Yahoo Finance A Look at Ross Stores’ Inventory Management in Fiscal 3Q15
Ross Stores Impressed Investors with Upbeat Fiscal 3Q15 Results
3Q15 inventory levels
Ross Stores (ROST) ended the third quarter of fiscal 2015 with about a 14% rise in its consolidated inventory from the comparable quarter of the previous year. The third quarter ended on October 31, 2015.
In the 3Q15 conference call held on November 19, Barbara Rentler, chief executive officer of Ross Stores, disclosed a 1% decline in the company’s average in-store inventories at the end of the third quarter.
Packaway inventory
According to Rentler, the company’s packaway inventory levels stood at 48% of total inventories at the end of 3Q15 compared to 42% at the end of 3Q14. Packaway inventory represents opportunistic purchases created by manufacturer overruns and canceled orders. For Ross Stores, packaway purchases are an effective method of increasing the percentage of national brands at competitive prices within its merchandise assortments.
Rentler noted that packaway generally represents the best bargains that the company carries on its merchandise. This inventory is generally released for sale in subsequent months or the next season. The iShares Russell Mid-Cap Growth ETF (IWP) has 0.6% exposure to Ross Stores.
Inventory turnover ratio
Ross Stores’ inventory turnover ratio, which indicates the number of times average inventory is turned or sold during a period, came in at 5.3x in 3Q15. The inventory turnover ratios of TJX Companies (TJX), Nordstrom (JWN), Macy’s (M), and Kohl’s (KSS) were 5.2x, 3.9x, 2.1x, and 2.4x, respectively, in their comparable third quarters. Nordstrom and Macy’s operate in the off-price space through the Rack stores and Macy’s Backstage stores, respectively. In 2015, Kohl’s launched its first Off-Aisle store in New Jersey, which sells returned merchandise at deep discounts.
Ross Stores’ days inventory outstanding was 69.3 in 3Q15. The days inventory outstanding for TJX Companies, Nordstrom, Macy’s, and Kohl’s came in at 70.5, 94.0, 175.4, and 152.8, respectively, in their comparable third quarters.
Ross Stores’ efficient inventory management is reflected in its higher inventory turnover ratio and lower days inventory outstanding compared to other retailers.
We’ll look at the company’s margins in the next part of this series.
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