Ross Stores Profit Falls

Ross earned $49.4 million for its fourth fiscal quarter ended Jan. 29, or $0.33 per share, along with profit of $168.5 million, or $1.12 for the full year, the clothing chain reported Wednesday. These compared with net income of $71.3 million in the comparable fourth quarter last year, or $0.46 per share, and full-year net income of $225.7 million, or $1.45 per share, in the previous full year. Sales climbed 10% to more than $1.2 billion for the fourth quarter and rose 8% to more than $4.2 billion for the year, but quarterly comparable store sales remained flat from the previous year and full-year same store sales dipped by 1%.

Michael Balmuth, vice chairman, president and CEO, called fiscal 2004 "a challenging year," citing difficulties associated with the implementation and integration ofnew information systems and distribution centers that resulted in lower sales thanhoped and a contraction in profit margins. Balmuth also said that in-store merchandiseimbalances that resulted from the company's system problems in 2004 continued tonegatively impact both sales and operating margin during the fourth quarter, mainlydue to higher markdowns and increased costs.

The company spent $147 million in capital expenditures to open 71 net new Rosslocations and 10 stores operating under the name dd's Discounts, the chain's newformat stores that feature discounts on moderate department and discount storebrands. The new format stores target customers with household incomes of $30,000to $40,000, "one of the fastest-growing demographics in the country," Ross pointsout.

Balmuth said he believes the dd's Discounts concept has the potential to becomea chain of at least 500 locations. "Although it is too early to reach any definitiveconclusions, to date these stores have been performing slightly better than our expectations,"Balmuth said during the conference call Wednesday. He pointed out that, although the value focus at dd's Discounts is similar to that of Ross, the brand content at the 25,000-sf dd's Discounts is different, with a selection of brands ordinarily found at moderate department stores and national discount stores.

The Ross fourth quarter results include a non-cash lease accounting charge of $2.3million to net earnings, or approximately $0.02 per share, and the full-year resultsalso included a $0.02 per share charge for the change in accounting. In addition,fiscal 2004 results include a non-cash charge of approximately $0.06 per share towrite-down the value of the company's former headquarters and distribution center inNewark, CA, to its estimated fair market value.