Sunil Rajak's  Instablog

Based on our analysis below we find that ROST even in the current environment has been able to maintain a strong cash flow position and capital structure on the back of its above-average operational performance. And based on the latest two monthly sales data we expect ROST to post a healthy sales growth and operational performance along with maintained cash flow position for QE Apr-09.

 

Consistent above-average sales growth: Comparing the monthly sales performance of Ross Stores, Inc. (NASDAQ:ROST) with respect to its peers we find that ROST is charting a stable above-average growth in the apparel and clothing retail industry. The average y-o-y monthly sales growth and average y-o-y monthly comparable store sales growth of 9% and 3% respectively are above the peers’ average. Also stability of its sales growth is better when compared to its peers. The standard deviation of y-o-y sales growth and y-o-y comparable store sales growth for ROST stands at 4% and 3% respectively which is lesser than its peers. (Click here to see details)

 

New stores contributing to growth: The annual sales per store have increased from $6,533 in FYE Jan-05 to $6,785 in FYE Jan-09. The annual sales per average selling square footage have remained flat from $297 in FYE Jan-05 to $298 in FYE Jan-09. The number of stores has increased from 649 in FYE Jan-05 to 956 in FYE Jan-09. The average y-o-y non-comparable store sales growth of 7% shows that even the new stores are performing well and contributing towards revenue growth.

 

 

Better inventory management contributing to shorter cash conversion cycle: In spite of the consistent store growth and sales growth, ROST has been able to maintain its low level inventory which is evident from the inventory per store which has declined from $1,315 in FYE Jan-05 to $922 in FYE Jan-09. The inventory per selling square footage has declined from $55,931 in FYE Jan-05 to $39,158 in FYE Jan-09. The days inventory outstanding has also declined from 95 days in FYE Jan-05 to 65 days in FYE Jan-09 which indicates better inventory management even during depressed economic environment.  This has resulted in a shorter cash conversion cycle of 28 days in FYE Jan-09 from 47 days in FYE Jan-05.

 

 

Better operational efficiency: ROST enjoys a lower debt level of ~ $150 million which is around 6% of its total assets. The cash balance for ROST has increased from $115 million in FYE Jan-05 to $321 million in FYE Jan-09. The net cash from operating activities have also increased from $298 million in FYE Jan-05 to $583 million in FYE Jan-09. The lower debt level has helped ROST in reducing its borrowing cost which enables it to operate in an efficient manner.

 

 

Consistent growth in dividend payment: ROST under the current scenario has been able to pay handsome dividends to its shareholders in comparison to its peers. The dividend declared per share has increased from $0.22 in FYE Jan-06 to $0.40 in FYE Jan-09.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price to free cash flow: The Price to Free cash flow ratio which stands at 10.59 shows that ROST has been among the undervalued firms when compared to its peers. A look into the stock price shows that the price has not been affected much. In fact in the recent times the stock price has been on the higher side which shows that ROST hasn’t been affected much by the recent financial turmoil.