Ross Stores 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

14% EPS growth, 3% comp growth

“For the 2014 fiscal year, earnings per share grew 14% to $4.42, up from $3.88 in 2013. Net earnings in fiscal 2014 grew to $925 million on sales of $11,042,000,000 with comparable store sales up 3% for the year.”

Forecasting 4-9% eps growth

“we believe it’s prudent to remain somewhat cautious in our outlook due to a combination of ongoing volatility in the macroeconomic and retail climates as well as our own tough multi-year comparisons. In addition, our 2015 guidance incorporates pressure on earnings from recent infrastructure investments we’ve been making to support our long-term growth. As a result, for fiscal 2015, we are forecasting earnings per share to be in the range of $4.60 to $4.80, up 4% to 9% from $4.42 in fiscal 2014.”

Lean inventories

we will continue to operate our business with lean selling store inventory levels. Over the past several years, we have reduced in-store inventories by more than 40%, which has contributed to improved sales and gross margins. Again, in 2015, we are planning selling store inventories to be down slightly on top of this multiyear decline.”

We’ve been happy with how traffic has picked up

“So on your first question, David, traffic, yes, we’ve been very happy with how traffic has picked up over the last couple of quarters. In terms of plans to drive traffic, it’s always the same with us. It’s all about having the best merchandise in the stores. We found over time that that’s really the one thing that really stimulates traffic. ”

In terms of wage increases…

“in the last part of your question, alluding to some of the recent announcements about wage rate increases. Obviously, those announcements are fairly recent. But we would expect that they will have an impact on wage — on industry wage rates. Of course, they will. In fact, we’d expect the labor market will tighten up in general as the economy improves. We evaluate labor market trends over time and that will include looking at these recent announcements. And typically, we set rates on a market-by-market basis, and we’ll certainly make adjustments to keep our wage rates competitive. It’s very important that we continue to attract and retain great people. I should say that as we always do, if we do make changes, we’ll look to mitigate the impact of any cost increases through reductions or productivity improvements elsewhere in the business. Just one final thought though, I think it’s worth noting that rising wage rate is actually — it’s a good thing in the sense that it shows that the economy is picking up and suggest the consumer will have more money in their pockets. So it could have a beneficial impact to retail sales.’

We don’t know what’s going to happen so be flexible

“We’re not economists. We’re not trained experts in terms of what’s likely to happen in the economy. But clearly, there are some positive signs. I think lower unemployment, lower gas prices, those are good things. But we have no way of knowing whether those trends will be sustained over time. So for us, given sort of what continues to be an uncertain environment, the best thing for us to do is to manage our off-price business to be as nimble and flexible as possible, which means planning and operating our business relatively cautiously especially at the start of the year, and then that gives us a chance to chase business if the sales trend ends up being stronger. So bottom line is we don’t really know what’s going to happen in the economy, but if we manage our business flexibly, we should do just fine.”

Seeing plenty of real estate availability

“We continue to be pretty happy with the real estate availability that we’re seeing. Obviously, we plan these things several years in advance, 2 to 3 years out. And we have a very strong real estate team, and we are very happy with the pipeline of locations that we’re seeing.”

There could be more wage pressures ahead

“there could well be, for all the reasons people have — for all the reasons you read in the papers, there could be more wage pressure ahead. That’s certainly a risk and as I said, we’ll look for ways to mitigate any of those increases.”

expect the promotional environment to remain aggressive

” think what we’re going to see in the promotional environment in 2015 is more of what we saw in the fourth quarter. I mean, it was a very aggressive retail environment, and we think that that’s going to continue into Q1.”