Ross Stores(ROST) - 2023 Q4 - Annual Report

Store Operations and Expansion - The company operates 322 dd's DISCOUNTS stores in 21 states as of January 28, 2023, offering savings of 20% to 70% off moderate department and discount store regular prices[16] - The company had a total of 2,015 stores as of January 28, 2023, comprising 1,693 Ross stores and 322 dd's DISCOUNTS stores[30] - Company operates a total of 2,015 stores as of January 28, 2023, with 1,693 Ross stores and 322 dd's DISCOUNTS stores[104] - The company operated 1,693 Ross Dress for Less locations and 322 dd's DISCOUNTS stores at the end of fiscal 2022[190] - Total stores opened in fiscal 2022: 99 new stores, bringing the total store count to 2,015[129] - Expected store openings in fiscal 2023: approximately 100 new stores[129] - New store growth depends on securing favorable real estate sites, with potential delays or cancellations impacting profitability[71] - Expansion into new geographic markets may result in higher costs and slower sales growth compared to existing markets[72] Pricing and Merchandise Strategy - The company's pricing strategy at Ross offers brand name merchandise at 20% to 60% below department and specialty store regular prices, while dd's DISCOUNTS offers 20% to 70% below moderate department and discount store regular prices[28] - Packaway merchandise accounted for approximately 40% of total inventories as of January 28, 2023 and January 29, 2022[25] - The company's merchandise inventory is stated at the lower of cost or net realizable value, with packaway inventory typically stored for less than six months[196] - The company's cost of goods sold includes buying, distribution, freight expenses, occupancy costs, and depreciation related to retail stores and distribution facilities[197] - Inventory management challenges, including markdowns and shortages, could negatively affect gross margins and operating results[78] - The company relies on the availability of high-quality, value-priced merchandise, which could be impacted by vendor decisions, supply chain disruptions, or changes in trade policies[67] Financial Performance and Metrics - Fiscal 2022 sales: $18.696 billion, a 1.2% decline compared to fiscal 2021[129] - Comparable store sales decline in fiscal 2022: 4%[129] - Cost of goods sold as a percentage of sales in fiscal 2022: 74.6%, up from 72.5% in fiscal 2021[129] - Net earnings as a percentage of sales in fiscal 2022: 8.1%, down from 9.1% in fiscal 2021[129] - The company's sales for fiscal 2022 were$ 18.7 billion, compared to $18.9 billion in fiscal 2021 and$ 12.5 billion in fiscal 2020[177] - The company's net earnings for fiscal 2022 were $1.51 billion, compared to$ 1.72 billion in fiscal 2021 and $85.4 million in fiscal 2020[177] - The company's earnings per share (diluted) for fiscal 2022 were$ 4.38, compared to $4.87 in fiscal 2021 and$ 0.24 in fiscal 2020[177] - The company's cost of goods sold for fiscal 2022 was $13.95 billion, compared to$ 13.71 billion in fiscal 2021 and $9.84 billion in fiscal 2020[177] - The company's selling, general, and administrative expenses for fiscal 2022 were$ 2.76 billion, compared to $2.87 billion in fiscal 2021 and$ 2.5 billion in fiscal 2020[177] - The company's comprehensive income for fiscal 2022 was $1.51 billion, compared to$ 1.72 billion in fiscal 2021 and $85.4 million in fiscal 2020[179] - Net earnings for 2023 were$ 1,512,041, a decrease from $1,722,589 in 2022, showing a decline in profitability[185] - Diluted earnings per share in fiscal 2022 was$ 4.38, a decrease from $4.87 in fiscal 2021, primarily due to a 12% decrease in net earnings[145] Supply Chain and Distribution - The company's distribution centers and warehouses are designed to support near-term store growth plans, with shipments made to stores three to six times per week depending on location[36] - Distribution/warehouse facilities total approximately 12.5 million square feet, with largest facilities in Buckeye, Arizona (1.7M sq ft) and Brookshire, Texas (1.89M sq ft)[107] - Supply chain disruptions, such as shipping delays or port congestion, may impact the timely delivery of merchandise and increase costs[85] - A significant portion of merchandise is sourced internationally, exposing the company to risks like currency fluctuations, trade restrictions, and supply chain disruptions[74][75] - The company faces risks from potential changes in U.S. trade policies, particularly regarding apparel and home goods manufactured in other countries, which could increase costs and reduce profitability[99] Labor and Workforce - The company employs approximately 101,000 total associates as of January 28, 2023, with the majority working in retail stores[39] - The company's talent development programs focus on key competencies critical to executing its business model and delivering customer value[40] - The company is committed to diversity, equality, and inclusion, with strategies aimed at building diverse teams and an inclusive culture[42] - Labor shortages, increased turnover, and rising labor costs could adversely affect the company's ability to execute its off-price retail strategies[68] - Labor cost increases may negatively impact profitability and lead to higher turnover, increasing hiring and training costs[69] - The company relies on attracting and retaining key personnel, especially in the buying organization, to maintain business operations and growth[70] Technology and Cybersecurity - The company continues to invest in new information systems and technology, including enhancements to stores, supply chain, merchandising, and cybersecurity systems[35] - Cybersecurity risks, including data breaches and ransomware attacks, could disrupt operations and damage the company's reputation[80] Marketing and Customer Engagement - The company's marketing strategy includes a mix of television, digital channels, radio, and new store grand openings to communicate its value proposition[37] - Sales are generally higher during the second half of the year, driven by back-to-school and holiday seasons[46] Risks and Challenges - The company operates in a highly competitive retail apparel and home fashion market, facing challenges from online retailers, department stores, and other off-price retailers with greater resources[45] - The company is susceptible to macroeconomic risks, including inflation, supply chain disruptions, and geopolitical events like the Russia-Ukraine conflict, which could impact consumer confidence and spending[57] - Elevated inflation, the Russia-Ukraine conflict, and the COVID-19 pandemic could reduce demand for merchandise, increase costs, and negatively affect sales and margins[60] - The retail industry is highly fragmented, with intense competition expected to increase in the future, particularly from e-commerce growth[62] - The company's success depends on its ability to anticipate and match consumer trends and preferences, which is challenging across diverse merchandise categories and markets[63] - Adverse weather conditions can disrupt shopping patterns, reduce demand for seasonal merchandise, and lead to temporary store closures[64] - The company's California operations, including 22% of its stores, are vulnerable to natural disasters, pandemics, and other disruptions[65] - Reputation risks, including negative social media exposure, could harm sales and customer trust[89][90] - Demonstrations and protests in U.S. cities may result in temporary store closures, merchandise losses, and increased security costs, potentially impacting sales[91] - The company faces risks from potential product quality, safety, or authenticity issues, which could lead to recalls, lost sales, and increased costs[92][94] - The COVID-19 pandemic continues to pose risks to operations, including potential store closures and supply chain interruptions[86][88] Legal and Regulatory - The company is involved in class/representative action lawsuits primarily in California, alleging violations of wage and hour laws and consumer protection laws[109] - Company filed lawsuit against insurance companies in December 2020 seeking coverage for COVID-19 related business interruption and property damage losses[110] Capital and Shareholder Returns - Stock price closed at$ 112.40 per share on March 6, 2023, with 1,217 stockholders of record[112] - Quarterly cash dividend declared at $0.335 per common share for March 2023, up from$ 0.310 in 2022 and $0.285 in 2021[112] - Total shares repurchased in the quarter ended January 28, 2023: 2,095,563 shares at an average price of$ 112.04 per share[114] - Total remaining shares authorized for repurchase under the program: $950 million[114] - New stock repurchase program approved in March 2022: up to$ 1.9 billion through fiscal 2023[115] - The company repurchased 10.3 million shares for $950 million in fiscal 2022, 5.7 million shares for$ 650 million in fiscal 2021, and 1.2 million shares for $132 million in fiscal 2020[159] - The company paid dividends of$ 431.3 million in fiscal 2022, $405.1 million in fiscal 2021, and$ 101.4 million in fiscal 2020[160] - Repurchase of common stock increased to $949,996 in 2023 from$ 649,997 in 2022, reflecting a more aggressive share buyback strategy[187] - Dividends paid increased to $431,295 in 2023 from$ 405,123 in 2022, indicating a higher return to shareholders[187] - Net cash used in financing activities increased to $1,405,444 in 2023 from$ 1,152,396 in 2022, showing greater cash outflow from financing activities[187] Financial Position and Cash Flow - Cash and cash equivalents decreased to $4,551,876 in 2023 from$ 4,922,365 in 2022, indicating a reduction in liquidity[181] - Net cash provided by operating activities decreased to $1,689,373 in 2023 from$ 1,738,849 in 2022, signaling a reduction in cash generation from core operations[185] - Additions to property and equipment increased to $654,070 in 2023 from$ 557,840 in 2022, showing higher capital expenditures[186] - Cash and cash equivalents were $4.6 billion at January 28, 2023, compared to$ 4.9 billion at January 29, 2022[195] - Total restricted cash and cash equivalents were $60.4 million at January 28, 2023, compared to$ 60.0 million at January 29, 2022[194] - The company ended fiscal 2022 with $4.6 billion in unrestricted cash balances and$ 1.3 billion available under its senior unsecured revolving credit facility[162] - The company's total contractual obligations as of January 28, 2023, were $11.14 billion, including$ 2.47 billion in senior notes and $3.3 billion in operating leases[164] - Cash provided by operating activities was$ 1.7 billion in fiscal 2022, driven by net earnings excluding non-cash expenses, partially offset by merchandise inventory payments and incentive bonuses[148] - Net cash used in financing activities was $1.4 billion in fiscal 2022, primarily due to stock repurchases under the$ 1.9 billion stock repurchase program[156] Capital Expenditures and Investments - Capital expenditures in fiscal 2022 were $654.1 million, primarily for new stores, distribution centers, and information technology systems[153] - Planned capital expenditures for fiscal 2023 are projected to be approximately$ 810 million, focusing on supply chain investments, new store openings, and information technology systems[155] - Interest capitalized during the construction period of facilities and software projects was $5.7 million in fiscal 2022, down from$ 14.5 million in fiscal 2021[198] Depreciation and Amortization - Depreciation and amortization expenses increased to $394,655 in 2023 from$ 360,664 in 2022, reflecting higher asset utilization costs[185] - Depreciation and amortization expense on property and equipment was $394.7 million in fiscal 2022, up from$ 360.7 million in fiscal 2021[198] Other Financial Metrics - Total assets decreased to $13,416,463 in 2023 from$ 13,640,256 in 2022, reflecting a slight decline in overall financial position[181] - Stock-based compensation rose to $121,936 in 2023 from$ 134,217 in 2022, indicating changes in employee incentive structures[185] - Self-insurance and deductible reserves totaled $138.7 million at January 28, 2023, compared to$ 137.0 million at January 29, 2022[204] - Other long-term liabilities were $224.1 million at January 28, 2023, down from$ 236.0 million at January 29, 2022[205] - No material impairment charges were recorded during fiscal 2022, 2021, and 2020[202]