Ross Stores, a leading off-price retailer, reported disappointing third-quarter results, citing execution missteps and external factors as primary culprits. While the company managed to achieve a 3% sales increase to $5.1 billion, the performance fell short of expectations.
Outgoing CEO Barbara Rentler attributed the sluggish sales to a combination of factors, including hurricanes Helene and Milton and unusually warm weather conditions. However, she emphasised that internal execution issues played a more significant role. The team’s failure to capitalise on merchandising opportunities in certain categories, particularly home goods and denim, hindered overall performance.
While categories like cosmetics, accessories, and children’s wear performed well, the home business was notably absent from the company’s discussion during the Q3 investor call. This silence raises concerns about the impact of the execution issues on the home goods category, a significant segment for many off-price retailers.
Despite the sales shortfall, Ross Stores managed to deliver strong earnings, with the operating margin reaching 11.9%, up from 11.2% in the previous year. Lower incentive, freight, and distribution costs offset the planned decline in merchandise margin, contributing to positive earnings.
The company ended the quarter with 38% of its inventory in packaway merchandise, slightly lower than the previous year’s 39%. Ross Stores also completed its annual store opening schedule during Q3 and expects to end the year with 1,831 Ross Stores and 354 dd’s locations after some relocations and closures.
Based on its year-to-date performance and fourth-quarter forecast, Ross Stores now expects earnings per share for the fiscal year ending February 1, 2025, to be in the range of $6.10 to $6.17, a significant increase from $5.56 in the previous year. The 53rd week of this year’s retail calendar is expected to contribute approximately $0.20 to earnings per share.
As Ross Stores transitions to a new leadership era, it will be crucial to address the execution issues that hampered its recent performance. Improving merchandising strategies, particularly in the home goods and denim categories, will be essential to driving future growth and regaining investor confidence.
