Originally created 08/19/04

Ross Stores profit down; merchandise-system problems cited



PLEASANTON, Calif. - Discount retailer Ross Stores Inc. Wednesday said its profit fell about 40 percent in the latest quarter due to problems with a new computer system that limited the company's ability to respond to changes in customer demand.

The Pleasanton-based company reported net income of $32.6 million, or 22 cents a share, for the fiscal second quarter ended July 31. That's down from the prior year's $54.6 million, or 35 cents a share.

Income for the latest period includes a write-down of $11 million, or 7 cents a share, for the former headquarters and distribution center in Newark, Calif.

Analysts surveyed by Thomson First Call had forecast, on average, earnings of 29 cents a share for the latest quarter.

Total sales rose about 5 percent to $1.01 billion from $965.6 million, while sales at stores open at least a year fell 3 percent.

Ross said it made progress during the quarter in resolving many of the problems experienced with the new information system. The company expects sales to begin to gradually improve once the system issues are remedied. It anticipates a residual effect on sales and earnings for the rest of the year as Ross cycles through merchandise imbalances that resulted from the problems.

For the first six months of the year, net income declined to $81.1 million, or 53 cents a share, from the previous year's $103.9 million, or 67 cents a share.

Sales increased about 9 percent to $2 billion from $1.84 billion.

Michael Balmuth, vice chairman and chief executive of Ross Stores, said in a release that the company still expects to open 80 net locations in 2004 to end the year with 648 stores in 26 states and Guam, or square footage expansion of 14 percent.

Shares of the company were at $23.13 in early trading Wednesday, down 99 cents, or 4.1 percent, on the Nasdaq Stock Market.