Ross Stores 4Q16 Earnings Call Notes

Barbara Rentler

Uncertainty, remain cautious

“As we look ahead to 2017, there continues to be a great deal of uncertainty in the political, macroeconomic, and retail climates. In addition, we face tough prior year sales and earnings comparisons. As a result, while we hope to do better, we believe it is prudent to remain somewhat cautious in planning our business for the coming year. Nevertheless, we are confident that the off-price sector will remain a strong performing segment of retail especially given consumers’ continued focus on value.”

Michael B. O’Sullivan – Ross Stores, Inc.

Store closing negative at first, then positive

And, Paul, on your question about store closures, it’s difficult to respond to specifically, the Macy’s example that you gave, specifically how that affected our stores. There’s just too much noise to pick out the effect of those individual store closures. What I would say, though, is in general, with store closures, competitor store closures, there’s a short term effect which is as that competitor store is doing and going out of business now, that can impact our business negatively for the weeks of that happening. But then, obviously once that store is closed, there’s one less competitor in the market. So in general, it tends to be a good thing for us in the medium- to long-term.

Supply driven by other retailers’ poor inventory decisions

Yeah, that’s always a concern. We’re always concerned about supply. But one point Barbara had made a little while ago is that what really drives supply is other retailers and their inability to forecast their own sales. And if they’re not able to forecast their own sales, that tends to mean there’s greater supply availability, so.

Michael J. Hartshorn – Ross Stores, Inc.

Weather more important than Easter

Mike, I think historically weather has had a more meaningful impact on performance during the first quarter than the timing of Easter, which is what we’ve seen in the past

Ross Stores (ROST) 2Q16 Earnings Call Notes

The market is full of excess inventory and the fourth quarter will be very promotional

the market is full of excess inventory now. There’s a tremendous amount of availability in the market more than there normally would be. So in terms of excess from now through fall, I don’t think there will be any inventory issue. In terms of how promotional they get, I mean, I still believe that even with less inventory, there’s so many uncertain factors out there, the macroeconomic environment, political environment, even though stores are positioned perhaps with less inventory than they have last year, that doesn’t necessarily mean that, that sales will materialize…the fourth quarter will be highly promotional and then, I guess, that will determine the additional excess supply that could be there beyond what we’re seeing in the marketplace today. Barbara Rentler – CEO

 

Despite labor headwinds in retail, ROST still finding ways to cut costs

Clearly, labor costs will be an expense headwind for us and frankly, the whole retail industry. We entered this year in 2016 and we’ve taken minimum wages up across the chain and the impact of those adjustments are reflected in our full-year guidance, which is currently a 7% to 10% increase. So we’ve done a good job organizationally finding efficiencies throughout the business. Michael Hartshorn – Group’s SVP and CFO
However, there is a limit to how much in wage increases ROST can abosrb

So those are things that we’re looking at and as part of our budget and longer-term planning process, we’ll look for ways to offset some of those minimum wage increases. It will get harder over time. I think we’ve done a good job so far as Michael Hartshorn said in absorbing those wage rate increases in the last couple of years. But that’s probably a limit to how much we can absorb. Michael O’Sullivan – President and COO

 

Midewest region has performed well since ROST entered it 5 years ago

In terms of the new region, the Midwest, we entered the Midwest 4 or 5 years ago now. And I would say, we’re very pleased with how it’s going. I mean, you all have heard on these calls over the last couple of years, certainly over the last 1.5 years, the Midwest has been one of our top-performing regions. So we’re very good about the business we’re building there. Michael O’Sullivan – President and COO

 

No real change in message or marketing despite the election year and the highly competitive market

Our marketing strategy and message has been fairly consistent over the year. The message is pretty straightforward that we offer the best values in apparel and home fashions. That’s still the strategy. It’s still the message, so no significant changes. Michael O’Sullivan – President and COO

Ross Stores (ROST) Q2 2016 Earnings Call

Ross Stores (ROST) CEO Barbara Rentler called out specific geographies as areas of strength

“During the quarter, California and the Midwest were the strongest regions, while shoes and home were the best-performing merchandise categories at Ross. We also made some progress improving the assortments in our ladies’ apparel businesses, where we struggled during the spring season.”

Ross Stores (ROST) CFO Michael Hartshorn said the company’s costs are increasing due to higher wages

“Selling, general and administrative expenses during the period increased by 10 basis points due mainly to higher wages.”

Ross Stores (ROST) CFO Michael Hartshorn cited the retail environment as promotional 

“As we look at the back half, we think we continue to face an increasingly uncertain macroeconomic, political and retail environment. And I would say that the retail environment we’re expecting is likely going to be promotional, given relatively poor performance levels that been reported recently and also some store closure announcements that have been made.”

 

Ross Stores 1Q16 Earnings Call Notes

Ross Stores’ (ROST) CEO Barbara Rentler on Q1 2016 Results

There’s a lot of supply of pack away merchandise in the market

“In terms of supply, supply is very broad-based. There’s a lot of supply in the market.”

The supply should keep coming. Department store business is way off

“Actually our history would show that the supply will keep the coming. As the department store sector even though they pulled back, their business is way off and I don’t think it’s very difficult I think for vendor to get ahead of that, so history would show that, they would be plentiful supply as we go forward.”

Had execution issue in ladies

“In terms of the execution issues in Ladies, really it’s a mix issue. We just — we bought wrong product in fabrications, in colors, we just didn’t transition into spring product appropriately.”

Michael Hartshorn

California underperformed

“Sure on the regions Paul, the Mid-West and the Mid-Atlantic as we said in the comments were the strongest regions. The Mid-West has been very strong over the last several years, while the Mid-Atlantic benefited from a favorable weather comparison versus last year. In terms of other states, you mentioned California our largest region performed slightly below the chain average. Texas was above the chain average on top of a strong performance last year when it was also above the chain average. And then Florida, trailed the chain average we believe some of the merchandising issues that Barbara mentioned in her comments had a bigger impact to Florida as we transitioned spring product earlier there.”

No signs that supply is tightening up

“No I can’t really think of a period in the history that it would be analogous. So what I would say is many of the things that you just said Michael are things that frankly people said at the beginning of every year in terms of here’s why supply is going to tighten up. And certainly we haven’t seen any sign of that and but so far this year and so we’re not expecting to see a major reduction in supply opportunities either for the remainder of this year may be it’s too early to tell for 2017 but at least no signs of that at this poin”

Ross Stores (ROST) 4Q 2015 Earnings Call Notes

Ross Stores (ROST) CEO Barbara Rentler said annual sales rose albeit at a decelerating pace from the previous year

“Earnings per share for the fourth quarter grew 10% to $0.66 on net earnings that rose 6% to $264 million. Sales for the quarter increased 7% to $3.251 billion, with comparable store sales up 4% versus on top of last years 6% gain.”

The U.S. Midwest was the strongest geographical region

“The Midwest continues to be our strongest region that’s been true over the last eight quarters. California, our largest region also performed ahead of the same average. I think you also asked about Texas. Texas was relatively aligned with the chain on top of very strong comps last year, when it was one of our top performing regions.”

Ross Stores (ROST) CEO Barbara Rentler said they’ve been buying back their stock consistently for over 20 years

“We have repurchased stock as planned every year since 1993 and raised our cash dividend annually since its inception in 1994. This consistent record reflects our unwavering commitment to enhancing stockholder value and return.”

Ross Stores (ROST) CFO Michael Hartshorn said the average customer order size increased

“Our 4% comparable store sales gain was driven by a combination of higher traffic and an increase in the size of the average baskets.”

The company is raising the starting salary for store employees

“Our guidance includes our plans to raise the minimum wage for eligible hourly associates to $10 per hour in the second quarter of 2016 up from the current $9 minimum. These wage adjustments will help keep us competitive in our hiring practices and enhance our ability to retain talented associates to provide the shopping experience our customers have come to expect.”

Ross Stores (ROST) CEO Barbara Rentler said she does she her competitors in the space being more promotional

“Well I think the increased promotional environment. I think what we saw in the fourth quarter especially in the department store sectors where we’re going to see as we continue through 2016.  But I think what it means to us in our business is that we need to continue to deliver great value.  So we have to make sure that we stay very liquid, so that we’re there and can maximize and closeout opportunities and those closeout opportunities then has to be at the right value.”

Ross Stores (ROST) CFO Michael Hartshorn reiterated their core customer’s treasure hunting mindset

“As we do research on the demographics of customers and what they are looking for, the new customers demographically look very similar. What all our customers have in common, no matter what the demographics is they are all looking for great values and great bargains. So in terms of making sure that we can attract more customers and retain customers, your main focus is having the best assortments we can, the best values we can offer.”

Ross Stores (ROST) CFO Michael Hartshorn said that their merchandise sourcing team is one of their key competitive advantages 

“We believe that fundamentally an enterprise of having the strongest buying team is a key competitive advantage and that applies to Ross and to dd’s. So, dd’s, we have invested in dd’s buying team over the last several years and we’ve build a very strong asset there.”


SK Additions:

Ross Stores’ (ROST) CEO Barbara Rentler on Q4 2015 Results

Doesn’t appear that the retail landscape will get any less competitive

“we continue to face our own challenging multi year sales and earnings comparison. And with the increasing uncertain and volatile macro economic climate, it doesn’t appear that the retail landscape will get any less competitive or promotional in 2016.”

Department stores ended with a bubble of inventory

“if you look at where the department stores ended in January, most of them ended with more inventory and clearly ended with more clearance. And so as we enter into the spring season, one would expect that there would be a bubble of inventory that we would see in spring, which we could use to fuel in spring”

As long as traditional retailers continue to struggle, there will be opportunities

“There will be opportunities in the marketplace. As long as traditional retailers continue to perform the way they are performing, you would think that there would be more opportunities there. So from that perspective on the supply side, we feel good, which is why we are keeping ourselves liquid and feel we are well positioned to take advantage of the opportunities in the marketplace.”

Michael O’Sullivan

Haven’t seen too much impact from competitors getting into off price

“So Michael, its Michael O’Sullivan. We really haven’t seen any impact at this point. I mean if you think about the size of some of those new off price entrants, that’s not too surprising, that is too small to have made much of an impact. But I guess I say more broadly, we try not to get too distracted by what other companies are doing and what new entrance is coming into the market.”

JS Earnings Call Notes 11.23.15 – Total Energy Services, Ross Stores, Workday, & Intuit

Total Energy Services CEO Daniel Haylk said he won’t go after top line growth at the expense of profitability   

“We also seek to strike a strategic balance between equipment utilization and price and we have been continued to declined pursue business opportunities that are not profitable. Simply put we’ll not wear out our equipment for nothing.”

He expects the industry to consolidate in order to earn a respectable rate of return

We strongly believe that the North American energy services industry must consolidate to provide the efficiencies in economies of scale necessary to compete in an increasingly global market. We believe this need for rationalization will become more apparent over the next few quarters. However we’ll remain disciplined in the deployment of the owner’s capital as we continue to look to use our financial capacity and flexibility to pursue opportunities that will provide acceptable risk adjusted returns over the life of the investment.  Our view is things are going to settle out here over the next few quarters, there is going to be a lot of good acquisition and consolidation opportunities we’re going to use the strength of our balance sheet and our abilities to generate substantial cash at low utilizations.”

Total Energy Services CEO Daniel Haylk said his firm doesn’t play accounting games and back out one time expenses

“Unlike many in our industry we do not cargo so called one-time cost related to right-sizing our operations, as we view these costs to be part of the ordinary course of managing our business as well we take no pleasure in highlighting the difficult decisions that must be made during these difficult times that such decisions involve real people with real families.”

And he plans to reduce operating expenses in a challenging environment for energy

“Substantially lower activity levels coupled with excess industry capacity have resulted in a very challenging operating environment that is expected to continue for the foreseeable future. In such an environment we will seek to work with our stakeholders, increase operating efficiencies and reduce our operating costs so is to make the various markets in which we participate competitive from a global perspective.”

While pricing of their services continues to deteriorate

“Price seems horrible and at the end of the day we are seeing competitors work for prices that we simply can’t get to. And we are in a position where we are in business to make money that includes covering depreciation.  And there comes a point where you see park it, and we deliberately parked a bunch of equipment and we are keeping some core activity going to maintain employment for key people, but at the end of the day we are not going to work at a loss.”

Total Energy Services CEO Daniel Haylk said they have been very rational with how they have accounted for their assets on the balance sheet

We are disciplined. And so we’ve – this quarter obviously auditors are interested in the impairment issues. We’ve done a lot of the work that we typically would do at year-end now and we’re very comfortable with the caring values of our asset based and we do not expect to incur any capital asset impairments and again it’s being disciplined and you can argue there are non-cash isn’t that someone pays for it at some point, it also goes to rectificational issues and they were proud of the fact we’ve never return down any of our capital assets, acquisitions good will period and again it requires the intestinal fortitude not to jump on the bandwagon when times are booming.”

And he thinks there could be more pain ahead for other rig operating companies

And I can tell you the pricing that’s going on both in the rentals and the rig side we’ll lead to train wrecks the good thing about the rental and transportation side is those happen fairly quickly and I expect while you are already seeing a few insolvency some public most private that’s going to accelerate.”

Total Energy Services CEO Daniel Haylk reminded investors that he doesn’t give guidance and he wants to remain flexible to adapt to changing market conditions

For the same reason, we don’t give guidance generally, customer intentions are difficult at any time to predict.

And that scale matters in this particular business

“Scale matters, you’re spreading your cost over a larger asset base, you can definitely achieve efficiencies. The flip side is, we’re also seeing market exists in terms of insolvency.  So there is select markets that we compete in both above and below the border, where we’re already seeing the competitive landscape tighten up. And that’s going to continue. Whether we’ve hit bottom or not, I’m not going to give a forecast, but the longer this drags on the more people will go broke and the better of the remaining companies will be coming out of this.”

 

 

 

 

 

Ross Stores (ROST) CFO Michael Hartshorn said the company saw reduced buying costs as they continue to take advantage of opportunities to buy marked down merchandise

“Cost of goods sold was declined 45 basis points driven by a 45 basis points increased in merchandise margins and 5 basis points improvement each in freight and buying cost.  We continue [see] a really strong supply of excess goods in the marketplace.”

Ross Stores (ROST) CEO Barbara Rentler remains cautious regarding near term performance of the company due to the highly promotional nature of competitors 

There is ongoing uncertainty in the macroeconomic environment and, based on the current retail landscape, we expect the upcoming holiday season to be highly promotional.  As a result, while we always hope to do better, we believe it is prudent to maintain a conservative posture.”

Ross Stores (ROST) CFO Michael Hartshorn said they are seeing particular geographic strength in the Midwest

The sales performance was fairly broad-based across regions as we mentioned the Midwest was our strongest region which has been true over the past seven quarters, California our largest region performed in line with the chain and then as far as Texas, Texas was in line with the chain average for the quarter.”

Ross Stores (ROST) CEO Barbara Rentler highlighted the firms flexible buying strategy as a competitive advantage

The buyers have plans, it’s not just free-for-all they have their buying. There is a strategy, there is a plan, there is a plan by business segment of how much we think is appropriate. All that being said one of the benefits for model is that reflect able. So if we were to see a large amount of product and the classification or a business we weren’t planning on particularly driving and that product could help us drive the business, we would put money into that plan and we reflect. So that’s just one of the benefits of being a new up rise business.”

And their consumer skews to the younger side

“In terms of your point about the age we’ve always disproportionately attracted a slightly younger customers and that continues to be true. When you look at the growth of our junior’s business overtime that’s a good manifestation of that, but I would say that demographic for our new customers are pretty similar to the demographics from our existing customers.”    

 

 

 

 

 

Workday (WDAY) Workday CEO Aneel Bhusri says their software products continue to gain momentum with the Fortune 500

Aon and Saint Luke’s join our growing customer list of Financial Management customers that already includes Fortune 500 names such as Unum, Netflix, and J.B. Hunt, as well as large universities such as University of Texas at Austin and Yale.  Demand for our industry-leading Human Capital Management application suite also remains very strong. I’m excited to share that Workday was selected by FedEx, which is now our largest HCM customer. I’m also proud to share that General Mills and Denny’s both selected Workday in Q3.”

And customer satisfaction remains very high

For the past three years, we have earned a 97% customer satisfaction rating and this year that number increased to 98%.  We believe this level of customer satisfaction is far unmatched in ERP software.”

They believe they are taking market share from the legacy software ERP providers

“Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.  Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.”

And they said that positive customer references are helping drive their win rate

“In terms of competitive dynamics, I think we’ve gotten back to focusing on the technology differentiation. We’ve really pushed customers to do their homework and prospects to do their homework on reference ability.  Neither of our main legacy customers really have much in the way of large referenceable customers and as the customers do their homework, we tend to win the deal.”

Workday (WDAY) Workday CEO Aneel Bhusri says he isn’t impressed with his competitors updated product portfolio 

There were no new moves I think they are running out of new ideas. I didn’t see any moves.  We’re winning all of the large accounts and at the end of the day the models are all based on — all the pricing models are based on employee counts, so we just continue to win both in the mid-market with our mid-market strategy but the large accounts we just dominate and the reason is because we have proof points of getting these large companies into production, one after another. We have another big Fortune 100 company that just went live which we’ll announce in a couple weeks.  It’s about getting value and getting into production and we have that down and our competitors just don’t.”

 

 

 

 

 

 

 

Intuit (INTU) CEO Brad Smith said he is encouraged by the rate of growth in new customers

“We are generating strong new user growth in the online ecosystem. Over 80% of QuickBooks Online customers continue to be new to the Intuit franchise and total QuickBooks paying customer growth was also healthy.”

And they continue to benefit from an acceleration of individuals starting their own companies and the trend of the “gig economy” 

“Roughly 35,000 of our QBO subscribers are using the QuickBooks self employed SKU, which is up from 25,000 last quarter.”

Intuit (INTU) CFO Neil Williams said they maintain a disciplined capital allocation framework and so they won’t invest in anything which doesn’t generate a double digit return over 5 years

We continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15% over five years.”

100 million consumers come to TurboTax.com during tax season

“And right now, we’re in the neighborhood of having almost 100 million people in the United States already coming to TurboTax.com. So it’s not about getting even more people to the website, it’s about getting more of that 100 million roughly between the US and Canada to convert into paying customers.”

Intuit (INTU) CEO Brad Smith said he is in favor of tax simplification

We are for tax simplification. We have been from day one, quite frankly, that’s what our business is.  Trying to take a complicated tax code and make it simple for people to comply with, and to be able to get their tax obligations done, and obviously, to get the money back in their pocket if they overpaid.”

JS Earnings Call Notes 8.25.2015 – Intuit, John Deere, Ross Stores

Jeremy S., an investment analyst who contributes to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Intuit (INTU) CEO Brad Smith has decided to divest all businesses not correlated to the company’s core mission of helping customers organize their financial lives

“We’re focusing our attention and investments on assets that accelerate our ability to deliver our two strategic goals, first, to be the operating system behind small business success, and second, to do the nations’ taxes. With this focus, we have decided to divest Demandforce, QuickBase and Quicken.  Let me provide some context about why we made these decisions. Demandforce and QuickBase are great businesses, but they do not support the QuickBooks Online Ecosystem and both serve customers that are up-market from our core small business customers.  Quicken is a desktop-centric business and it doesn’t strengthen the small business or tax ecosystems. Our strategy is focused on building ecosystems and platforms in the cloud.”

Already being the category leader in helping individuals file their taxes, Quickbooks continues to gain market share versus competitors

“Within the software category, we estimate that TurboTax Online gained about a point-and-a-half of share, translating into four points of share gains over the past two seasons.”

Intuit (INTU) CEO Brad Smith reiterated their $5 per share earnings target for 2017 even though they are selling non-core businesses.  Earnings targets are dangerous because they cause management to focus on “meeting the number” as opposed to building the business for the long term 

“We still see a path to achieve a $5 EPS target in 2017.”

Management reminded the investors that Intuit has a 15% return on capital hurdle whenever they are making a business decision

We invest in things that we can see a 15% rate of return and whether those are internal investments to expand R&D or new market or they are stock repurchases or acquisitions we’re going to continue to use our capital judiciously, so we get the best return on that capital.”

Intuit (INTU) CEO Brad Smith said the firm has a process where they go back and look at their own tracked record of acquisitions

I have learned a lot of lessons from our M&A track record, but during my time here, as well as those that were done before us and we do a rigorous study of those and we sit down with the Board once a year and we do a 10-year look back. We compare those to the business cases. We put together for the Board, as well as what we share with the street and the pattern recognition increasingly clear.  We have a mixed record in terms of bolt-on businesses, new businesses that may not plug-in directly with QuickBooks or tax businesses and those are the things that we’ve now got a new set of patterns that we’ve defined as printable and we are saying, if we are going to look in the space going forward these are the criteria that these acquisitions have to meet.”

 

 

 

 

 

Ross Stores (ROST) CEO Barbara Rentler sees macroeconomic conditions taking a toll on the business  

“The macroeconomic environment remains uncertain, and we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers. Based on these factors, while we hope to do better, we believe it is prudent to remain cautious in forecasting our business for the second half of 2015.”

Ross Stores (ROST) CEO Barbara Rentler says she isn’t concerned about some of the department store competitors (such as Macy’s & Nordstrom’s) business plans to go down market

What I would say about that is, we’re clearly operating in a very promotional and competitive environment. And that’s really true across the entire retail landscape including our biggest competitor. But our focus really is on our own business. So our top priority really remains providing the best compelling bargains possible to the customers and that’s really not going to change.”

Ross Stores (ROST) CEO Barbara Rentler says they aren’t seeing any weakness in economic regions tied to energy such as Texas

Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.”

 

 

 

 

 

Deere’s (DE) Susan Karlix said lower crop prices are hurting demand for their products

“Lower commodity prices and falling farm income are continuing to pressure demand for farm equipment, especially larger models.”

Deere’s (DE) Susan Karlix said energy price weakness is starting to dampen their order book

In spite of these encouraging economic indicators and positive dealer and customer sentiment, we are seeing weakening in our order books. Some contributing factors to the slowdown in demand are the conditions in the energy sector and energy producing regions, wet weather that slowed construction activities this spring and summer, the decline in rental utilization rates and sluggish economic growth outside the United States.”

Deere (DE) says their equipment continues to sell at a premium versus their competitors 

“Pricing is holding in okay, its, if you look at it kind of from a two-year average, we would be slightly below that. But believe we continue to maintain a healthy premium versus our competition.”

Ross Stores 2Q15 Earnings Call Notes

Pleased with results but face more challenging comps, macro remains uncertain and retail promotional

“While we are pleased with our better than expected results for the first half, we face more challenging sales and earnings comparisons over the balance of the year. In addition, the macroeconomic environment remains uncertain, and we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers. Based on these factors, while we hope to do better, we believe it is prudent to remain cautious in forecasting our business for the second half of 2015.”

There’s plenty of supply out there for goods which reinforces the uncertain environment

“on the second part of your question, the uncertain environment, I would say the results have been slightly mixed, some good, some not so good. And certainly when we’re out in the market looking for goods it seems like there’s plenty of supply which again reinforces for us that there’s some uncertainty in terms of the economic environment. ”

We planned for an aggressive promotional environment and that’s what we’re seeing

“In terms of the promotional landscape, Oliver, the promotional landscape in Q2, it was aggressive in certain segments of the market. So we were planning on it being aggressive, it was aggressive. I think when back-to-school comes to an end we’re going to see that that was very aggressive and that we’re going to see that continue going into the fall season, especially some retailers are going in to fall with high inventory levels.”

Goods are coming from a lot of different places

“trying to understand where the goods came from, I would say at this point it’s really difficult to tell. I mean departments or business it was difficult and so some goods are clearly coming from that market. And at this point, it’s much more homogenized than the beginning when we saw huge amounts coming everywhere in every business from the port.”

In general, future wage pressures are likely

“In terms of further increases, we think the labor market is fairly dynamic and we like to sort of follow the labor trends before making decisions on any future move. But I think in general, we think as the economy improves over the next couple of years, it’s likely that there’ll be additional wage pressures out there.”

Off price retailers get additional supply in uncertain times

“As it pertains to supply, when business is uncertain and difficult to create supply, any disruption in business creates supplies. So you would think ultimately that there would be a bubble of goods that results from, let’s say, if back-to-school turns out to be more difficult than people anticipated, that there would be goods as a result of that.”

Weak results from department stores lead us to believe that there will be more promotions

“I think mixed results and – actually weak results from the department stores forces us to think that the environment which is already fairly promotional will continue to be pretty promotional in the back half. And how that affects us is we’re all about price differentiation, the differences between the value at Ross and the value elsewhere and to the extent that other stores, department stores etcetera promote, that obviously eats into that price differentiation.”

Texas has stayed strong

“Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.”

Ross Stores 1Q15 Earnings Call Notes

EPS up 16%, Sales up 10%, comps up 5%

“Adjusting for this expense timing, first quarter 2015 earnings per share rose 16% over the prior year period. Sales rose 10% for the quarter to $2.938 billion with the comparable store sales up 5% over the prior year.”

Reasons to be conservative going forward

“We have been very pleased with our performance over the last few quarters, but there are few reasons to be a little bit conservative as we look forward. Firstly, we think the macroeconomic and retail outlook remains pretty uncertain. You see that and you get a sense of that in the recent results that have been announced by other retailers.’

“Actually that feeds into a second concern which is those results themselves may cause the environment to become more promotional over the next few months. And then the third reason for conservatism is that we’re up against our own tough multi-year comparisons. ”

Making adjustments to wages

“what are we planning to do on wages, we’ve mentioned on the call in February that we expected to see more wage rate pressure this year and that we would be making adjustments to keep wage rates competitive. One of the adjustments we will be making in the second quarter is to raise our minimum entry level hourly rate to $9 and that adjustment together with any offsets is built into the earnings guidance.’

Lots of available inventory

“part of what drives that number is really the great deals that we’ve gotten in the marketplace. Between the port dislocation and mixed sales results in Q1, there was a lot of availability. So, we feel very good about the packaway that we have, it’s branded products at really great values that our customers expect”

Bring it on competition

“if people want to grow the off-price category. If they want to grow the share of the off-price segment probably at the expense of other retail formats, that would be fine. But we actually have – we think we have quite a strong skill set and set of capabilities that put us in a pretty strong position and we’ve always operated in a very competitive environment.”

We expect wage rates are moving up

“As we’ve said before, though, we expect wage rates are going to move up over the next few years. I think you’re seeing that in the press almost every day. So it’s certainly something that we expect that we’re going to be talking more about as we get into our budget for 2016 and our longer term plans and certainly when we talk about our earnings guidance next February, my guess it will be part of that discussion too.”

Ross Stores 4Q14 Earnings Call Notes

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.”