Ross Stores Faces Headwinds In Q2

In the second quarter, off-pricer Ross Stores continued to weigh the impact the coronavirus pandemic had on its stores, as net sales declined significantly, although the company managed to post a profit.

Both sales and earnings were impacted by the COVID-19 related closures of all Ross Dress for Less and DD’s Discounts locations that began on March 20 and continued through a portion of the second quarter. The company began a phased process of reopening its stores on May 14 with the vast majority of its retail locations open and operating by the end of June.

For the second quarter ended August 1, 2020, the company reported earnings per share of $0.06 on net income of $22 million. This compares to net income of $413 million or earnings per share of $1.14 last year.

Total sales for the period were $2.7 billion, down from $4 billion in the second quarter of 2019. Comparable store sales were down 12% for reopened stores from the date of their reopening to the end of the fiscal quarter.

Second quarter 2020 results include a $174 million or $0.19 per share benefit related to the partial reversal of the inventory valuation reserve from the first quarter, the company noted.

Barbara Rentler, CEO, Ross Stores, said, “Comparable stores sales during the quarter were impacted by a number of factors. During the initial reopenings, sales were ahead of our conservative plans as we benefitted from pent-up demand and aggressive markdowns to clear aged inventory. In the weeks thereafter, trends were negatively impacted from depleted store inventory levels while we were ramping up our buying and distribution capabilities.”

Rentler added, “Our operating margin for the period reflects the deleveraging effect from lower sales as our stores were only open on average for 75% of the quarter, and on the comparable store sales decline. Additional headwinds included COVID-19 related expenses and unfavorable timing of packaway-related costs. These items more than offset the benefit from the partial reversal of the inventory valuation charge taken last quarter as aged merchandise sold through much faster than we expected.”

Looking ahead, Rentler said, “As we move into the third quarter, trends have not materially changed from the second quarter with comparable store sales for the first two and a half weeks trending down mid-teens versus last year. There remains significant uncertainty on how the pandemic will continue to evolve and affect consumer demand and the economy, and the potential exists for additional government mandated shutdowns if COVID-19 cases remain elevated or further increase. Given these risks, we will continue to plan and manage our business very cautiously. Due to the limited visibility we have on these risks, we are not providing sales or earnings guidance at this time.”