Ross Stores’ Profit Drops 31% in Latest Quarter

Discount clothing chain Ross Stores Inc. on Wednesday posted a 31% plunge in profit for its latest quarter, saying merchandise imbalances at its stores and higher expenses hurt its bottom line.

For the fourth quarter ended Jan. 29, net income fell to $49.4 million, or 33 cents a share, from $71.3 million, or 46 cents, a year earlier, the Pleasanton, Calif.-based company said.

The results for the latest quarter included a charge of $2.3 million, or 2 cents a share, for an adjustment in the way the company accounted for leases, Ross Stores said.

Analysts polled by Thomson First Call were looking for fourth-quarter earnings, excluding items, of 34 cents a share.

Results for a year earlier were restated downward by $2.4 million, or 2 cents a share, from a lease accounting adjustment.

Ross Stores said it had adjusted the way it accounts for its operating leases, and expected to report a cumulative, noncash charge through fiscal 2002 of 5 cents a share.

The firm also said it planned to restate financial results for fiscal years 2003 and before.

A host of retailers and restaurant franchises have changed their lease accounting methods recently, after a Securities and Exchange Commission letter in early February that clarified accounting practices for the amortization of rent payments, gains from improvements to property and discounts written into certain leases.

Sales for the latest quarter rose 10% to $1.21 billion from $1.1 billion.

Sales at stores open at least a year, also known as same-store sales, were flat with a year ago.

The company said its in-store merchandise imbalances resulted from system problems during the year and continued to hurt both sales and its operating profit margin during the fourth quarter.

Its gross profit margin declined about 4.5 percentage points as a percent of sales, mainly because of higher markdowns and an increase in distribution costs, Ross Stores said.

Shares of Ross Stores dipped 87 cents, or 0.8%, to $28.99 on Nasdaq.

For the fiscal year, net income came to $168.5 million, or $1.12 a share, compared with $225.7 million, or $1.45 a share the previous year. The latest results included the accounting adjustment of 2 cents a share.

Full-year sales climbed 8% to $4.24 billion. Same-store sales fell 1%.