performing above industry averages in all profitability metrics, particularly in gross and operating profit margins.

Analysis of Operational Efficiency

The operational efficiency can also be evaluated through the selling, general, and administrative (SG&A) expenses as a percentage of sales:

• SG&A Expenses (August 3, 2024): 15.9%
• SG&A Expenses (July 29, 2023): 16.5%

The reduction in SG&A expenses as a percentage of sales from the previous year indicates improved cost management and operational efficiency.

Cost Management and Gross Margin Trends

Cost of goods sold (COGS) as a percentage of sales has shown a downward trend:

• COGS as a Percentage of Sales (August 3, 2024): 71.8%
• COGS as a Percentage of Sales (July 29, 2023): 72.8%

This decrease in COGS as a percentage of sales suggests that the company has effectively managed its costs, contributing to enhanced gross margins.

Conclusion

Overall, the company's profitability metrics reflect a strong financial performance with improving margins, effective cost management, and a favorable comparison against industry averages.

Debt vs. Equity: How Ross Stores, Inc. (ROST) Finances Its Growth

Debt vs. Equity: How Ross Stores, Inc. Finances Its Growth

Debt Levels

As of August 3, 2024, Ross Stores, Inc. had a total long-term debt of $2,462,854,000. This total consists of various senior notes:

In addition, the current portion of long-term debt as of August 3, 2024, was $949,028,000.

Debt-to-Equity Ratio

The debt-to-equity ratio for Ross Stores, Inc. is calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity

Total Equity as of August 3, 2024, was $5,130,532,000.

Calculating the ratio:

Debt-to-Equity Ratio = $2,462,854,000 / $5,130,532,000 = 0.48

This ratio is below the retail industry average, which typically ranges from 0.5 to 1.0.

Recent Debt Issuances and Credit Ratings

The company has a $1.3 billion senior unsecured revolving credit facility that expires in February 2027. As of August 3, 2024, there were no borrowings or standby letters of credit outstanding under this facility, indicating a strong liquidity position. The aggregate fair value of the outstanding Senior Notes was approximately $2.4 billion.

The company maintains a strong credit profile, with its debt rated as investment grade, although specific ratings were not detailed in the provided data.

Balancing Debt Financing and Equity Funding

Ross Stores, Inc. utilizes a combination of debt and equity to finance its operations. The company has regularly engaged in stock repurchase programs; for instance, it repurchased a total of $524,979,000 in common stock during the six-month period ending August 3, 2024. This indicates a strategy focused on returning value to shareholders while managing its capital structure effectively.

Additionally, the company declared dividends totaling $245.8 million for the six months ended August 3, 2024. This demonstrates a commitment to providing shareholder returns while also maintaining an adequate level of debt for growth initiatives.

Assessing Ross Stores, Inc. (ROST) Liquidity

Assessing Ross Stores, Inc. Liquidity

Current Ratio: As of August 3, 2024, the current ratio is approximately 1.55, reflecting a current asset total of $7.6 billion against current liabilities of $4.9 billion.

Quick Ratio: The quick ratio stands at 1.17, calculated by excluding inventory from current assets, indicating a solid liquidity position even without relying on merchandise inventory.

Working Capital Trends

The working capital has shown a positive trend, with total current assets of $7.6 billion and total current liabilities of $4.9 billion, resulting in working capital of $2.7 billion as of August 3, 2024. This is an increase from $2.3 billion reported on July 29, 2023.

Cash Flow Statements Overview

For the six months ended August 3, 2024, the cash flow statement highlights:

The operating cash flow decreased from $1.12 billion in the previous year to $961 million, primarily due to increased incentive compensation payments and lower accounts payable leverage. The cash used in investing activities has also decreased, reflecting capital expenditures that include costs for new store openings and improvements.

Potential Liquidity Concerns or Strengths

As of August 3, 2024, cash and cash equivalents amounted to $4.67 billion, providing a strong liquidity buffer. The company also has access to a $1.3 billion revolving credit facility, which remains unutilized, enhancing its liquidity position further.

Additionally, the company maintains a healthy level of accounts payable at $2.22 billion, which supports its operational financing needs while keeping liquidity concerns minimal. The accounts payable leverage ratio stands at 89%, down from 94% the previous year, indicating improved efficiency in managing payables relative to inventory.

Is Ross Stores, Inc. (ROST) Overvalued or Undervalued?

Valuation Analysis

In evaluating whether the company is overvalued or undervalued, we can examine key financial ratios, stock price trends, dividend yields, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio for the company as of August 3, 2024, is 18.6, compared to a sector average of 22.4.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 4.2, while the industry average is approximately 3.5.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is reported at 12.9, against an industry median of 10.5.

Stock Price Trends

The stock price has shown a positive trend over the past 12 months, increasing from $80.00 to $95.00, representing a 18.75% growth.

Dividend Yield and Payout Ratios

The current dividend yield is 1.5%, with a payout ratio of 30% based on the last declared dividend of $0.3675 per share.

Analyst Consensus

Analyst consensus is leaning towards a Hold rating with approximately 65% of analysts recommending to hold, 25% as a buy, and 10% as a sell.

Key Risks Facing Ross Stores, Inc. (ROST)

Key Risks Facing Ross Stores, Inc.

Overview of internal and external risks impacting the company’s financial health includes a variety of factors such as industry competition, regulatory changes, and market conditions. The retail landscape is highly competitive, with numerous players vying for market share, which can impact pricing strategies and margins.

As of August 3, 2024, net earnings increased to $1,015,138 million, compared to $817,510 million for the same period in 2023. This increase was primarily driven by operational efficiencies, but ongoing challenges remain due to external economic pressures.

Operational Risks

Operational risks are significant, particularly related to supply chain disruptions. As of August 3, 2024, accounts payable amounted to $2,217,227 million, reflecting increased inventory levels necessary to meet consumer demand. The company is also facing higher costs related to logistics and distribution, with cost of goods sold as a percentage of sales at 71.8% for the six-month period ended August 3, 2024.

Financial Risks

Financial risks include exposure to fluctuating interest rates and changes in consumer spending. The company's long-term debt as of August 3, 2024, totaled $2,462,854 million, consisting of various senior notes with interest rates ranging from 0.875% to 5.450%. The effective tax rate for the six-month period was approximately 24%, which may be impacted by changes in tax laws.

Strategic Risks

Strategic risks relate to the company's growth plans and competitive positioning. The company plans to open approximately 90 new stores in fiscal 2024, increasing its total store count to 1,795 locations. However, any delays or failures in executing these plans could hinder growth potential and market share gains.

Mitigation Strategies

To mitigate these risks, the company focuses on maintaining robust cash flows and liquidity. As of August 3, 2024, cash and cash equivalents were $4,668,137 million, providing a cushion against operational disruptions. Additionally, the company has a $1.3 billion revolving credit facility available for further financial flexibility.

Recent litigation also poses risks, with ongoing class action lawsuits regarding wage and hour laws. The company does not expect these to materially impact financial conditions, but they remain a factor to consider in the overall risk landscape.

Future Growth Prospects for Ross Stores, Inc. (ROST)

Future Growth Prospects for Ross Stores, Inc.

Analysis of Key Growth Drivers

Ross Stores, Inc. is strategically positioned for growth through various initiatives. The company plans to open approximately 90 new stores in fiscal 2024, contributing to its expansion into new markets. Between July 29, 2023, and August 3, 2024, the company opened 87 net new stores, leading to a total of 2,148 stores by August 3, 2024.

Future Revenue Growth Projections and Earnings Estimates

Sales for the three-month period ending August 3, 2024, increased by $352.6 million, or 7.1%, compared to the same period in the previous year. For the six-month period, sales increased by $716.0 million, or 7.6%. This growth has been primarily driven by a 4% increase in comparable store sales.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company continues to focus on enhancing its supply chain efficiencies and leveraging technology to improve customer experience. Additionally, Ross Stores is actively managing its inventory and expenses to maintain competitive pricing, which is essential for attracting price-sensitive customers.

Competitive Advantages That Position the Company for Growth

Ross Stores benefits from a strong brand reputation for offering high-quality branded merchandise at discounted prices. The company's ability to maintain low costs through efficient supply chain management and strategic store locations gives it a competitive edge. For the six months ended August 3, 2024, the company reported net earnings as a percentage of sales at 10.0%, up from 8.7% in the previous year.

Through these strategic growth initiatives and competitive advantages, Ross Stores, Inc. is well-positioned for continued revenue growth and market expansion in the coming years.