Off-price retailer Ross Stores Inc. (ROST) recently declared the pricing of senior notes for a public offering, worth $250 million.
The issue price of these notes, due in 2024, will be 99.329% of the principal amount. Also, they will carry an interest rate of 3.375% per annum. The offering is scheduled to settle on Sep 18, 2014.
Ross Stores mainly intends to sponsor the purchase of its New York Buying Office building with the proceeds from this offering. The buyout of the office is anticipated to complete by September end. Apart from this, any remaining proceeds will be used for general corporate reasons, such as funding capital expenditures, share buybacks and fulfilling working capital needs.
The company’s capital expenditures are primarily directed towards store expansions and remodeling. Ross Stores has been well on track with its store growth plans as during the first half of the current fiscal year, the company introduced 53 net new Ross outlets and 14 dd’s DISCOUNTS. During fiscal 2014, the company plans to add 95 new stores including nearly 75 Ross and 20 dd’s DISCOUNTS.
The company’s store growth plan is a part of its ongoing expansion strategy that focuses on increasing its presence in existing markets while penetrating deeper into the newer Midwest region. Also, we remain confident of the company’s growth potential and believe that it can successfully attain its target of expanding store base to 2,500 over the longer term.
Coming to share buybacks, Ross Stores repurchased 2.1 million shares worth $139 million during the second quarter, bringing its share repurchases as of the end of the quarter to 4.1 million for an aggregate price of $277 million. Going forward, the company intends to repurchase shares worth $550 million in fiscal 2014. This will close the $1.1 billion program authorized by the company in Jan 2013.
Further, as of Aug 2, 2014, Ross had cash and cash equivalents of $549.8 million, long-term debt of $150 million and total shareholders’ equity of $2,149.3 million, boasting a healthy financial status.
Borrowing costs are still considerably low in the U.S., enabling companies to obtain easy financing. Corporate bonds and borrowings from banks are in high demand as the U.S. treasuries are yielding low rates. We believe that this strategic move by the company will provide it the financial flexibility to drive long-term growth.
Also, with its strategy of providing customers with attractive bargain offers and off-price business model, Ross is confident about utilizing opportunities amid all climates and driving top- and bottom-line growth.
Ross Stores currently carries a Zacks Rank #3 (Hold). Other better ranked retail stocks include Burlington Stores, Inc. (BURL), Citi Trends, Inc. (CTRN) and Deckers Outdoor Corp. (DECK), each carrying a Zacks Rank #1 (Strong Buy).
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