Ross Stores noted that sales improved during the off-price retailer’s third quarter, but the company entered the fourth quarter with an eye on the surging coronavirus pandemic.
The company reported earnings for the third quarter ended October 31, 2020, of $0.37 per share versus $1.03 per share for the previous third quarter. Net income was $131 million, compared to $371 million in the prior year period. The results include a one-time charge of $240 million or $0.65 per share impact to net earnings relating to the refinancing of $775 million in senior notes during the quarter.
Third quarter 2020 sales declined 2% to $3.8 billion, with comparable store sales down 3%.
Barbara Rentler, CEO, Ross Stores, said, “Sales trends accelerated during the third quarter following a slower start in August, driven by an improvement in our merchandise assortments, a later back-to-school season, stronger performance in our larger markets, and our return to more normal store hours. Third quarter operating margin of 4.4% was down from 12.4% in 2019, and was negatively impacted by the one-time debt refinancing charge, which was equivalent to 640 basis points. In addition, the year-over-year margin decline reflects higher COVID-related operating costs in 2020 and the deleveraging effect on expenses throughout the business from the decline in same store sales.”
Rentler added, “Core business results improved during the quarter demonstrating consumers’ continued focus on value, and our ongoing ability to deliver the bargains our customers have come to expect from us. We continue to maintain a strong financial position with over $5.2 billion of total liquidity. In addition to the refinancing of a portion of our senior notes during the third quarter which will significantly reduce the annual interest expense and total cash outlays over the life of the debt, we took other actions to lower our ongoing debt costs, including the repayment of the $800 million revolving credit facility and terminating the undrawn $500 million revolver.”
Looking ahead, Rentler said, “As we enter the fourth quarter, our month-to-date comparable store sales in November are down mid-single-digits. In addition, there remains a high level of uncertainty related to the worsening health crisis and we are concerned with how the upsurge of this pandemic might impact consumer demand during what we expect to be a highly competitive holiday shopping season. Given the lack of visibility we have regarding these external risks and how they may evolve and impact our business, we will continue to manage our operations conservatively and will not be providing sales or earnings per share guidance for the fourth quarter.”