Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales grew 8% to $4.9 billion, up from $4.5 billion last year.
- Comparable store sales rose 3%, driven by increased traffic.
- Earnings per share were $1.46, exceeding expectations.
- Operating margin improved to 12.2%, up 205 basis points from 10.1% in 2023.
- dd's DISCOUNTS sales trends outperformed Ross, indicating a favorable customer response to improved value offerings.
Negative Points
- Macroeconomic headwinds continue to pressure customers' discretionary spending.
- Merchandise margin declined by 15 basis points due to offering more sharply priced brands.
- Apparel business underperformed, particularly in ladies' apparel.
- Ongoing uncertainty in the macroeconomic and geopolitical environments, including prolonged inflation, continues to squeeze low to moderate income customers' purchasing power.
- Inventory levels increased, with total consolidated inventories up 10% versus last year.
Q & A Highlights
Q: Barbara, I wanted to follow up on the efforts to offer more sharply priced products to your customers. Were you pleased with the initial results in the first quarter? Do you think it led to market share gain? And what's the margin implication of your plans to build on this initiative?
A: So let me start with, just on the whole, our progress. We feel like in the first quarter, we made progress on our initiatives. And so we're still at the early stages of it, but we feel like it's a good place to be. In terms of do we think we gained market share from that, at this point, I don't really think we could determine whether we think that's the case. And in terms of the sharply priced initiatives, we feel like -- well, Lorraine, just say that piece again so I make sure I answer that piece of that sharply priced correctly.
Adam M. Orvos - Ross Stores, Inc. - Executive VP & CFO: Yes. Lorraine, this is Adam. I'll jump in on that. So higher-quality branded merchandise will typically carry lower margins relative to lower quality, less recognizable brands. So as we move through the year, this will be pressured throughout the year, but will be even more so in the back half of fiscal 2024 as we continue to make further progress on this, as Barbara talked about. We really feel like long term, this is the right thing for us to do to position us to capture market share going forward.
Q: Congrats on a great quarter. And I don't know if Michael is in the room, but Michael or Adam jump ball. Is 3% same-store sales growth, 200 basis points of EBIT margin the new normal algorithm? And if not, can you walk us through -- you mentioned lower expenses relative to plan. Can you just help us think about the puts and takes on gross margin and SG&A for the rest of the year? I'm assuming you'll -- I'm assuming we're not levering 200 basis points on 3% going forward. So maybe just help us understand within the context of the 2% to 3% guidance, what base that was so helpful in the quarter and what rolls off a little bit. And then maybe -- it seems like dd's improved a lot more than you thought if it was above Ross, just 90 days after you telling us you had to make some adjustments to the assortment there and some of the stores performing below what you thought. Maybe just some thoughts on dd's and what's going on with the lower-income consumer.
A: I'll take the first part, Mike. I appreciate the spirit of your question, but you're right. So domestic -- so let me just kind of walk through all the parts, right? So the EPS beat and operating margin benefit, lower distribution costs. So we had higher productivity in our distribution centers. We opened a new facility in Houston a couple of years ago. So that's getting fully ramped up. So that's providing productivity benefits. I would say on the DC cost front, the hiring environment and the retention environment is favorable. And we've also made investments in productivity in the distribution centers. And then lastly on that front, I'd say that the $0.02 of benefit that we talked about in timing is largely packaway benefit that kind of impacts the DC cost. We had better -- as expected, we had better domestic freight costs in the quarter. I would expect that to continue through the balance of the year at somewhat -- it'll be a little bit choppy, but at somewhat similar levels. We went through a bidding process, felt good about those results. As we sit here today, fuel slightly helping us versus last year. And then as we've talked about for some time, incentives. Some good news in Q1, that'll be winded our back through the balance of the year. So even though we had strong profitability into Q1, we're still up against 2023 where we significantly outperformed our plans.
Michael J. Hartshorn - Ross Stores, Inc. - Group President, COO & Director: Michael, there's one other nuance in the first quarter. The -- because your sales are based on a fiscal basis, your comps are on a restated. There's an outsized impact between your total sales and your comp sales because of that disconnect that corrects itself through the year. So we actually get higher leverage in the first quarter. Longer term, though, we would still expect the leverage at 3% to 4%. On dd's, as we said in the commentary, sales trends were ahead of Ross. That's due, in part, to the easier prior year comparisons, but also shoppers responded favorably to our improved value offerings. I would say we're just at the beginning stages of making merchandise adjustments there to improve the value offerings. And while we're encouraged by the initial customer response, it's still very, very early.
Michael Charles Binetti - Evercore Inc. - Senior MD: One point of clarification. Is that -- did the efficiencies from the DC costs ramping, does that continue with us after first quarter through the year?
Adam M. Orvos - Ross Stores, Inc. - Executive VP & CFO: Likely stays with us through the balance of the year. But not -- just clarifying, not at the level we saw in Q1, right? So the Q1 number that we reported is -- it has the benefit of the packaway timing right? So that's -- step back that in a tangible way.
Q: Congrats on another nice quarter. So Barbara, could you speak to current health of your core consumer today? Or any changes in your view relative to 3 months ago? And then just on cadence, could you speak to traffic versus basket trends as the quarter progressed? And just your confidence in similar performance in the second quarter and the back half of the year.
A: Matthew, that's a lot to take in, but I'll start with the health of the consumer. I would say it's hard to say on the health of the consumer. There's clearly a lot of uncertainty in the macro economy. The silver lining for our business is the customer is seeking value more than ever, and we're in a position to deliver that. In terms of cadence, as you know, we typically do not get into what the monthly cadence is. I would say that the performance during the quarter was choppy throughout the quarter with weather, the Easter calendar shift and tax refund timing. For us, even though weather was choppy during the quarter, it was relatively neutral for the entire quarter.
Adam M. Orvos - Ross Stores, Inc. - Executive VP & CFO: And on the comp components, average basket was up slightly. So we had higher AUR driven by a higher mix of brands and is partially offset by lower units per transaction.
Barbara Rentler -
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
