The Ross Stores Second Quarter 2024 Earnings Release Conference Call began with prepared comments from management, followed by a question-and-answer session. The comments contained forward-looking statements regarding the company's future growth and financial results, and were subject to risks and uncertainties. The Chief Executive Officer, Barbara Rentler, reviewed the second quarter results, which exceeded expectations due to strong value offerings. Operating margin improved and total sales grew 7%, with comparable store sales up 4%. Net income for the quarter was $527 million.

In the second quarter of 2024, the company's earnings per share increased to $1.44 and net earnings were $489 million. For the first half of the year, earnings per share were $3.05 and net income was $1 billion. Sales also grew to $10.1 billion, with a 3% increase in comparable sales. Cosmetics and Children's were the strongest merchandise areas, and dd's DISCOUNTS showed improved performance. Inventories were up 8%, but store inventories were only up 3% due to a calendar shift. The company opened 21 new Ross locations and 3 dd's DISCOUNTS locations in the quarter, and plans to open a total of 90 new locations this year. Comparable store sales were up 4%, with higher traffic and basket size contributing to the increase. Operating margin also improved to 12.5%.

The company's improved profitability is attributed to higher sales and lower distribution and incentive costs, partially offset by lower merchandise margins. They have also repurchased shares and plan to buy back more in the future. However, they are cautious about sales for the rest of the year due to high costs for their low to moderate income customers and challenging sales comparisons. They expect earnings per share to be in the range of $6 to $6.13 for the full year.

The fourth quarter and full year results for 2023 included a benefit from the 53rd week. In the third quarter of 2024, sales are expected to increase by 3% to 5% and 47 new stores will be opened. Operating margin is projected to be slightly lower than the previous year due to lower merchandise margins offset by lower costs. The company remains focused on providing customers with quality bargains and is aware of the uncertain external environment. The call was then opened for questions.

The company saw strong comp performance during the quarter, with the strongest results in the middle of the quarter. They are continuing to focus on their value strategy and improving their value offering for customers. In terms of gross margin, they saw benefits from DC cost leverage, lower buying costs, and favorable domestic freight, but these were offset by pressure from merchandise margin due to their brand strategy. They expect this pressure to continue in the second half of the year.

The operator introduces the next question from Chuck Grom of Gordon Haskett. Grom asks about the company's back-to-school results and trends in different categories. Michael Hartshorn responds, saying that the comps were strongest mid-quarter and that cosmetics and children's were the strongest categories while shoes were slightly below. Apparel was in line with the chain average. The next question comes from Mark Altschwager of Baird, asking about the updated guidance. Hartshorn explains that nothing has changed in the operating outlook for the back half of the year and mentions additional efficiencies as a key margin driver. The company beat the high end of its EPS guide by $0.10 in the quarter and raised the high end for the full year by $0.15.

The company gave an updated view of their efficiency and cost savings initiatives, mentioning the pressure on merchandise margins due to their branded strategy. They are continuously looking for ways to be more productive and are slightly ahead of their projections for the year. The comp was driven by higher traffic and a higher basket, with slightly higher average unit retails but fewer items per transaction. The company does not disclose specific AUR or basket numbers. The health of the consumer has improved in the second quarter, but the company is still focused on offering a good value for their product assortment.

The customer is seeking value due to inflation and an uncertain economy, leading the company to focus on providing price value. As a result, AUR has increased while UPT has decreased. The merch margin was better than expected in the second quarter, but the pressure on product margin is unclear for the second half. The company also saw 70 basis points of leverage on the 1 point beat to the top end of same-store sales.

The company saw a better improvement on some of their expense and cost initiatives in the back half of the year, which contributed to the upside in sales. The upside was driven by sales, which is about 10 to 15 basis points for every point in sale. The company also saw a gradual pressure in Q1, about 15 bps worse than the prior year, but some of that was due to residual ocean freight benefit. They reported 80 basis points in Q2, and as they continue to increase their penetration of brands, they will see additional pressure in the back half. The company is leveraging automation in the DCs and making improvements throughout the business, including DCs and stores.

The company has implemented various automated systems to improve efficiency and productivity, such as automated vehicles and robots. They have also introduced new handheld devices and are rolling out flexible scheduling. The executives mention finding efficiencies in multiple parts of the P&L, particularly in domestic freight and distribution costs. They expect merchandise margin to decline in the second half, but do not provide a specific figure. They mention offsets such as domestic freight and distribution cost improvements.

The speaker discusses the company's expectations for the back half of the year, including potential good news in incentive costs and the biggest moving parts that may affect merchandise margin. They also mention that it is too early to talk about 2025 and shift the focus to the ladies and home businesses. The company is working on shifting their assortments and adding more value to the ladies business, while also focusing on value rather than price in all segments. In the home business, the focus is on specific branded businesses.

The speaker discusses the importance of having a good compare when comparing against other brands in order to show value to customers. They also mention that their strategy is focused on driving sales through value, rather than specific pricing targets. They will continue to track and compare pricing in the market, but their goal is for customers to feel like they are getting a great deal every day. Finally, they are open to new vendor partnerships and are focused on maintaining a broad assortment of products in their stores.

The speaker discusses inventory opportunities and availability at the company, stating that it remains favorable and is broad-based. They also mention adding new vendors and building relationships with them. The speaker is confident that they are in the right place at the right time for this. The next question asks about shrink, and the speaker responds that it is performing well. They also address how California stores are doing compared to the chain and mention labor and wage pressures.

The company is facing a difficult retail theft environment and is investing in loss prevention initiatives to combat it. They will true-up shrink in the third quarter and expect some deterioration compared to last year. The geographic performance was broad-based, with California outperforming, Florida in line, and Texas slightly below due to Hurricane Beryl. Wages are relatively stable, with most increases related to statutory wage increases. The company takes a market-by-market approach to staffing and will adjust wages if needed. Productivity in the DCs has improved due to a stable labor market and lower turnover. The next question is about consumer behavioral patterns, specifically regarding traffic and buying habits.

The speakers discuss the impact of promotional environments on their retail strategy, stating that they have not seen a significant change in traffic patterns. They also mention that they do not have a standard historical spread and will price items as sharply as possible. They emphasize their focus on a value strategy and do not reveal the mix of branded and non-branded products or how it affects their merch margins.

The merchandise margin pressure is related to the brand strategy and increased penetration. The company is still learning about the success of the brand strategy and it is too early to determine its long-term impact. The kids business has had strong assortments and the recent trends do not include back-to-school sales. The company did not provide specific information about back-to-school sales in August.

Barbara Rentler, CEO of a retail company, was asked about customers' behavior and purchasing habits during big seasonal events like back-to-school, July 4, and Halloween. She mentioned that it is too early to tell for back-to-school, but customers are buying items like shorts and denim for this event. She also noted that customers are still buying for holidays, but there may be a shift in timing and a tendency to purchase closer to the event rather than far in advance. Overall, she believes that the performance of different items during these events is dependent on the balance of inventory and the specific events happening at the time.

Adam Orvos, the CEO of the company, explains that certain holidays can sell well throughout the year, but it depends on the assortment of products in stores. He wishes Marni Shapiro, the speaker, good luck with the fall season. John Kernan, a questioner, asks about the long-term margin potential of the business, to which Adam responds that an additional point of comp can lead to 10 to 15 basis points of margin expansion. The main drivers of long-term margin growth are outsized comp sales gains and the stabilization of inflationary factors such as fuel rates and wages. John also mentions the immigration in border states where the company has many stores.

In the paragraph, Michael Hartshorn discusses the impact of population growth on customer purchases in California and Texas. He notes that while cross-border traffic is strong, immigration does not have a significant impact on sales. Barbara Rentler then addresses the performance of apparel, stating that it is now in line with the chain, but ladies' apparel is still below average. She expects to see continued progress in this category as they learn more about customer preferences. The question of incentive comp is also raised, with the company potentially seeing benefits in the back half of the year.

The paragraph discusses the performance of Children's and Ladies departments, as well as the company's overall financial plans. The company expects to see some incentive benefits despite being up against a strong previous year. The number of vendors is expanding, but it is difficult to quantify this change. Shoes underperformed the chain but saw growth in athletic and active styles, while brown shoes had mixed results. The company saw success in flat and block styles and saw an increase in sales for sandals.

The speaker discusses the company's strategic approach to transitioning into the fall season, mentioning that they have made a shift in timing compared to last year. They also mention their focus on growing their store base profitably in the US and do not comment on potential international expansion. The speaker also mentions additional efficiencies that will benefit their earnings and margins in the back half of the year, with some initiatives carrying over into next year. They aim to gradually grow EBIT margin at a 3-4% comp long term.

The operator announces that there are no more questions and turns the floor back over to Barbara Rentler for closing comments. Barbara thanks everyone for joining and expresses appreciation for their interest in Ross Stores. The operator then concludes the teleconference and disconnects the lines.

This summary was generated with AI and may contain some inaccuracies.