Ross Stores Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 17, 2021

There are 16 speakers on the call.

Operator

Good afternoon, and welcome to the Ross Draw Third Quarter 2021 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question and answer session. 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 Form 10 ks and fiscal 2021 Form 10 Qs and 8ks on file with the SEC.

Operator

Now I'd like to turn the call over to Barbara Rentzler, Chief Executive Officer.

Speaker 1

Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer and Connie Kao, Group Vice President, Investor Relations. And I'd also like to welcome Adam Ormert, our recently appointed Executive Vice President and Chief Financial Officer. We'll begin our call today with a review of our Q3 performance, followed by an update on our outlook for the Q4 fiscal year. Afterwards, we'll be happy to respond to any questions you may have.

Speaker 1

As noted in today's press release, 3rd quarter sales to profitability Significantly exceeded our expectations as consumers continue to respond favorably to our broad assortment of great bargains. We achieved these results despite waning government stimulus and uncertainty related to the spread of COVID variance. Earnings per share for the 13 weeks ended October 30, 2021 were 1.09 on net income of $385,000,000 This compares to $1.03 per share on net earnings of $371,000,000 for the 13 weeks ended November 2, 2019. Total sales for the quarter rose 19% to $4,600,000,000 with strong comparable store sales increase of 14%. For the 1st 9 months, earnings per share were $3.82 on net earnings of $1,400,000,000 up from $3.32 per share on net income of $1,200,000,000 for the same period in 2019.

Speaker 1

Sales for the 1st 9 months of this year rose 20% to 13,900,000,000 with comparable store sales up 14%. For the Q3 at Ross, Children's and men's were the best performing businesses, while the Midwest and Southeast were the top performing regions. Dd's discount trends remained strong during the period as their sales performance also significantly exceeded our expectations. However, like Ross, dd's profitability was negatively impacted by cost pressures related to freight, wages and COVID. At quarter end, total consolidated inventories were up 3%, Well, average selling store inventories were down 1% versus 2019.

Speaker 1

Packaway levels ended at 31% of the total compared to 39% for the same period in 2019, as we continue to use a substantial amount of Packaway merchandise to support ahead of plant sales. In addition, there were receipt delays due to supply chain congestion. Turning to store growth. We completed our expansion program for 2021 with the addition of 18 new in Q3. For the full year, we added 65 locations comprised of 44 Ross and 21 BVs discounts.

Speaker 1

Additionally, we plan to close one store by year end. As previously mentioned, we Expect to return to our normal annual opening program of approximately 100 stores in 2022. Now, Adam Orbos will provide further details on our Q3 results, 4th quarter guidance and updated outlook for the year.

Speaker 2

Thank you, Barbara. As previously stated, comparable store sales were up 14% in the quarter. The increase was mainly driven by a larger average basket with traffic down slightly versus 2019. Operating margin of 11.4% was well above our guidance range. As expected, the decline in overall profitability versus 2019 was mainly due to ongoing headwinds from higher freight, wage and COVID related costs.

Speaker 2

Cost of goods sold grew by 85 basis points in the quarter. Domestic freight expenses increased 125 basis points, While higher ocean freight costs negatively impacted merchandise margin, which declined by 40 basis points, Buying also rose by 10 basis points. These higher expenses were partially offset by occupancy and distribution leverage of 65 basis points and 25 basis points, respectively. SG and A for the period grew 15 basis points as leverage from the strong sales gain Was offset by COVID expenses and higher incentive costs given our better than expected 3rd quarter results. Total net COVID related costs for the period were approximately 35 basis points, the vast majority of which impacted SG and A.

Speaker 2

During the Q3, we repurchased 2,100,000 shares of common stock for an aggregate cost of $241,000,000 We remain on track to buyback a total of $650,000,000 in stock for the year. Now let's discuss our Q4 guidance. As a reminder, our projections compared to the same period in 2019. Looking ahead, while we are encouraged by the ongoing strength of consumer demand, there remains Uncertainty related to the worsening industry wide supply chain congestion as we enter the important holiday season. As a result, and while we hope to do better, we are forecasting comparable store sales to be up 7 to 9% with earnings per share projected in the range of $0.83 to $0.93 for the 13 weeks ending January 29, 2022.

Speaker 2

The operating statement assumptions that support our Q4 guidance include the following: Total sales are projected to grow 10% to 13%. We expect operating margin to be 8.1% to 8.8%. This forecast primarily reflects ongoing pressure from the previously mentioned supply chain headwinds as well as holiday pay incentives in our stores and distribution centers. In addition, COVID related costs are projected to negatively impact EBIT margin by approximately 30 basis points in the period. Net interest expense is estimated to be about $18,000,000 Our tax rate is expected to be approximately 22% to 23% And weighted average diluted shares outstanding are projected to be about 352,000,000.

Speaker 2

Based on our year to date results and 4th quarter guidance, we are now forecasting full year comparable store sales gains of 12% to 13% and earnings per share in the range of $4.65 to $4.75 compared to $4.60 in 2019. Now I'll turn the call back to Barbara for closing comments.

Speaker 1

Thank you, Adam. We're encouraged by our above planned sales year to date. As Adam noted, uncertainty remains on how industry wide supply chain congestion may negatively affect our business in the 4th quarter. That said, we believe we are well positioned as value retailers and are confident customers will find a broad assortment of great branded bargains in our stores for the holiday season. Moving forward, consumers' increasing focus on value and convenience along with large number of retail Recent retail closures and bankruptcies make us confident about our prospects for continued market share gains in the future.

Speaker 1

At this point, we'd like to open up the call and respond to any questions you may have.

Operator

Thank you. We have our first question coming from the line of Matthew Boss with JPMorgan. Your line is open.

Speaker 3

Thanks and congrats on a nice quarter. So Barbara, with 3 straight quarters, 13% to 15% 2 year comps, Could you elaborate on market share gains tied to value and convenience that you're seeing? And then given the closures

Speaker 4

and bankruptcies that you cited, how would

Speaker 3

you best characterize product that you cited, how would you best characterize product availability in the marketplace today?

Speaker 4

Matthew, hi. It's Michael Hartshorn. On market share gains, longer term, we're very We're in a very healthy sector of retail with the consumer even more focused As you mentioned on value and convenience, we've clearly gained market share during the pandemic and are confident about our future prospects for further gains given the significant number of retail closures and bankruptcies.

Speaker 1

Matthew, in terms of product availability, I would put it this way. It's a good time to be a buyer. Maybe not in every category, but some areas Very good, others are inconsistent, but overall it's favorable even with store closures. One would expect that over time as after COVID as retail settles that The market will get more bullish on creating more growth. But right now, we really feel good about market availability.

Speaker 3

That's great. Best of luck.

Operator

Thank you. We have our next question coming from the line of Mark Altschwager with Baird. Your line is open.

Speaker 2

Thanks for taking the question and welcome Adam. I'm curious just with the more inflationary backdrop, Are you seeing more opportunities to raise ticket while still maintaining the strong value proposition? Or how are you thinking about this lever to offset

Speaker 1

Sure. Look, our pricing model It's really built off of other mainstream retailers and then we provide a discount. So we're very aware of pricing at different levels of distribution and we watch it With that, we've continued to experiment with higher retail in all areas in the organization. In some cases, it's been absolutely fine and in some cases, not quite as fine. And I wouldn't elaborate more on that in this forum, But what I would say is we would adjust pricing over time once we understand it.

Speaker 1

We don't know where it's really all going at this point, But we are definitely experimenting with different retails.

Operator

Thank you. We have our next question coming from the line of Paul Lejuez with Citi. Your line is open.

Speaker 5

Hey, guys. Thanks. You referenced ongoing strength of consumer demand. I was curious if that was a comment on 4th quarter To date, if you're seeing that continue, you also referenced worsening industry wide supply chain congestion. And I'm Curious if that's hurting you thus far in 4Q to a greater degree than what you saw in 3Q.

Speaker 5

And big picture, I'm wondering if you think that congestion will ultimately be good for your business either in Q4 or into 2022? Thanks.

Speaker 4

Hi, Paul. We are seeing a very healthy consumer. When we came into the quarter, we were worried about the delta variant and also the Receiving government stimulus, but we've continued to see a very healthy consumer with strong demand for us across Geographies, merchandise areas and you can see relatively across retail, one that is increasingly focused on Price value. On the freight front, we've taken a number of actions To ready ourselves for the holiday selling period, including adjusting our ordering times, we chartered our own ocean vessel And we've been purchasing at market rate capacity to make sure we had enough ocean freight to move goods. You can see that certainly in our margins for the quarter, merchant margin was impacted By ocean freight, that we weren't able to offset with merchant margin down about 40 basis points.

Speaker 4

I wouldn't comment on the impact in the Q3. The congestion right now is squarely focused on the port and getting goods out of the court.

Speaker 5

Thanks. And the merchandise margin, you said it was down 40 basis points. You said that was impacted By Ocean, can you separate the pure merch margin versus the Ocean piece?

Speaker 4

We wouldn't break that out separately. Ocean freight is Included in our merchant margin, merchant margin ended up better than we expected for the quarter as we had more full price selling and faster turns with the inventory ahead of plan or sales ahead of plan.

Speaker 1

And then I would say as it pertains to the supply chain congestion, It should create more closed out opportunities for us in the future.

Speaker 5

Okay. Thanks, guys. Good luck.

Operator

Thank you. We have our next question coming from the line of Lorraine Hutchinson with Bank of America. Your line is open.

Speaker 6

Thank you. Barbara, I know

Speaker 1

you said it's a good time to

Speaker 6

be a buyer, but I just wanted to focus in on any risk around Receipt timing ahead of holiday and then what are you hearing from your vendors going into the spring of next year, visavis Product availability and the categories you really want to focus on.

Speaker 1

Receipt timing ahead of holiday, I think we've taken all the appropriate actions as it pertains To receive timing, whether Michael just said chartering the vessel, building in longer lead time, Everything to get good through the port. But with that, we have concerns, not a given, but we have some concerns. As we think about product for spring, I think vendors have gotten very aggressive in terms of placing goods. I think there's some vendors that are really looking to gain some market share in this timeframe and have taken bigger width In terms of making commitments, so I think it's very much on who the vendor is and what their strategy is. But in terms of again, in terms of timing for our holiday, we've taken the actions we think we need to take.

Speaker 1

But again, we have some concerns, but it's not a given. Thank you.

Operator

Thank you. We have our next question coming from the line of Kimberly Greenberger With Morgan Stanley, your line is open.

Speaker 6

Okay, great. Thanks so much. I just wanted to follow-up on Lorraine's question About Holiday, Barbara, and I just want to make sure I understand you clearly. So how are you feeling about your in stock levels Currently here, call it, middle of November. And how do you feel about your inventory position here for the next sort of 6 weeks of holiday selling, if you could just give us a little bit of color just on the short term and then I wanted to ask a couple of other questions if I could.

Speaker 4

Kimberly, on inventory position currently, we're in good shape. We ended the quarter with average in store inventories Down about 1%, which is where we wanted them to be and we continue to have a fresh flow of product. There are a lot of receipts between now and the next 6 weeks. And there could be some risk in areas like home that, As Barbara mentioned, they're not a given, but we reflected that risk in our guidance at 7% to 9%.

Speaker 6

Okay, got it. And is it are the receipts the receipt risk concentrated at home because That's where you would have, call it, more of a direct import or more of the direct imports would be impacting that area and those would be the items that would be either Stuck in ports or on ocean going vessels?

Speaker 7

Correct.

Speaker 6

Okay.

Speaker 4

Mainly Great. With 6 weeks left mainly stuck in port.

Speaker 6

Maybe okay, mainly stuck in port. Okay, perfect. That is great. Okay. And then on the quarter, Michael or Adam, whoever wants to address this, you talked about larger basket I'm wondering if you can talk about the average unit retail versus the units per transaction, what's driving that?

Speaker 6

And then just longer term following up on the question with regard to pricing, I'm not sure if you have taken a look at where you're sitting competitively versus peers, But is there I know there are some of your peers looking at some surgical price increases in some categories. I'm just wondering if you've taken a look at your pricing and re benchmarked it recently and if you have any thoughts on that. Thanks so much.

Speaker 2

Yes. This is Adam. Let me jump in on the first part of that question. So our strong comps were driven by size of basket, which was primarily driven by number of units per transaction. We did have a slight increase in AUR driven by the better full price selling given the above planned sales.

Speaker 2

And then as we mentioned, there was a slight decline in traffic in the quarter.

Speaker 1

And then as it pertains to the pricing issue, We are definitely experimenting with higher retails. And I said in some areas it's working, it's fine. In some areas, it's not fine. I think we'll continue to do that, Kimberly, and fine tune what the customer is willing to accept as we watch What goes on in mainstream retailers and where their AUR fit, and After we get comfortable, over time, we would consider adjusting the pricing once we really understand it. But as we get ready to enter into Q4, we're not expecting mainstream retailers to promote, but we don't really know that as you get into Q4 and there's really this compressed period of time.

Speaker 1

So with that, again, merchants are out there trying new things, Trying retail seeing what the customer is willing to accept, but we kind of need to see both of those things to take a, I would say, a larger step.

Speaker 6

Perfect. Makes perfect sense. Thanks, Barbara.

Operator

Thank you. We have our next Question coming from the line of Chuck Grom with Gordon Haskett. Your line is open.

Speaker 8

Hey, thanks very much. I was wondering if you guys could speak to the trends of your comp there in the quarter and if you think weather had any impact, adverse impact, Particularly in September October and any early thoughts on the 1st couple of weeks of November. It sounds like the trend has stayed strong, but just wanted to confirm that.

Speaker 2

This is Adam. I can take that. So comps were strong throughout the quarter and really no The weather impact was very immaterial in the quarter

Speaker 4

and we wouldn't comment on inter quarter trends.

Speaker 7

Got it. Thank you.

Operator

Thank you. We have our next Question coming from the line of Michael Binetti with Credit Suisse. Your line is open.

Speaker 9

Hey, guys. Thanks for taking all my questions here. I'm just curious as you look at the guidance, what you guys are seeing in the business that helped you build to a 7% to 9% guidance for 4th quarter. I think the last Prior two quarters was 5% to 7%. Just any change in how you built up with it.

Speaker 9

But then I guess, Michael, can Can you help I know you won't give us a number, to Paul's question earlier, but when you think about what you baked into freight in the Q4, maybe just some directional idea of How that looks relative to Q3? And then as you look out, maybe just thinking about when your contracts roll, how much visibility you have into the first Next year and help us understand if it's if we should think that that's still going to be an incremental headwind into the first half based on what you guys know today?

Speaker 4

Sure, Michael. Let me generally talk about the Q4 guidance. Obviously, in these uncertain times, we believe it's prudent to be Conservative as we always have with our guidance and hope to exceed these estimates. Obviously, the large difference between Q3 Is a cautious comp estimate given the potential impact of unpredictable supply chain congestion. The guidance also includes Ongoing freight pressure related to the congestion.

Speaker 4

I would say it's not significantly worse than it was in Q3. It also includes elevated wage related costs due to holiday incentives in both our stores and distribution centers to acknowledge our associates' Extraordinary dedication throughout the pandemic. What we'd expect on that is above Sales above the estimates, we'd expect 15 to 20 basis points of leverage. On freight congestion, I think our view at this point is, We would not expect freight to subside probably through the first half of next year and then we'll have to see How it trends after that in terms of what impact that could have, we'll have more to say in our Year end call as we finish up wrapping up our budget cycle.

Speaker 10

Okay.

Speaker 9

If I could follow that with, just as you look at some of the AUR initiatives that you are seeing success with, Barb, are those do you feel like you have enough at this point to combat that freight pressure in the first half if needed?

Speaker 1

No, I think where we are now is that we're going to continue to test the AUR and then make probably slower moves, so we really understand what that looks like in mainstream retailers.

Speaker 9

Got it. Okay. Thanks a lot everybody.

Operator

Thank you. We have our next question coming from the line of Jay Sole With UBS, your line is open.

Speaker 11

Great. Thank you so much. I just want to know if you can share with us high level, not looking for any specific guidance, Going into Q1 next year, lapping the stimulus, how much of a benefit do you think you got from the stimulus in the Q1 of this year? And how do you think it might play out next year as you let that kind of impact would it have on sales?

Speaker 4

Yes. At this point, we wouldn't comment on next year. As I said, we'll We'll have more to say after we wrap up the Q4 and provide guidance in our year end call in early March.

Speaker 11

Okay. And maybe if I can just ask one more then. There's a lot of talk about how the pandemic has changed shopping and consumers maybe adopting more of an omnichannel Method, if you look at the operating income growth for your department store competitors over the last three quarters, it's up over 100% versus off price, it's up more like 10%. Do you feel at all like something has changed where maybe the department stores are catching up a little bit? And if not, why not?

Speaker 4

Catching up in what regard?

Speaker 11

Just catching up in a way that like you've outgrown them in terms You mentioned the market share gains that you've taken outgrown in terms of profit, but maybe they're getting closer to competing and maybe not necessarily Maintain the same level of sales, but maybe getting more profitable, which ultimately could be an advantage they could use to sort of catch up in other ways as well.

Speaker 4

Yes. I think overall, we'll have to see how It plays out. I mean, we're still in this burst of economic activity where demand is exceeding supply. I think we have to Understand what happens when it's a more a greater balance between supply and demand, which we'll see if that's Q1, Q2 of next year. So it's hard to say at this point.

Speaker 11

Okay. Thank you so much.

Operator

Thank you. We have our next question coming from the line of Marni Shapiro with Retail Tracker. Your line is open.

Speaker 12

Hey, guys. Congratulations. Can we just talk a little bit about 2 things? As the consumers back out and about Working events, parties, have you seen a shift in what she's buying or are you continuing to see strength across the board? And then if you can also just touch on With all of the late deliveries in the market, have you been able to still get in the very holiday rich Type of items, Christmas themed items or were you able to tap into packaways from last year's holiday to make sure that that

Speaker 1

Sure, Marni. We have seen a shift to the customer. We've always had a big casual business. Let me tell you that. That's always been a big business for us.

Speaker 1

And certainly during the pandemic, that business got even bigger and stronger for us. And but what we have seen is we have seen the customer make a shift back into what you're looking for as holiday, glitz, dress up, social, ongoing We have seen the customer make that shift into holiday products and also just more into more Mainstream sportswear, so a little bit of both. So casual is still very good, still a business that we believe in and it will expand and get greater, But she is making a shift, whether it's back to work or she's going out for evening, whatever she's doing, we have seen that yet.

Speaker 12

What about like in the home and like bags, Like those kinds of bags to go back to work or the home area, if she's going back to work and not thinking about her home as much, I don't know.

Speaker 1

You're saying like in handbags?

Speaker 12

Yes. Has she shifted into handbags as she's going out again or out of home and into apparel or those kinds of and bigger ships as well.

Speaker 1

I think anything where she's leaving her house in on the Carol side has taken a shift, whether it's in footwear, whether it's in handbags. She hasn't replenished or replaced a lot of Products in a long time.

Speaker 3

Exactly.

Speaker 1

So yes, we are seeing a shift in back into some of those businesses As she goes out, she wants new things. So whether it's home or apparel, though, Marni, I would say Both businesses have been relatively similar in sales gains. So She's kind of talking between both worlds now. I think the surgeon's apparel is because she just doesn't own it.

Speaker 12

Yes, that makes sense. And then just on the packaway.

Speaker 1

And then on packaway, Just do me a favor, just remind me that piece again on PacWave, because I think I might have interpreted it as the holiday piece. Good morning.

Operator

Thank you. We have our next question coming from the line of Laura Champine with Loop Capital. Your line is open.

Speaker 13

Should we hold up and try to get Marni back or would you prefer a fire ahead? Fire ahead. We'll find a lot of labor. Okay. Here it goes.

Speaker 13

I thought the SG and A Expense level was really impressive given that I think you're saying that COVID is still an incremental hit. Are we is this Kind of a base level that we can look at, as we start to model for next year. What are kind of some of the puts and takes that are keeping By really strong top line, that SG and A expense is staying fairly flat.

Speaker 4

Yes. Go ahead.

Speaker 2

Yes. And I was just going to jump in and say, COVID has been pretty consistent impact throughout the year and it will be in Q4. We talked about the actions we've taken from a wage standpoint and from an incentive standpoint in our DCs and our stores. Those are clearly kind of the biggest movers within SG and A.

Speaker 4

Okay. And then Obviously, I would say the 14 comp helps us leverage the SG and A significantly.

Speaker 13

Got it.

Speaker 4

Thank you.

Operator

Thank you. We have our next question coming from the line of Bob Drbul with Guggenheim. Your line is open.

Speaker 13

Hi, good afternoon. Just wondering if you could maybe spend a little bit more time on the labor component and just sort of the wage pressures that you're seeing in labor availability. Maybe just give us Some insights on that, that would be helpful. Thanks.

Speaker 4

Sure, Bob. It's a very competitive market And we've seen the most competition in our distribution centers. We Made some permanent wage increases early this year. We also have some retention and incentive To get us through the peak, we're in really good shape. We've been able to staff up the peak.

Speaker 4

The distribution centers Are where they need to be in the stores. Obviously, we have holiday selling ahead of us. We've also have incentives hiring incentives there to make sure we can staff up for peak and we're confident that we're in a good place there as well. Given the competition, we'll remain competitive to make sure that we can we'll remain competitive with our pay to make sure we can Attract talent and we feel really good about the workforce right now.

Speaker 11

Great. Thank you.

Operator

Thank you. We have our next question coming from the line of Adrienne Yih with Barclays. Your line is open.

Speaker 10

Congratulations on the progress on top line in the quarter. Barbara, you made a comment during the prepared remarks, you said you should See improvement in kind of closed out buying. And I'm wondering, are you seeing any incrementality in that in increased Supply flow from either canceled orders or stranded inventory that could be used for short stay buys and redeployed earlier next year. And then just a clarification question on the, Adam, on the freight, the 160 basis point of freight pressure this quarter, 4th quarter is similar and then carrying that same level through the first half of twenty twenty two. Is that the implication that you were intending?

Speaker 10

Thank you.

Speaker 4

I'll start with the freight. I was making no commentary on what the freight cost level will be next year. I was really answering that in terms of what congestion could look like. Obviously, we'll have some different options

Speaker 1

And then in terms of the content of closeout buying, certainly our expectation is that there will be The full product is as retailers have canceled goods because they're late and they can't get to the selling floor. So that would be real takeaway for fall for Q3, Q4 of next year. But we do see opportunities on, I would guess what you're thinking of is kind of seasonless apparel that we could flow now through Q1. I believe it's a combination of both.

Speaker 10

Okay, fantastic. Last question, if you would. Where is the average hourly rate? I seem to recall a few years ago, maybe 2018 or 2019, You had sort of committed to this $12 number and that was typically almost $1 higher than the average across the nation. I know you're at the better end of pay.

Speaker 10

I'm just wondering where that number sits today maybe relative to where Walmart, Target and some others are in that mid teen range? Thanks.

Speaker 4

Yes, we don't disclose the specific wage. We do have a base level at $11 but a significant portion of the chain Is under minimum wage California for instance is at 15. So The average wage is well above that baseline.

Speaker 10

Fair enough. Thank you very much and best of luck for holiday.

Speaker 4

Thank you.

Operator

Thank you. We have our next question coming from the line of Simeon Siegel with BMO Capital Markets. Your line is open.

Speaker 14

Hi. Thanks, everyone. Sorry if I missed it. Did you say where you expect inventory to end 4Q and then over the next few quarters? And then To the earlier point about outperforming despite waning stimulus, have you guys quantified what you think the benefit was from stimulus and just how you're thinking about The potential impacts as we cycle through that early next year.

Speaker 14

Thanks a lot.

Speaker 4

On next year, we wouldn't comment. We'll comment Again, at year end, on inventory, we typically don't guide ahead on inventory levels.

Speaker 14

So I guess for the stimulus, how do you quantified what it was this year? How do you think about the benefit this year?

Speaker 4

It's really hard because there's a lot of moving parts. It's not only stimulus, but it's customer pent up demand. We'll end up developing Plans around it, as we move into next year, but we haven't quantified that.

Speaker 14

Understood. Thanks a lot guys. Thanks, Walter,

Operator

Ollie. Thank you. Thank you. We have our next question coming from the line of Ike Boruchow With Wells Fargo, your line is open.

Speaker 15

Hi, everyone. This is Jesse Sobelson on for Ike. And I was just wondering as we look forward and begin to model next year, would you guys be able to Quantify timing of when COVID costs might be able to revert or are you expecting that to sustain and these costs to just kind of be a part of the business going forward?

Speaker 4

We wouldn't comment specifically on next year, but we would expect I will say generally, we would COVID costs to come down. They are not wholly permanently part of the cost.

Speaker 10

Very good. Thank you.

Operator

Thank you. We have our next question coming from the line of John Kernan with Cowen. Your line is open.

Speaker 7

Excellent. Good afternoon. Thanks for taking my question. Just curious on the margin picture. You obviously outperformed your comp guidance and EBIT margin was down roughly 100 basis points from the pre COVID base in 2019, you're guiding it much lower than that, albeit on lower comp guidance for the Q4.

Speaker 7

Just curious, what do you think the biggest levers are to recapture that low teens operating margin that Generated in 2019, there's a lot of inflation across retail, the factories, your vendors, supply chain. Just curious How you think you're going to recapture that pre COVID level of profitability? Is it really just through More comp store sales gains, how do we quantify that?

Speaker 4

Sure, John. As I said, obviously, we're in a very healthy sector of retail and We are confident in our prospects for further market share gains. As we sit here today, it's difficult to predict how much of the inflationary The cost headwinds we're experiencing from the burst of economic activity are transitory versus permanent. So margin recovery will be dependent on where And when those costs stabilize and of course our sales volume where we once again, we believe we have a Long range large market share opportunity ahead of us. Over time, we would expect to return to double digit EPS growth on a 3 to We do have initiatives in the company to try to increase efficiencies in our Big areas of expense, including our stores and distribution centers, but it's going to be largely dependent on The transitory nature of the inflation that we're seeing today.

Speaker 7

Got it. Thank you.

Operator

Thank you. We have our last question coming from the line of Tim Verghearno with Northcoast Research. Your line is open.

Speaker 15

Thank you. Can you guys remind us of how you're thinking about store footprint and unit growth? And then maybe Highlight for us, if that environment or setup is getting easier or more difficult, as you look forward? Thank you.

Speaker 4

Sure. On the real estate front, as we said in our comments, we ended up we wrapped up our program For this year, we opened 65 stores. We also said that we expect to return the historical annual program in 2022 of Opening 100 stores annually. Overall, the real estate market is good. And we would There to be increased supply of available sites given the level of store closures.

Speaker 15

Thanks. Sorry, I missed that.

Operator

Thank you. There are no further questions on queue. I would now like to turn the call back over to Barbara Rentler for any closing remarks.

Speaker 1

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

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Ross Stores Q3 2022
00:00 / 00:00
Remove Ads