ROST - Earnings call transcript Q2 2021

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Operator

Good afternoon and welcome to the Ross Stores Second Quarter 2021 Earnings Release Conference Call. The call will begin with prepared comments by management, followed by a question-and-answer session. [Operator Instructions] Before we get started on behalf of Ross Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecast, new store openings, COVID related costs, and other matters that are based on the Company's current forecast of aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the Company's fiscal 2020 10-K and fiscal 2021 Form-10-Q and 8-Ks on file with the SEC.

to Officer. call like Rentler, to would Executive Chief I turn over the Barbara Now,

Barbara Rentler

you joining to on Connie and third afternoon. call performance President, be President, Good followed me we'll Relations. fiscal today Chief any Hartshorn are Investor to may outlook of happy Operating year. Group with Michael by a have. Afterward. Officer, our begin our quarter and We'll Kao, questions review Vice our Group respond our call second-quarter today the for

As our we second-quarter of noted response are pleased sales and assortment today's press in release, benefited positive that earnings expectations. customers' broad bargains. both substantially from our exceeded to great Sales

vaccination by number grew restrictions. were million. XXX addition, with COVID Income for on rose factors, a up the rates, Earnings This Total results sales to per In $X.XX the share of the increasing a to robust XX%. August a weeks to of XXXX, XXXX. sales share and ended a XX, billion our $X.X ended for July for diminishing weeks million XX% per compares X, including bolstered Net $XXX of external $X.XX XX comparable-store XX% stimulus, quarter ongoing Earnings net XX government

in net X fairly children's the the sales on For second Sales Ross's merchandise best. quarter, income of up the regions areas across earnings first for of of rose the broad-based from for and were comparable-store up sales XX% million half with earnings $XXX XXXX. months, XXXX performing with were X.X the to share $X.XX XXX Midwest XX% trends first the million $X.XX from XXX share per on period same per net -- for up billion and

same selling our for period XXXX. pales. the At used average DISCOUNT we in period dd's compared down pack-away as the inventories a levels to exceeded total operating and both were at of XXXX, robust substantial ahead-of-plan profit the of ended X% quarter-end, consolidated gains total, while significantly store up were during sales support X% XX% inventories expectations. amount remained Additionally, as Packaway versus XX% to merchandise trends

receipt due congestions. there to delays supply addition, In were chain

growth, store locations now DISCOUNT. about open and of year Ross XX total approximately this dd's comprised XX XX to Turning to we expect

usual, not our relocate about stores. to As close plans these do numbers reflect or XX

As mentioned in opening in annual we XXX to program new normal XXXX, last stores. of approximately quarter's to expect call our return

Now, Michael updated on further provide Hartshorn will year. and second-quarter details for results, guidance, the our third-quarter outlook

Michael Hartshorn

basis points basket XX driven while stated, XX as Barbara, distribution were larger higher a period grew store SG&A rose costs basis as XX plan increases, which drove sales congestion average up up points. was for items slightly XXXX by sold occupancy at and X freight higher points from industry-wide worsening wage comparable supply primarily by versus of declined Basis The chain well Cost XXXX. SG&A. the higher by our points. in basis each from approximately was vast gains expenses the results. given increased expenses improved you, of better-than-expected The with leverage the and COVID strong majority sales we were expenses, XX the XX for while above quarter, Thank Partially and by which Basis Merchandise offset period second-quarter offsetting these net COVID-related Total impacted points buying XX.X% points. incentives previously decreased traffic goods cost quarter. margin by of margins mainly XX% basis points in operating XX basis versus

stock purchase $XXX for on of total we the X.X price shares stock $XXX During million buy remain a We million common the year. track to for total million. of back quarter, repurchased of a in

guidance. third-quarter our discuss let's Now,

XXXX. the same our compared As projections to a period reminder, in

could face well congestion. ahead, external the factors and first-half as benefited spread risks that chain COVID the positive as results, of the sustainability from our we of there supply much remains Looking worsening the uncertainty variance on industry-wide potential

for to $X.XX third-quarter we X% to result, operating quarter, comparable statement be assumptions are $X.XX. support X% the The to per to to include of forecasting a that sales Total up store As are with guidance the third our in range grow projected following. earnings to be XX%. projected X% the share sales

expect We well of be operating to forecast distribution X.X% costs, to significant expenses. This X.X%. a freight as higher margins escalation reflects as

plan by million. COVID-related ongoing during third XX stores EBITDA to be interest to XX margins expense of the are is period. DISCOUNT. addition, ten In points Ross XX approximately impact consisting the $XX about projected Net quarter estimated We negatively in to basis and dd's costs open

$X.XX approximately Our on tax about Based to we our guidance, to are weighted full-year compared in third-quarter gains comparable-store in first-half sales shares to $X.XX to share projected per project be outstanding diluted in is average now expected be XXXX. XX% XX% and million. of results to XXX be rate $X.XX range and XX% XX% of to earnings to the

for the Barbara comments. will to closing turn I back Now, call

Barbara Rentler

Thank you, Michael.

While remain ability we over branded factors of we're a That bargains. said, year. are the results continue reported Michael of they the well-positioned deliver great there's to external value affect as balance may uncertainty high the noted, a a confident by how we on of today, pleased better-than-expected and in number level we retailer to as our our and believe business

and any up and additional have. in ability might respond bankruptcies the Moreover, over retail for we further future. Moving continued point, you years remained convenience. the share sales prospects closures our enhances growth market both number focus and to increased of Especially our value At profitability this and questions in forward, in to term. longer recent the to the consumers significant call about on gain optimistic like we open giving

Operator

for yourselves we Please roster. we reminder, In to everyone compile that please questions, while order Q&A question. [Operator Instruction]. a allow time the As X limit stand by ask you to

Lorraine Bank of question first line America. of the from from Your is Hutchinson

Your open. line is

Lorraine Hutchinson

you just how much curious Thanks. -- how get seeing was tone are I a versus baking different Good in and afternoon. sales versus It's are these things case guidance. the the much today XQB quite just you in of margin pressures worse? with XQ

Michael Hartshorn

Kimber Michael. ly, is

the that high of it's third that how said, uncertainties risks guidance the thus with really based level then also supply and variant sales other the external quarters. the the And year-to-date in Delta That really on And sustainable on chain fourth hope to are. the based factors On risks could those and first have we the exist? front, that and better far. guidance half, happen congestion, the than what as we the benefited is risks do

Operator

from Your is Mark next Altschwager Baird. question from

Your line is open.

Mark Altschwager

question. afternoon. for Good my taking Thanks

ahead, is you with some could of was or late current months to expected opportunities of this backdrop. hoping speak in I kind So, just is chain throughout create a there the inventory the deliveries, of the orders, on and to the notes of out focus lot the cost trapped canceled supply creating system. in quarters side

availability quarters? how this out the from Just inventory you. an standpoint you coming in playing really Thank see do

Barbara Rentler

is expect So, of those goes to the chain supply receipt actually on. kinds listen, the obviously, now. worsen causing year And congestion all as we delays right

or So, as point in time, upon those will potentially of pack-away products and some the see are. we business types either at goods for what's the those opportunity and depending back an flow up will

or beginning that think that year I moment, would to year if the pick a next happen late of at this you had So, the probably in either would timeframe.

Operator

of line is Lewis question the from Paul Citigroup. next Your from

line Your open. is

Paul Lewis

X states. was third quarter the about be by in of the versus different was performance about the trend about quarter in the are curious guys. also performance thinking could are home you you today state? XQ. you in big the And the any change about just apparel maybe sort curious and Can seeing Curious talk How performance if thanks, Thanks. some how and guiding that's where the if quarter. talk second comps states might in Hey, also particular there your in you

Michael Hartshorn

increased, below On saw our at quarter the and this the still line they a comment regional trailed Florida, and Texas, were of in improvement relatively chain the during first Texas point. wouldn't in quarter, XX% on what tourism about quarter current of sales. California significant up performance the the we with saw chain. which From though California, make the bit trends in quarter as we and second a Florida,

Barbara Rentler

top-performing to to that from entire of trends continues Apparel. accelerate versus home our to Similar The however, areas. Home seen Apparel, QX. pandemic. to the And continues QX through merchandise we've be one

think wear and I casual shift Apparel in classifications activewear. seeing then have we're what pre So, is what's now towards already a -COVID is also happening was traditional And there sportswear improved. more that

to So that's the -- make from the other. to build quarter the one build to starting Sales -- to

Paul Lewis

supply could there? share Barbara, chain Anything others? seeing categories you the are disruption than more certain you impact

Barbara Rentler

deliveries merchandise Look, of of departments, overall, there's point not merchandise are your supply. happening but consistent is with It's cross in reality, sliding. what's plenty that

what and so are slide could are in what are based days constantly they're really it the is are need. on XX they into and X they doing they flexing market, the weeks, merchants sliding the that availability classifications off they seeing chasing So,

So, little target, overall, a of of it's a supply. but bit plenty there's moving

Paul Lewis

Good you. Thank luck. Okay.

Operator

limit Again, ask question. for in to allow please order yourselves to time you questions, that X everyone we

Greenberger Morgan Stanley, question next line your of is from open. the Your is from Kimberly line

Kimberly Greenberger

some Thank if for and see given some had thought quarter? comp a XX% to prices of done just you. a you've guidance in that even there I in to the comparison on surgically it's higher then that your the or get price price Okay. wanted the is to to Thank what so absorb just I just Great. actions fourth much. or on little to you seeing different wanted I any here could help about costs, compared you embed back bit -- of if as further if And some thought May. you're the marketplace. to full-year potentially just hear sort based does any XX% what comments clarification

Barbara Rentler

pricing, In customers. terms value critical price our still strongly believe of that to Kimberly, is we

to as is about come that years regularly. merchants understand over So, our shopper And target know, pricing -- savvy. we've really how shop they you really the the talked really

best are So, quite gap merchants the store. price the retailers we out if to of our strengthen the deal assortments always making not we'll prioritizing, having the constantly all we priced the getting there, sharply for assessments our higher increase as price entire it. those They're frankly, she offer The prioritize, pricing that traditional their that provide shoppers. she's and could assortments time. that values is knows value And really

more of for one the merchants about talk they The point, their raising I that we is they it way see So, job, will leader anything it, in competitive prices this it assess say be comment the But reasons. I will the won't price they'll do wouldn't it. would s. and and at terms

Michael Hartshorn

sight guidance Kimberly, looks as the on to the very settles. QX, for the quarter fourth similar comp

Kimberly Greenberger

Thank you.

Operator

from question next Gordon Your is Chuck Haskett. from Grom

open. is line Your

Chuck Grom

anticipating you're you If to Good the the It very freight drag. that quarter. couple over much. speak basis one third magnitude and quarter. Thank of to quarters just like XXX you DC the XXX about past it's of in looks guys the of costs points could been

you if of quarter? how this wondering expecting could you're in big drag a here Just speak Thank to you.

Michael Hartshorn

give the would expect was second didn't were freight guidance drag XX XX to half. points. and basis We We and in of points specific the quarter, obviously, worsen the DCs in basis costs freight both DCs the back

Some the of in further we we're on the but ocean wages specifically expect by comp, leverage half. driven would in costs the seeing DCS significantly that's back escalates and freight we've raised

So expectations that to get. built-in the are those we worsening guidance our

Operator

Morgan, is from the open. from JP your Boss question of is next Matthew Your line line

Matthew Boss

and nice thanks, a congrats quarter. on Great,

states your external half August, overall embedded front And early and you the the in So, Michael, you on in Gross have outlook? third back-to-school change what of gone that maybe what the relative margin Barbara trends, back the earlier. on promotional any then have far in margin, thoughts saw seen have merchandise we for year some backdrop of any or to pricing just in the quarter so

Barbara Rentler

been younger back-to-school So businesses' Matt, while. for a look, the with trends, pleased we've performance our

for well bodes obviously that so And back-to-school.

doing would classifications, XXXX. say, a well, have a feel therefore, to customer's because now, wear buying our product feel But back-to-school, more good younger about that we businesses In let's those about. might terms good has the say perspective are pretty in to forward but obviously, make go I seen traditional started that from conversion -- fashion in we still we of businesses back-to-school

Michael Hartshorn

today see Matt, And order. we current obviously, margin, we built on can on had in what with

turn we was think big should plans. as opportunity lower take the benefit if our a the sales we exceed second as There markdowns. is I it quarter and be can faster in

Operator

Your from next Stichter from is question Janine Jefferies.

Your open. line is

Janine Stichter

Thank and my you the you. taking you question. ask moderate sanitation about for had if cleaning to the for in stores? aspects potentially Hi, putting thoughts thanks I costs, any the about are starting the wanted timeline the COVID into to expense

Michael Hartshorn

Sure.

that's think have changed variant But time. the cleaning the the sooner would than that think have would right, now we built-in which given aspects I throughout appropriate X over ago, been is Obviously, asked have we later. me months of you if year, spread. rest the it

Janine Stichter

Thank it. Got you.

Operator

from Your Michael from is Credit next question Suisse. Binetti

Your line is open.

Michael Binetti

XX% there's plus I towards us. move think at an guess you real for Hey years guys, margin in lines taking margin back the you the biggest questions of like beyond get what to the sounds the here you the that back? to few here. we of that the seem right if are business, kind commentary try business our lot think opportunities Michael, now, thanks in to to saw I'm a pricing to group, guys -- to curious look look soft noise when urgency you that operating get a you no It

of maybe that, right, for So if transitory. think here? operating you -- are to past seeing best costs you quite back thinking these some what implies get to that's are ways that from in the we're this that within business that plus margin Do XX the do you're

Michael Hartshorn

especially store now, to will be of Michael. would freight And have world, the COVID business going right equilibrium in some up vibrant forward. about be retail, and Sure margin ocean there grabs an transitory over opportunities. share mentioned, we be some you -- whether to value some with highly who obviously opportunity at I is given the return as that point, it's convenience, we expect of say, strong and the XXXX a the in we're time. bankruptcies, good customer then thoughts freight with on levels And closures and will for market we focused on performance Sales feel dependent there's very sector our

offset on a how going to is that on to business Now, of long lasts of on I work in some think be this of we But to don't to certainly these the and then more places not dependent costs. some say lot growth. that find inflation have efficient top-line it's

Michael Binetti

Thank you.

Operator

from question is next Your John Cowen. from Kernan

open. is line Your

John Kernan:

my taking for Thanks questions. Excellent.

is should Just quantification your the impact of does for the into Is back about first guiding curious of cue of half in it year, next that distribution half next about the year. the of this ballpark, the we headwinds think -- freight year? and how

Michael Hartshorn

initiatives we build and have do In made permanent. the wouldn't DCS, this plans for wages I year. said, that at comment And will on into budgets the next next that year point. are we that our productivity and

I hard On will the costs, into first my gave this the next freight you say I'd say congestion I ocean point, part year. of it's the to at some of this point. at and If think view bleed

John Kernan:

Got part are all chain stay of theme about holiday are it. etc.? into supply One we deliveries given of year, as at next here, early at just quick and ports, the on you of concerned we things a follow-up the some seeing

Barbara Rentler

overseas, issues of all of we backed think with I there the all coming it's majority Well, China COVID of all them, a not and goods of chain -- supply made know large which out slide. the problems up are and all

are I issues while. they'll think for continue real a think I the and

closeouts. we're is their And happening sure what to make The merchants are and seeing it what and are -- businesses we flexing attention really so, base have that's paying them. our what's of up do and is, they to of majority adjusting around what that the

target. good's a buy There's these things might how it's be season. of issue like slide. lot us that moving a timing available So, goods might -- kind are of will for in What a of be late, to

earlier. go think of you Year a is is weeks into the challenge New I couple QX that Chinese as that

of China, So a little that to have deliveries think, two the goods in and bit out terms of particular. collide, I get to are in kind of going things those

and assortment, answer I do. hunt going it, a a going so going is as can So, are think we a model the offer are and long we to we are go, as to treasure adjust are to watch in what flexible we broad as business that's we we

John Kernan:

Thank you. Excellent.

Operator

yourself for order that ask to question. we you everyone in allow time to please Again, questions, one limit

question from Your Yih Adrienne is Barclays. next from

open. is Your line

Adrienne Yih

had quarter I know quarter Florida late the the the in any maybe this impact was very Barbara, per in Thank and variant or the particular much. they first Texas wondering seem or July versus if on be Delta at that fine, very towards you end then of any but trends? where off I do you to much. changes ATV of end quarter. Thank quarter you the any think basket trailing And you the seen quarter?

Michael Hartshorn

by basket. consistent up AUR slightly slightly, it comps Adrienne, units other basket the but the was to trend basically was transaction driven. absolute months driven say -- quarter, say, terms the the was and that by on with of sequential comps. fairly per the was it in was comp, higher size robust quarter. was trend We components throughout was throughout it's it than Traffic driven the mainly a the slightly of up the other specifically wouldn't of was and than may

Adrienne Yih

luck, best Thanks much. very of And congrats.

Operator

Your next your of is Retail open. line Shapiro Marni from Tracker, question from is the line

Marni Shapiro

guys. Congrats Michael, just clarify great said. Could thing, -- to a that one on Thanks, you quarter. want you I

your to made You past. You just to sales? talk I in guys the said percent up clarify and about want number Texas, I the heard. what this Florida used California, of that

Michael Hartshorn

ours of [Indiscernible] XX% about It's

Marni Shapiro

is you have the what into that just marketing That's should big, know spend? I bit the a where been Has through it part, stores a bit up year for the of you strong marketing as haven't that? the half this guys back how just has have retailers. been the instead, your about ticked you think and curious, being it talk Can other demand year this through thought. you not I for in push it talk all coming if spending COVID a up it's we could just we so ambitious And I'm marketing? was about little year, about little for or ticked opened? now, most like

Michael Hartshorn

terms Marni, put We digital made channel In competitive have but the of shifts, like we investments. provide there, money wouldn't broadcast. we versus places have for we details made strategic into more reasons, -- and marketing used

COVID made find for to and So, best shifts during forward. some continue have going what us we we'll works

Marni Shapiro

were year to of Has stores are open the compared first it sure, for picked stores up that ago the when, year now say the a half --

Michael Hartshorn

No doubt. took so are it. an picked it to obviously closed up the year. when We has we stores Yeah, no spend as were doubt opportunity last Marni, -- stores closed, the about not it's when versus certainly

Marni Shapiro

So that's all rolls back in here.

And Okay. should open? it stores without from and out usual your levels be about here

Michael Hartshorn

Correct.

Marni Shapiro

Thank luck rest season. Best Fantastic. with Okay. the the fall you. of of

Michael Hartshorn

Thank you.

Operator

Your next Capital. Laura from Loop question Champine from is

is open. Your line

Laura Champine

I taking for Thanks get that of point almost to some in XX% to Still within certainly in QX. my decline, are assumptions you around my that But you reversal are head are assumption? heard the margin the costs. significant of in what trying or the EBITDA margin sort embedded a merchandise sequentially EBITDA expecting question. margin of COVID XX-basis looking big

Michael Hartshorn

QX -- XX% lower QX, Second to on instance, for comp in margin EBITDA and -- the year-to-date XX% On That performance. between is obviously Quarter. of X the our the than X

ocean it. year-to-date. I a we've freight higher to So bit And the a and that in we then we then portion wages delivers that the escalate expect where than significant DC QX costs, over mentioned, assumption had significantly embedded more drive -- will drives that of as

Laura Champine

can where have normally you of give logistics and Do as a costs percentage tracking you now? -- total me it. it's Got sales

Michael Hartshorn

we for. not provide something That's

Laura Champine

you. Thank Got it.

Michael Hartshorn

point on [Indiscernible] basis is, the quarter mentioned, escalation points basis significant was from you XX embedded The best expect as DCs, points deleverage And at again, this that. can I then of guidance wages. we've and second give XX it from we higher was because additional and freight I

Laura Champine

it. Got

Operator

question next Telsey is Your Advisory. Dana from from Telsey

is open. Your line

Dana Telsey

the is dd's any plans afternoon. terms like for or credits of XX% there, changes Anything thinking this and first away, terrific would just pack Thank couple a and of the their of year think a Good to it It in was think seems about How it a pack and Secondly, quarter, to then you row it I tax now, had quarters And you. for driving be are the the in it's at? away I XX% performance. the note what's that, quarter. child has on stimulus? balance rate in

Michael Hartshorn

as value have dd's, is has it's to margin sales I'd dd's a and helped also on very we but robust On in Ross throughout trend they've been one Dana. what pandemic. is stimulus customer continue The to impacted that attracted though customer Ross and EBIT Sure, have as Ross, dd's customer focused that, say been like the the Obviously, relative mentioned, the in they improvement. store. thing common fairly to consistent the we've had the well. external

you was second in On note So, that our XX% away inventory pack no changes the total levels, of I would mentioned, at quarter. as inventory.

of to head some fuel of receipts. growth. by inventory the obviously that impacted we plan It With receipts, some delayed Sales, use the also. was Sales of

dependent year. then number, looks have return to Inventory historical the of chain higher be beat we the historically. end top the supply plan, the going to had line we on return the than have within in-transit but at also over levels time, whether And of the like to perform we expect what then and So, congestion that's we on and would a level -- how somewhat we

Operator

from from is Markets. Simeon question Capital Siegel next Your BMO

Your open. line is

Simeon Siegel

opportunities Hi this where and kind That's most get customer EDs while the Dick, with our I'm just new or current customers Simeon. seeing and could share? of if wondering the that capture current for to is going forward? you're question on most the thinking potentially we you're that what the customers expanding color about within with some

Michael Hartshorn

older the shop. we've by driven with of pandemic customer, the the to customer on hesitancy in a younger now seen and early we've pandemic seen that what part during Yeah, restrictions I would say is was

the that store. As the seen customers turning that we we've back moved in older shopper along, to is actually

them the to across they've I come can have provide bargains think we So, to we the customer our expect. base that opportunity that extent an

Simeon Siegel

you. Thank Great.

Operator

Sole question next is from Jay from UBS. Your

line open. is Your

Jay Sole

for Thank QX? that the between out us possible quantify is the pressures magnitude to it called you. of the Great. worsening inflationary you Michael, of QX and

Michael Hartshorn

the Yeah, XXX XXXX only de-escalation is deleverage. versus I of just margin. to X.X significant EBITDA overall right now, the X.X XXX is It to point a to would

and drivers of The So, high out is coming obviously freight comp higher the And portion the the higher I that QX. is QX significant of a the between [Indiscernible]. ocean freight. -- are main the from then difference I'd ocean largest -- distribution higher deleverage single as that. mentioned, say

Operator

Our last question is from Roxanne Meyer from MKM Patners.

Your line is open.

Roxanne Meyer

coming Great. is Thanks, the a solid My delivered and merchandise a gain robust margin, merch think should of top top margin we congratulations on on increase merchandise going Where helped utilizing pack by from? XQ. and very first a And about Is question a significant sizable that how on the you is just last on margin -- year. away, in the being there quarter. of really gain that forward? in

Michael Hartshorn

to the has need, the margins year In which is Quarter, And we knead. the we've versus lower What driver again, throughout invested last the operate was in quarter. we've expectations. operated improvement but markdowns we is the in try post-pandemic, future. benefit we've the and of margin will very can inventories very -- stores, able original But only the to turns able that that's the with and upside do main second not to operate and that chase the that the during markdowns. lower the to close pandemic really that been done think we've business close pandemic terms And our lower versus faster the driven been inventory with

Operator

no for further remarks. like the at time. would over turn to I her now closing are There Barbara call questions Rentler this to

Barbara Rentler

in for Stores. your today for Ross you us and Thank interest joining

Operator

for participating. This concludes Thank today's conference you call.

You may now disconnect.

Ross Stores (ROST) 20 Aug 212021 Q2 Earnings call transcript